Budgeting the Rehab

Contractors systematically underestimate rehab costs by 20–30%. A $5,000 quote becomes $6,500. A $15,000 gut rehab becomes $19,000 when the HVAC fails inspection mid-project, the drywall reveals mold, and the plumber finds galvanized pipes that need replacement. A contingency budget of 20% minimum is not optional; it's survival.

Key takeaways

• Get three competitive bids on any rehab over $3,000. The bids will vary widely; pick the middle one and add 20–25% contingency.
• Hidden issues (water damage, electrical problems, structural issues discovered during work) appear on every rehab. Budget for them before starting.
• Material price variations are real: lumber, drywall, and tile fluctuate monthly. Lock in pricing on major items once you commit to the project.
• Contractor delays are normal. Budget 50% extra timeline (3-week project = 4.5 weeks actual) and accept lost rent during delays.
• Keep a detailed line-item budget and require the contractor to account for every change order in writing before work starts. No surprises allowed.

The cosmetic-only rehab budget

Example: 3-bed, 1-bath, 1,100 sq ft, cosmetic refresh ($4,000–$6,000 scope)

Painting (interior/exterior): $1,500–$2,000
Flooring (carpet/vinyl, select rooms): $1,500–$2,000
Kitchen fixtures and hardware: $300–$500
Bathroom fixtures: $300–$500
Landscaping/cleanup: $200–$400
Appliance replacement (if needed): $500–$1,000
———————————————————————
Subtotal: $4,300–$6,400
Contingency (20%): $860–$1,280
———————————————————————
Total budget: $5,160–$7,680

This budget assumes:

• No structural surprises.
• Existing flooring can be refinished or covered (not demo'd).
• Appliances work or are already priced in.
• Paint is standard interior finish (not murals or special effects).

Actual costs: $5,000–$8,000. Higher if you encounter mold, water damage, or flooring that requires structural demo.

The moderate rehab budget

Example: Cosmetic + selective system updates ($8,000–$12,000 scope)

Painting: $1,500–$2,000
Flooring (full house): $2,000–$3,000
Kitchen (cabinets painted, countertops new): $1,500–$2,000
Bathroom (tiles, fixtures, caulk): $1,000–$1,500
Electrical (panel upgrade or selective rewire): $1,500–$2,500
Plumbing (fixture replacement or selective repair): $800–$1,200
Landscaping: $200–$400
Appliances: $500–$1,000
HVAC (if old and unreliable): $3,500–$5,000
———————————————————————
Subtotal: $12,900–$19,200
Contingency (25%): $3,225–$4,800
———————————————————————
Total budget: $16,125–$24,000

This assumes:

• Partial electrical or plumbing work (not whole-house).
• HVAC if the existing system is over 15 years old or failing.
• Cosmetics on kitchen and one bathroom.

Actual costs: $14,000–$25,000. Higher if hidden issues are found.

The full gut rehab budget

Example: Full rehab, Class A property ($20,000–$40,000 scope)

Demolition and debris removal: $2,000–$3,000
Foundation/structural (if needed): $2,000–$8,000
Framing/drywall: $2,000–$3,000
Roofing (full replacement): $8,000–$12,000
HVAC (full system): $4,000–$6,000
Electrical (full panel and wiring): $3,000–$5,000
Plumbing (full replacement): $3,000–$5,000
Insulation: $1,000–$2,000
Flooring: $2,000–$4,000
Kitchen (full remodel): $2,000–$4,000
Bathrooms (full remodel, 1.5 baths): $2,000–$3,000
Paint (interior/exterior): $1,500–$2,000
Appliances (full suite): $1,500–$2,000
Fixtures and hardware: $500–$1,000
Landscaping: $200–$500
———————————————————————
Subtotal: $33,700–$59,500
Contingency (25%): $8,425–$14,875
———————————————————————
Total budget: $42,125–$74,375

This assumes major systems are being replaced and interior is gutted. Actual costs: $35,000–$75,000+. Much higher if structural issues are found.

The contingency floor (20–25%)

Contingency is not optional. Every project finds surprises:

• Water damage discovered behind walls during demolition: +$1,000–$3,000.
• Mold requiring remediation: +$500–$2,000.
• Hidden electrical problems: +$500–$1,500.
• Galvanized or corroded plumbing: +$1,000–$3,000.
• Structural damage (rot, settling): +$1,000–$5,000.
• Material price increases mid-project: +5–10% of materials budget.
• Contractor delays (weather, supplier delays): extends timeline, costs rent.

Rule: Budget 20% contingency minimum. 25% for older properties (pre-1975). 30% for properties with previous water damage or visible structural issues.

Example:

• Cosmetic rehab base bid: $4,500.
• Contingency (20%): $900.
• Total budget: $5,400.
• Actual cost: $5,100 (within budget).

vs.

• Cosmetic rehab base bid: $4,500.
• No contingency.
• Actual cost: $5,100 (over budget by $600, and you're out of cash).

