The Rehab Budget

The rehab budget is your roadmap: itemized costs, contractor quotes, contingency reserves, and a draw schedule that ties lender funding to project milestones.

Key takeaways

• A detailed budget lists 100+ line items across trades: roof, HVAC, electrical, plumbing, flooring, kitchen, bath, paint, and miscellaneous.
• Obtain competitive quotes from 2–3 contractors per major trade to validate costs and avoid over/under-estimation.
• Contingency (10–15% of hard costs) buffers for unknown conditions discovered during demolition and unforeseen scope creep.
• The draw schedule aligns contractor payments to work milestones; hard money lenders require inspections before each draw to confirm quality.
• Line-item tracking and weekly cost reports prevent budget drift and allow early course correction if trades are over-running.

Anatomy of a rehab budget

A single-family home rehab budget for a $35,000 scope typically breaks down as follows:

Structural and mechanical (40–45%):

• Roof and exterior: $8,000 (re-roof, gutters, fascia, siding if needed).
• HVAC: $4,500 (furnace, A/C, ductwork if required).
• Electrical panel and wiring: $3,500 (new panel, rewiring, outlets, light fixtures).
• Plumbing: $3,000 (rough-in, fixtures, water heater if needed).
• Foundation/structural: $0–5,000 (if issues discovered).

Finishes (40–45%):

• Flooring: $6,000 (laminate, vinyl, hardwood—varies by grade).
• Kitchen: $4,000 (cabinets, countertop, sink, appliances).
• Bathroom: $3,000 (tile, fixtures, vanity, toilet).
• Paint and drywall: $2,500 (interior paint, drywall repair, exterior paint).
• Doors and trim: $1,000 (interior doors, exterior door, trim paint).

Soft costs and contingency (10–15%):

• Permits, inspections, waste removal: $1,500.
• Contingency (12% of hard costs): $4,200.

Total: $35,000–40,000 depending on scope and market.

These are estimates; actual costs vary by geography, property condition, and contractor quality. A property in a high-cost metro (San Francisco, Boston, New York) will see 30–50% higher costs. A property in a low-cost market (rural Midwest, South) will be 20–30% lower. Always get local quotes for your market.

Obtaining contractor estimates

Getting accurate cost estimates is the foundation of budget accuracy. For each major trade (roof, HVAC, electrical, plumbing, flooring, kitchen, paint), solicit quotes from 2–3 licensed contractors in your market.

Roof: Contact roofers, describe the property (one-story, asphalt shingles, 2,000 sq ft), request a written estimate. Roof cost is typically $6,000–12,000 for a small home depending on complexity and material (basic asphalt, architectural asphalt, metal, tile). Get quotes for both replace and repair scenarios; you may not know until inspecting.

HVAC: Contact mechanical contractors, describe the existing system and what replacement is needed. HVAC quotes vary based on ductwork scope; a simple furnace + A/C replacement is $4,000–5,000; adding ductwork or a complex configuration is $6,000–9,000.

Electrical: Contact electricians, describe major electrical work (new panel, rewiring, outlet/fixture upgrades). Estimates range $2,500–5,000 depending on scope.

Plumbing: Contact plumbers, specify rough-in requirements and fixture upgrades. Estimates range $2,500–4,000 for typical rehab.

Flooring: Contact flooring contractors or suppliers, specify material (laminate, vinyl plank, tile, carpet). Pricing is often per square foot; typical residential is 1,200–2,000 sq ft, so flooring cost is $3,000–8,000.

Kitchen: Contact kitchen cabinet suppliers and contractors. Cabinet + countertop + appliances costs range $3,000–7,000 depending on quality. Budget kitchen is $3,000–4,000; mid-range is $5,000–6,000.

Bathroom: Contact tile contractors and fixture suppliers. Budget bathroom is $2,000–3,000; mid-range is $4,000–5,000.

Paint: Contact painters for interior and exterior quotes. Interior paint for 1,500 sq ft is typically $1,500–2,500; exterior varies by surface area.

Once you have quotes, create a spreadsheet. Record the contractor name, scope, estimate, and date. Average the three quotes for each trade (if some are outliers, investigate why). Use conservative estimates; prefer the higher quote if it is well-justified.

Tier-based budgeting

A practical approach is tier-based budgeting: Tier 1 (essential), Tier 2 (strong appeal), Tier 3 (luxury). You budget Tier 1 fully; Tier 2 is committed only if the property underwriting is strong; Tier 3 is cut first if costs run over.

Tier 1 (essential for safe rental and market-rate rent):

• Roof (if leaking or near end-of-life).
• HVAC (functional system for climate control).
• Electrical panel (safe, code-compliant).
• Plumbing (functional, no leaks).
• Flooring (safe, not stained or damaged).
• Kitchen appliances (working refrigerator, range, dishwasher).
• Paint (walls and trim, neutral colors).
• Certificate of occupancy (all permits, inspections completed).

