Rehab Budget Overruns — Where Are They Actually Coming From?

Question

Talking to a handful of flippers lately and the overruns aren't where you'd expect - it's less "the roof was worse than we thought" and more permitting delays and change orders piling up mid-project. Wondering if others are seeing the same pattern, or if it's more market-specific. What's your buffer percentage these days, and has it crept up compared to a year or two ago?

Alan F. · Answer

In my experience flippers aren't very good estimators, many contractors aren't either. Accurate estimating is challenging, it requires dedicatio, experience & familiarity.

Andy Sabisch · Answer

Permitting has always been a wild card.  Depends on who the inspector is and in many areas, they change like a revolving door.  I have found some are great to work with and others are on a power trip that costs time and money.  We have looked at what a property needs in terms of what will and will not require a permit and factor that into the buy decision.  The advantage of investing locally is knowing the permitting process in different towns and communities.  There are some that we avoid simply because we know it will be painful and often over reach we have no control over.

Change orders . . . we tend to avoid custom finishes that require special orders and often change orders.  We are not doing million dollar homes so sticking with what is readily available is our way of avoiding change orders.  If something comes up that was unexpected, that is what the 15% contingency is for and there may be an impact to the overall timeline.

As they say, hope for the best and plan for the worst holds true in flipping.