Getting three bids

Before committing to a contractor, get three bids on projects over $3,000. Prepare a detailed scope document for each contractor:

Scope document includes:

• List of all work (painting, flooring, fixtures, etc.).
• Specific materials (brand, grade, color where applicable).
• Timeline (start date, expected completion).
• Payment schedule (e.g., 30% at start, 50% at mid-point, 20% at completion).
• Change order process (any changes require written approval and price adjustment before work).
• Warranty (work guaranteed for X days; materials for manufacturer's warranty).

Send the same scope to three contractors. You'll get bids that vary 15–30%:

• Bid 1: $4,200.
• Bid 2: $4,800.
• Bid 3: $5,400.

The low bid is often too low (contractor underbid to win, will cut corners). The high bid may be padding or may indicate a better contractor with better overhead. The middle bid ($4,800) is often the most realistic.

Pick the middle bid, add 20% contingency ($960), and budget $5,760. If the contractor comes in at $4,800, you've got $960 in contingency for surprises.

The change order trap

Contractors love change orders. Every discovered issue becomes a change order (extra cost):

• "We found mold in the wall. That'll be $800 extra."
• "The drywall is worse than expected. +$500."
• "The tile you picked is out of stock; the closest match is $2/sq ft more. +$400."

Mitigation:

1. Detailed scope prevents scope creep. If the contractor quotes work, and work is done per spec, no change orders are valid.

2. Change order approval in advance. "If you find an issue during work, you call me before fixing it. We agree on price in writing. No work starts without that approval."

3. Contingency absorbs small change orders. A $200–$300 discovery is covered by your contingency. Don't approve every $100 change order; it'll exhaust your budget fast.

4. Contractor profit on change orders. A contractor's margin on change orders is often 40–50% (vs. 10–20% on the original contract). They have incentive to find problems. Require competitive quotes on any change order over $500.

Material price locks

Lumber, drywall, flooring, and tile prices fluctuate. If you're starting a rehab and the contractor says "material prices may go up," consider locking in major material prices:

• Call flooring suppliers and get a written quote on the vinyl or carpet you want, valid for 30 days.
• Lock in paint supplier and brand at today's price.
• Confirm appliance availability and price with the supplier, not the contractor (contractors mark up appliances 15–25%).

If the rehab is 4–8 weeks, material prices are unlikely to swing more than 5–10%. But that 5–10% on a $15,000 budget is $750–$1,500. Price locks reduce surprises.

The line-item budget tracker

During the rehab, track every cost:

Task                  Estimate    Actual    Variance
Painting              $1,800      $1,750    -$50
Flooring              $2,000      $2,300    +$300
Kitchen fixtures      $400        $450      +$50
Electrical            $1,500      $1,600    +$100
Change order (mold)   $0          $600      +$600
Landscaping           $300        $250      -$50
———————————————————————————————————————————
Totals                $6,000      $6,950    +$950

This tracker keeps you honest and shows where costs are running hot. If you're at $6,950 on a $6,000 budget (plus $1,200 contingency), you've got $250 left. You stop approving non-essential change orders.

Timeline and rent loss

A delayed rehab costs you rent. Budget for it:

• 3-week rehab project takes 4.5 weeks actual (50% buffer).
• 8-week major rehab takes 12 weeks actual.

In a market where a property rents for $1,000/month:

• 3-week delay costs $750 in lost rent (if held at 30 days per month).
• 4-week delay costs $1,000 in lost rent.

This is real cost. A contractor delay that's "just one week" costs you $250 in rent. Factor it into your rehab ROI calculation.

Common rehab budget mistakes

Mistake 1: Trusting one bid. Always get three. One contractor's $4,200 could be another's $5,400.

Mistake 2: No contingency. You will find surprises. Period. 20% minimum.

Mistake 3: Cutting corners on cosmetics. Cheap paint, cheap flooring, cheap fixtures look cheap. Tenants notice and the property doesn't rent faster. Spend medium quality, not budget.

Mistake 4: Scope creep without accounting. Contractor says "while we're in there, we might as well fix this," and suddenly you're $2,000 over. Require approval first.

Mistake 5: Overpaying the contractor upfront. Pay 30% at start, 50% at mid-point, 20% at completion. If you pay 100% upfront, the contractor's motivation to finish drops.

Mistake 6: Trusting "we'll handle the permits." Confirm that the scope includes all required permits and inspections. Some contractors pocket permit fees and skip inspections. Know what's covered.

The contractor reference check

After you've selected your contractor, call three recent customers:

• "Did the contractor finish on time?"
• "Were there major surprises or cost overruns?"
• "Did they respond to calls and handle problems professionally?"
• "Would you hire them again?"

Bad contractors will have unhappy references. Good ones will be vouched for by multiple clients.

Related concepts

• Rehab vs No-Rehab Decision
• The Stabilisation Period

Decision tree

Next

The rehab is done. The property is painted, the fixtures are updated, the systems are working. But the first 90 days—the stabilisation period—are the most unpredictable. Tenants reveal themselves, hidden problems surface, and your model meets reality. Learn how to navigate it.