What flippers get wrong about bids when they move to commercial

Question

I was a GC for 20 years and now consult on commercial projects. When flippers move up, the rehab instincts carry over, but one thing breaks: how you read a bid.

On a house, a bid that leaves something out is usually a small problem. You catch it at framing, eat a few thousand dollars, and move on.

On commercial, I reviewed a repositioning bid recently: new facade, parking, lighting, a competitive number. It left out the structural supports for a parapet addition and the roof modifications the parapet required. Both were mandatory and code-driven. Neither was listed. The updated number came in $260k higher, after demo had started and walking away wasn't realistic.

A few other things that change:

Scope is engineered, not eyeballed. Windstorm specs, structural calcs, and permit documentation gaps show up as line items you never had on a house.

Lead times. Materials that were a next-day pickup at the supply house can be months out, and if the bid doesn't list an alternative, you're stuck.

Change orders cost more. Once you've signed and demo has started, you have little leverage, so the review before signing matters far more than on a flip.

Full disclosure: I do this for a living, so I'm biased. For those who've made the jump, what caught you off guard? And if you're weighing it now, what's the part you're least sure about?

Ashish Acharya · Answer

JS, the point about the bid changing once the project is opened up is huge. Commercial projects seem to punish assumptions a lot more than residential flips do. I’d add that the construction budget and the investment underwriting really need to be connected. A $260K increase isn’t just another line item, it can change the financing, carrying costs, required equity, stabilized NOI, and ultimately the return on the project.

I’d also want contingency to reflect the actual uncertainty in the scope rather than using the same percentage on every project. Structural work, utilities, code requirements, and long-lead materials can create very different risks from a straightforward cosmetic renovation.

From the tax side, I’d also make sure the project costs are tracked by category from the beginning. On commercial renovations, the distinction between building improvements, shorter-life components, repairs, and other project costs can have a meaningful impact on depreciation and the after-tax return. The biggest lesson for me is that the bid review has to happen before you’re committed, not after the demo starts and the change orders arrive. Feel free to DM me, I’d be happy to send over our Commercial Property Analyzer and a few resources that may be useful when underwriting these larger projects.

Diana Khan · Answer

@JS Burnett, the contract side is one of the biggest differences I’ve seen. On a commercial project, I would want the scope, exclusions, change order process, and who is responsible for code driven work to be very clear before anything is signed, because a competitive bid can look very different once the missing pieces start showing up.

From the legal side, I’ve seen how much easier it is to deal with a problem when the contract clearly addresses what was included and what happens when the scope changes. Once work is underway, those gaps can become much more expensive and harder to sort out.

Good post, @JS Burnett. The example you gave about the $260K increase really shows why the review before signing matters. This overlaps quite a bit with the contract and real estate work I do, and I’m always happy to connect with others working in this space.

Kasing Ng · Answer

Good post JS, the bid thing is real. There is a tax version of that same jump, and it trips flippers up the exact same way. The old habit carries over and quietly costs you.

When you flip, the IRS basically treats you like a business selling product. Your profit is ordinary income, you pay the extra self employment tax on it, and there is no depreciation to play with and no rolling it into the next deal tax free. It is quick in, quick out, taxed at the highest rate there is.

The second you buy something and hold it, the rules flip. Now the building writes off a big deduction every year, and there are moves to pull even more of that forward early. But the tradeoff shows up at the end. When you finally sell, a lot of those write offs get handed back to the IRS, and people who came from flipping never see it coming because they never held anything long enough to deal with it.

So it is the same lesson as your bid. The time to look is before you sign. How you set the deal up and what name you buy it under can swing the tax bill more than any line on the rehab budget.

For the ones who already made the jump, did anybody warn you about that going in, or did it just show up at tax time?

What flippers get wrong about bids when they move to commercial

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