Do you add a 10-15% rehab buffer? We stopped. Tell me why I'm wrong
Real Estate Consultant · Riga, Latvia · Member since 2026 · 59 posts · 12 votes
Do you add a 10-15% rehab buffer? We stopped. Tell me why I'm wrong
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Realtor · Memphis, Shelby County · Member since 2026 · 165 posts · 55 votes
1dI think of contingency less as money that comes back or gets spent, and more as a reserve that protects the plan either way. If the work opens up cleanly, the reserve stays available for the next repair or the next project, rather than being treated as extra profit in the original numbers. If a surprise appears, such as old wiring, plumbing, or framing that was not visible at first, the reserve covers it without forcing cuts elsewhere. I do not share the details of a specific client's deal, but the principle I use is simple: the contingency is there so one hidden problem does not derail the whole budget, and any unused portion is still a cushion, not a reason to underwrite the next deal more aggressively.
21 Replies
- Real Estate Consultant · Riga, Latvia · Member since 2026 · 59 posts · 12 votes1d
A quick follow-up to make it easy to jump in :)
What buffer did you use on your last rehab?
Under 10%
10-15%
15-20%
More than 20%
No flat buffer, I price in stages
Just drop the number, and if there's a story behind it, even better. Have a great day!
- Realtor · Memphis, Shelby County · Member since 2026 · 165 posts · 55 votes1d
I still keep a buffer, and I think of it less as padding and more as protection for the unknowns you cannot price from the outside. Detailed pricing in stages is a great approach, and I would use it too, but a wall can hide plumbing, wiring, or framing problems that no walkthrough will show. I would keep the detailed scope and stage pricing, and still hold a separate contingency that is only released when a surprise is documented and priced. That way the budget stays honest, and you are not forced to cut corners later just to stay on number. For an older home, or a home with limited access for inspection, I would lean toward the higher end of that range.
- Real Estate Consultant · Riga, Latvia · Member since 2026 · 59 posts · 12 votes1d
@Ametria Chaney Thank you, Ametria, I really like how you put it: not padding, but protection for what you can't price from the outside. We just build that protection differently. We don't open the whole house and hope 15% will be enough. We open it block by block, and before a wall comes down we already have the options worked out: if the old plumbing is in there, what replacing it costs, and what happens if the owner decides not to. So a surprise is still documented and priced before anyone pays, just like your contingency, but the money stays with the owner until it's really needed, instead of sitting in the budget, where it has a way of getting spent.
And you're right about older homes. That's exactly where we go in smaller blocks.
Now I'm curious: on your last older home, did that contingency come back to you, or did it get used up? And what was hiding behind the wall?
Have a great day!
- Realtor · Memphis, Shelby County · Member since 2026 · 165 posts · 55 votes1d
I think of contingency less as money that comes back or gets spent, and more as a reserve that protects the plan either way. If the work opens up cleanly, the reserve stays available for the next repair or the next project, rather than being treated as extra profit in the original numbers. If a surprise appears, such as old wiring, plumbing, or framing that was not visible at first, the reserve covers it without forcing cuts elsewhere. I do not share the details of a specific client's deal, but the principle I use is simple: the contingency is there so one hidden problem does not derail the whole budget, and any unused portion is still a cushion, not a reason to underwrite the next deal more aggressively.
- Real Estate Consultant · Riga, Latvia · Member since 2026 · 59 posts · 12 votes20h
@Ametria Chaney thank you! I like your point that an unused reserve is a cushion, not a reason to push the next deal harder. I think we're looking at the same thing from two sides: you from the owner's side, me from the side of our app. Here's how the chain looks for us:
The owner says: I want to renovate the house.
The app answers: $20,000 as it stands, $22,000 if the pipes need replacing, $24,000 if the wiring needs replacing too.
That's your 10-20%, just written out as named options with a price on each. So if that's what you mean, I agree with you. We price every option upfront and warn the owner about each possible increase, but we start with the short block we're sure of. When a wall opens up and there's extra work, the owner already knows what it costs and simply says yes or no. And the money for options that never happen just stays in the owner's pocket.
The calculation takes us about 2 minutes. On our last project in Switzerland the full estimate was CHF 28,000, and we were off by just CHF 132 on materials. We didn't charge that, it was our miss. Everything outside the original scope was paid separately. Even cutting channels in a concrete wall for new switches and outlets, we estimated 24.6 ft and it came out at 26.2 ft.
So here's a question for everyone: where does unused money do more good, in a reserve line or in the owner's pocket from day one? Is that a debate in the US too? Have a great day!
