I was speaking to some new rehabbers recently and discussing that rehab projects go over budget on a regular basis (singles or multis, it doesn’t matter), and that they should plan contingency funds for just that sort of situation. Just for giggles I decided to ask a group of experienced investors, so I posted a poll on our Facebook group Black Diamond REI Insiders. (You can join it if you live and invest in New England, and want a new source of referrals and deals).
Here are the results:
65 experienced investors answered
55 of them chose answers ranging from “Always” to “Usually”
10 of them indicated “Rarely” or “Occasionally”
That means 85% of these experienced investors have had many or most of their projects go over budget!!!
I hate to call this “stunning” because it seems like everything we read these days is stunning, but……
There are many factors that can increase costs on a project that you may not know about:
- Codes triggered by vacancy time, increasing town official involvement.
- Conditions you didn’t know about (think water/insect damage)
- Pandemics that close down the town offices, the construction crews, and the appraisers for your end buyer
- The list goes on and on…..
If you’re just starting out, you might take this to heart when estimating your rehab costs. Add a contingency line to your budget, 20% of your construction budget if you’re new to this. If you’d like to get a free calculator that helps you estimate the costs of doing a project, download the Deal Analyzer.
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