Contingencies for hidden cost?
Hello BP members,
Being locked inside and with few credits left, I have been spending a lot of time researching real estate. I've been reading, listening, and watching- basically any down time is split between these.
Today, I was watching a particularly interesting episode of fixer upper on HGTV. The husband and wife (forgive me, I am not familiar with their names) bought a house for 120k with a rehab budget of around 110k. However, once they purchased the house, they found every problem imaginable: Poor structuring and support, termites in the wall, water damage in the sub-layer beneath the floorboards.
Well of course through some elbow grease, and more specifically, the magic of television, they were able to come in under budget!
However, as we live in the real world, investments don't always wrap up with a fairytale ending.
Any investor worth their weight (even someone as inexperienced as me) knows that while projects are budgeted to include unforeseen expenses, hidden/unpredictable cost can throw your numbers into a never ending pit of despair.
For me, this is a horrifying thought. You can do all the right things, budget down to the cent, and still end up finishing a deal way over budget. Of course, I understand this is always a possibility- but experience and knowledge can help.
So, my question is: How do you, the lovely members of Bigger Pockets, set up contingencies, at all, for things like this? I understand escrow closing is always contingent on the inspection, but what if you can't see it, and don't see it, until a month later? Do you have ways to back out of this deal, or, more specifically, ways to inspect behind walls and under floors?
any advice is greatly appreciated- Happy investing!