- 1dRobert CervantesPro MemberFlipper/Rehabber · Fresno, CA · Member since 2022 · 16 posts · 6 votes
I'd keep it. On the lending side, the flips that get into trouble usually aren't the ones with a bad ARV, they're the ones that run 10% over on rehab and the borrower has no cash left to finish. Draws get funded against completed work, so if you're short mid-project the job stalls while holding costs keep running. If you've got tight bids and a crew you've used a bunch of times, you can probably run leaner, but I'd at least keep a line for what you can't see until walls are open: electrical, plumbing, foundation.
- Real Estate Consultant · Riga, Latvia · Member since 2026 · 59 posts · 12 votes22h
@Robert Cervantes thank you, a great point from the lending side, and I agree with your diagnosis: the losses start not with a bad ARV but with a rehab that runs over, and with draws paid only against completed work, the job stalls while holding costs keep running. That's why I'd assess all the risks right at the start, not only the construction itself, but also permits and contractor availability. So here's my question: if you had all the cards on the table and could see the whole process on a Gantt chart, with the costs and the hidden costs, every contractor confirmed, and a clear stage-by-stage handover with sign-off and a check at each stage, would you take on more flips, or is the real bottleneck somewhere else? Have a great day!
- 1dDivin KanyamaBusiness MemberAccountant · Seattle, WA · Member since 2025 · 581 posts · 242 votes
@Vladimirs Veiss I like the staged approach, especially the idea of pricing what happens if the owner says yes and what happens if they say no before anything comes down. That's the part that builds trust, and it turns surprises into decisions instead of arguments. Where I'd push back a little is on dropping the buffer completely. Staged pricing works well when the owner can pause between blocks and approve each step.
For many investors, though, the budget is tied to a loan, a draw schedule or a fixed sale price, so I'd still keep a smaller reserve at the project level, even if it isn't baked into each line item. The two ideas work well together: price in blocks where the unknowns are real, keep the reserve for what you couldn't have seen, and be open about how much of it you've used. As for the usual suspects behind a wall, the ones that tend to cause trouble are old wiring, hidden water damage, undersized or altered structure and plumbing that doesn't match the drawings. Just keep in mind this is my general take and not professional or financial advice, so confirm structural questions with a licensed engineer.
- Real Estate Consultant · Riga, Latvia · Member since 2026 · 59 posts · 12 votes22h
@Divin Kanyama thank you so much, really good to hear your view, and thanks for the list of usual suspects! Your loan point is exactly why I'd skip any reserve, even one the investor holds himself. When people borrow for the work, they need to know exactly what they'll spend, not a number plus a cushion that may or may not get used. So I believe the tool should calculate the exact cost with no percentages added, and every contractor should get a clear plan of work with a set payment for each part. Think of a car on autopilot: it knows exactly what to do, and when an obstacle shows up, it brakes or goes around. That's your "surprises into decisions." Everyone knows what they have to deliver, so together we reach the finish line. In the US, would a lender fund draws against an exact priced plan like that, or still insist on a contingency line? Have a great day!
- Realtor · Memphis, Shelby County · Member since 2026 · 165 posts · 55 votes12h
Good question, and yes, it is a debate here too. I lean toward keeping the unused money in a reserve line rather than treating it as profit on day one, because a rehab that comes in under budget usually just means the surprise has not shown up yet. Keeping it in reserve means the next problem is already funded, and you are not scrambling or cutting corners to cover it. If the project closes out cleanly and the reserve is still there, then it can move to the owner's pocket with a clear conscience. The buffer is not wasted money; it is the price of sleeping well while the project is still open.
- 12hRyan BrownPro MemberReal Estate Agent · Louisville, KY · Member since 2022 · 54 posts · 11 votes
@Vladimirs Veiss, I like the staged approach for an owner who already has the property and wants to renovate it. But I don't think it's practical for the average single-family or small multifamily investor, because our problem shows up earlier.
We have to come up with a renovation estimate before we buy the property, based on pretty limited information, and that estimate decides what we can offer. We don't get the extended due diligence period a larger commercial deal comes with. Usually it's one walkthrough, maybe a short inspection window, and sometimes not even that. Nobody is opening walls block by block before closing. Once we own it, whatever is behind the walls is our problem, whether we priced it or not.
So we walk the property and fill out our spreadsheet with everything we can see, plus everything we think needs to be done based on the age and condition of the house. Then we add contingency money on the back end, on top of that. The total is how we know how much we can pay. The contingency isn't padding for a contractor. It's how we avoid overpaying for a house we only got to see for 30 minutes.
