How much for contingency?

6 Replies

Considering a property purchase of $50,000, needing a complete overhaul. ARV $234,000. Estimated repairs $110,000 how much should I include for contingencies?

At the very least 10% of total rehab budget but I tend to put in 20% just to allow for ????. I also flag categories that I know I can cut back on (for example granite countertops to something cheaper like butcher block or composite) in the case that something unforeseen comes up (and it ALWAYS does)!! Systems/structure (HVAC, electric, plumbing, windows) always has to be prioritized above cosmetics even if it means we might not get the highest resale...we can be creative with cosmetic to try to save costs and still make it look good!

if "complete overhaul" means gut rehab, there shouldn't be too many big surprises, as your doing most everything big anyway.  So, I would just focus on making sure you scope of work is very detailed and your contractor bids are solid. 

Hi Dante,

Thank you for responding. Would that 10% be on top of rehab amount or the ARV?

Hi J,

Thank you for responding.  Yeah its pretty much a gut job. Just trying to cover all the bases in case I miss something.

@Marcella Sykes yes, I agree with J Scott. If you're doing a gut, there is really no reason to have a contingency. Just make sure that you have a capable GC with a very detailed scope of work. If it makes you comfortable, you can do a 5% contingency just in case, but on a gut it really isn't necessary.

I would agree with the overall consensus of at least 10% of the rehab costs.  And if it is a total gut, then there should not be too many unforeseen conditions.  Just be sure you have all your detailed inspections and a clear scope of work agreed to by your contractor.  Good Luck, sounds like a winning project!

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.