For those doing fix-and-flips, what’s one expense that caught you off guard on a project?
An unexpected repair is one thing. Having it eat into the money set aside for your next contractor payment or materials order is another.
I work with business owners and investors on business funding, and I’m always interested in the gap between the original renovation budget and what it actually takes to finish.
Was it electrical, plumbing, permits—or something you didn’t even think to budget for?
For me it is not a single line item, it is a bad layout. I buy single-family BRRRR houses in Memphis under $100K, and I look for a 2/1 I can turn into a 3/1, or a 3/1 into a 4/2. A carport conversion can do that when the footprint and roofline work. If the layout does not work, the rehab keeps growing, the rent does not, and the deal falls apart. I underwrite to the 1% rule, target an ARV of $180K-$265K, and for Section 8 I look at $1,395-$1,950 for 3-bed-plus houses. My in-house property management team has to rent it and maintain it after closing, so a house that only looks good on paper costs me every month. I plan for it now by walking the layout first and passing if the extra bedroom does not flow like a real bedroom.
That makes sense, James. The rehab keeps growing but the rent doesn’t—that really sums it up. Having your own team manage the property afterward gives you a reason to be selective upfront. What’s the biggest layout red flag that makes you walk away from a deal?
Good day @Nicholas Floyd . What we see most often is the work that shows up after the walls are opened: old pipes, a wet subfloor, wiring that is not to code. The first budget cannot show it, because nobody has seen it yet.
What helps is a separate line for it from the start, and a rule that every piece of additional work gets its own price and one approval before work goes on, so it never eats the next contractor payment.
In your funding work, is that reserve normally built into the loan, or do owners find the money elsewhere when it shows up?
Good point, Vladimirs. It depends on the lender and how the deal is structured—some loans include a contingency reserve, while others leave owners covering unexpected costs separately.
My focus is helping business owners explore working capital options for expenses like those, subject to qualifications and funding terms. Planning that cushion upfront can help keep surprises from disrupting contractor payments.
Do you typically see owners set aside a reserve, or do most start looking for funds once the extra work comes up?