If the walls open up clean, great, that's a little extra margin on the deal. If they don't, the deal still works. For the size of deals most of us are doing, I'd rather build the unknowns into my offer than find out about them after closing.
- Real Estate Consultant · Riga, Latvia · Member since 2026 · 59 posts · 12 votes10h
@Ryan Brown thank you, Ryan, good point, and you're right: for an investor the number has to exist before closing, from one walkthrough. That's the case we had in mind. From the photos and the plan we price everything visible, and for what's behind the walls we don't add a percentage; we price the likely scenarios by the age and type of the house: this much if the pipes need replacing, this much if the wiring does too. So the unknowns still go into your offer, as you say, but as named items with a price, and that also gives you a concrete argument when you negotiate the purchase price. Curious: when you fill in that spreadsheet, is your contingency a flat percentage, or does it change with the age of the house? Have a great evening!
- 10hRyan BrownPro MemberReal Estate Agent · Louisville, KY · Member since 2022 · 54 posts · 11 votes
@Vladimirs Veiss, it's a flat percentage. I've done several full gut and major addition renovations over the years, and that experience has turned into a pretty detailed spreadsheet. Every line item gets priced from what we see on the walkthrough. Then at the bottom, it automatically adds a 10% contingency.
I like a percentage over a fixed number because the risk grows with the size of the job. On a $200K renovation, it's a lot more likely I'm $20K off than it is on a $20K renovation that I'm $2K off. A bigger scope means more walls opened, more trades involved and more places for something to go wrong, so the cushion should grow with it. The age and condition of the house mostly show up in the line items themselves. If it's a 1920s house with original plumbing, the plumbing line is already priced for a full replacement before the contingency gets added.
If my estimate turns out to be good and we don't need the contingency, that just makes it a better deal. I'm fine with that outcome every time.
You're right about negotiation, though. There have been several times where I decided it was in our best interest to hand my actual spreadsheet to the seller or the seller's agent, so they could see exactly how I got to my offer. It changes the conversation. Instead of arguing over whether my number is too low, we're looking at the roof, the electrical and the kitchen line by line. A seller who can see the math is a lot more likely to accept it than one who just gets a lowball number with no explanation.
- 11hMark UpdegraffBusiness MemberReal Estate Broker · Rochester, NY · Member since 2010 · 1k+ posts · 711 votes
@Vladimirs Veiss, I would separate estimate accuracy from project liquidity. Stage pricing can make the scope clearer, but it doesn’t eliminate the need for cash that can absorb a permit delay, material lead time, failed inspection or carrying costs while the next block is decided. A precise estimate answers, “What should this work cost?” A reserve answers, “Can the project keep moving when the plan meets the building?” I’d keep the options priced and still protect a project-level reserve that is released only when the risk is gone.
Updegraff Group Realty4.746 Reviews - Real Estate Consultant · Riga, Latvia · Member since 2026 · 59 posts · 12 votes11h
@Mark Updegraff thank you, Mark, good point: what the work should cost and whether the project can keep moving are two different questions. I'd disagree on what goes into that reserve. On our Swiss projects permit timing and material lead times are planned into the schedule before work starts, materials for each stage are ordered ahead, and the next block is already priced, so nobody waits for a new estimate. A failed inspection is caught earlier too: our supervisor accepts each stage before the official check, and nothing is paid until he does. What's left is the owner's financing and holding costs, and that's a real need. But then it's a carrying-cost line the owner can see, not padding on the rehab number. From what you see in the US, do lenders keep those two apart, or is it all one contingency line? Have a great day!
Pricing in blocks makes sense to me, and it actually lines up with how most rehab loans are funded. Draws get released after each stage is inspected, so the money already moves in blocks.
Where it gets tricky is the start. The rehab budget gets approved before closing and the loan is sized off it. If block two comes back higher than planned, the lender usually isn't adding money mid-project, so the difference comes out of the investor's pocket. That's really what a contingency does for most flippers. It's less about guessing and more about making sure the cash is there when the surprise shows up.
So if the investor has real reserves sitting there, staged pricing is the cleaner way to run it. If they're stretched just to close, I'd still want that buffer somewhere, even if it isn't in the bid.
Disclosure, I'm on the lending side, so I see the draw requests when the walls come open.
- Real Estate Consultant · Riga, Latvia · Member since 2026 · 59 posts · 12 votes10h
@Cat Rauh thank you, Cat, your point that draws already move in stages is the piece I was missing, and it's great to hear this from the side that actually sees the draw requests. On reserves I agree with you: cash for a surprise is the investor's job, not something hidden in the bid. One thing I keep wondering about is why the second stage comes back higher. On our Swiss jobs the gap was usually the rough starting number, not a surprise behind the wall. There, the estimate is built from the plan and actual material prices before closing, so the budget the financing sits on is the one the work really follows, and each stage is accepted by our supervisor before it's paid, so there is a documented record for every draw. On one CHF 28,000 estimate we were off by only CHF 132 on materials, so on materials there were no surprises. What's left is the true unknown behind the wall, and that goes in as a separate priced line, not a percentage. So, Cat, when a documented find shows up on a draw, what do you actually do: approve it, ask for a new bid, or go back to the investor? And for everyone else here: when the second stage runs over, is it usually a surprise or a bad starting number? Have a great evening!
- Real Estate Agent · Houston, TX · Member since 2026 · 35 posts · 11 votes10h
That block-by-block approach makes complete sense on custom remodels or commercial projects where an owner values precision over speed, but on residential flips or turns, debt service turns that pause-and-price model into a holding cost nightmare.
A 10% to 15% contingency buffer isn't necessarily a lazy guess—it’s an operational shock absorber. When hard money is ticking at 11% or 12%, stopping a crew to re-quote and re-scope every time you open up a partition burns more cash in carry costs and lost momentum than the line item variance itself. Lenders also rarely let you close without a locked, front-loaded scope of work and contingency reserve already in place.
As for the worst thing behind a wall: a previous "handyman" completely severing three load-bearing 2x4 studs to run a 3-inch drain line. A quick cosmetic bathroom turn instantly turned into pulling down the entire wall, sistering studs, and engineering a header to keep the second floor from sagging.
The stage-pricing method is definitely clean for GCs, but how do your clients handle the timeline drag when a demo block reveals something ugly and the job has to pause for pricing?
- Real Estate Consultant · Riga, Latvia · Member since 2026 · 59 posts · 12 votes9h
@Alejandro Lopez thank you, Alejandro, that bathroom story is a great example, exactly the kind of thing we deal with. On the pause: with us there's no re-pricing step and no long approvals. The whole job is priced from the plan before the first demo day, so a surprise behind a wall doesn't reopen the price. We run both sides at once, the owner and the crew, and we don't wait on anyone. Everyone on the job knows what comes after what, and we go through it together. We've had our own version of your wall: the pull cable got stuck in the electrical conduit, which meant two extra holes, then patching and finishing. We covered it at our own cost, no charge to the client. The system can fail too, just like in your case, and we have our own way of handling that :) An extra worker comes out and closes that problem while the rest of the crew keeps moving, so the schedule doesn't slip. Once the work is rolling, there's no point in stopping and slowing everything down. You just keep moving together. That's why it matters so much to me to understand how each side thinks, and every day until we arrive in the US, your and my future favorite country, your view and the situations you go through are very valuable to me. In Texas, when a find like that adds cost mid-demo, who signs off on it first, the owner, the GC, or the lender, and how many days does that usually take? Thanks again, Alejandro, and have a great evening!
- 3hMatthew MorrowBusiness MemberInvestor · PA - NY - NJ · Member since 2019 · 853 posts · 301 votes
@Vladimirs Veiss you invited me over, so here's my take. With your background, pricing it in blocks probably works because you know what you're looking at. On older houses I still keep money aside, and it's not because I think my estimate is bad. I just assume the last owner didn't take care of things the way I would, and the walls tell you that only after you've bought it. I'd rather have reserves for the big items and not need them. Every property is different, but that's how I'd approach it.
CORE Team | Realty ONE Group Supreme548 Reviews - 3hLeroy K. WilliamsPro MemberProperty Manager · Southfield Mi · Member since 2018 · 186 posts · 173 votes
In my way of thinking your buffer should be less a percentage of cash reserved, but more of an underlying arrangement built into the relationship you have with your contractor. Your rehab team benefits from your success and as they share in your successes, they should help mitigate losses when there are unforeseen changes. This may seem strange at first glance, but I would try asking your contractor this question "Considering that some of the projects have very thin margins, would you be willing to lock in a price and absorb the cost of any changes (that do not exceed 5%-10% of the project budget) if I commit to using your team as my primary rehab crew and also if I agree to share windfalls on other projects where we save money on repairs or where your bid comes in less than our budget?"
9 times out of 10 a smart contractor will agree to this. An experienced rehabber will likely catch most of what the untrained eye will miss before the project starts so what is truly "unexpected" will almost always be something trivial. This approach will also make your contractor look more closely at the property considering that he/she has agreed to absorb some of the change in scope.
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