Budget: $20,000–25,000.

Tier 2 (strong rental appeal, 10–15% rent premium):

• Upgraded kitchen with granite or quartz countertop and cabinet hardware.
• Upgraded bathroom with tile surround and modern fixtures.
• Hardwood or upgraded flooring (not just laminate).
• Exterior landscaping and curb appeal.

Budget: $8,000–12,000.

Tier 3 (luxury, not required for BRRRR):

• Premium paint colors and designer finishes.
• High-end fixtures and lighting.
• Extensive landscaping and outdoor features.
• Swimming pool, deck, or other amenities.

Budget: $5,000+.

If your target property supports Tier 1 fully and Tier 2 features, and the budget is tight, you commit to Tier 1 + half of Tier 2. If a cost overrun hits during rehab (structural issue discovered), Tier 2 is deferred or eliminated.

Contingency: the safety buffer

Contingency is the budget line item that absorbs unknowns. When you demolish drywall, you may discover rotted framing ($2,000–5,000 repair). When you dig up plumbing, you may find clay pipes that need replacement ($3,000–8,000 additional cost). When you open walls, you may discover knob-and-tube wiring or inadequate electrical capacity, requiring full re-wiring ($5,000–10,000).

Standard contingency is 10–15% of hard costs. If Tier 1 + Tier 2 hard costs are $30,000, contingency is $3,000–4,500. This seems conservative until the first unknown is discovered.

Contingency is not profit; it is insurance. A budget that includes contingency and comes in under is a win. A budget without contingency and hits an unexpected cost often exceeds the ARV investment limit (75% rule) and jeopardizes the deal.

Allocate contingency within the hard-cost line items, not as a separate line. If the electrical estimate is $3,500, budget $3,800 (include a $300 buffer). If roof is $8,000, budget $8,400. This way, contingency is distributed across trades and draws naturally.

The draw schedule and cash flow management

Hard money lenders fund properties via draws tied to work milestones. A standard draw schedule for a 120-day rehab:

• Draw 1 (at closing, day 1): 50% of total loan ($50,000 of $100,000). Used for purchase, permitting, and initial demolition/site prep.

• Draw 2 (at framing, day 30–40): 25% ($25,000). Requirements: framing complete, electrical/plumbing rough-in started, lender's inspector verifies.

• Draw 3 (at drywall, day 60–80): 15% ($15,000). Requirements: drywall hung, electrical/plumbing rough-in complete, HVAC rough-in complete, ready for inspections.

• Draw 4 (at completion + lease, day 100–120): 10% ($10,000). Requirements: all work complete, certificate of occupancy issued, signed lease at market rent provided to lender.

Each draw requires the lender to receive a request from the general contractor, schedule an inspection, and disburse funds within 3–7 days of inspection. Delays cascade: if framing is behind schedule by two weeks, Draw 2 is delayed, and subsequent draws are pushed back.

Cash flow management is critical. The general contractor typically expects 25% on contract signing. If Draw 1 is large enough to cover this plus early labor and materials, the contractor can begin work immediately. If draws are small, the contractor may require progress payments outside the draw schedule, straining your relationship.

Discuss draw timing with the GC during bid. Some GCs are comfortable with 50% upfront and 50% at substantial completion. Others want more frequent draws. Align the draw schedule with the contractor's cash flow needs to ensure motivation and smooth execution.

Budget tracking and change orders

Create a detailed spreadsheet with every line item, estimated cost, actual cost, and variance. Update weekly as invoices arrive. A sample format:

Line Item	Estimated	Actual	Variance	Status
Demolition	$2,000	$2,100	+$100	Complete
Roof	$8,000	$7,900	-$100	In progress
HVAC	$4,500	$4,600	+$100	Pending
Electrical	$3,500	TBD	TBD	Quoted
Plumbing	$3,000	TBD	TBD	Pending

Any variance greater than 5% triggers investigation. If electrical is running 10% over, call the electrician: Is scope increasing? Are unforeseen complications discovered? Can costs be controlled?

Change orders are the enemy of the budget. Every change order is a negotiation to add scope and cost. Before authorizing a change order, confirm it is truly necessary and cannot be deferred. A change order to upgrade flooring from laminate to hardwood is a Tier 2 nice-to-have; defer it if the project is running over.

Maintain a log of all change orders: date, description, amount, approval. At project close, you'll have a record of every cost and decision, useful for post-mortem analysis.

Contingency deployment and control

Contingency is deployed first for true unknowns (structural damage discovered during demo), second for scope clarifications (the GC finds that the electrical panel is inadequate and quotes a $1,200 upgrade to code), and last for Tier 2/Tier 3 scope creep (nice-to-haves).

A disciplined approach: if contingency is drawn for an essential item, that cost is real and non-recoverable. If contingency is available at project close, celebrate—that is a bonus. Some investors allocate unused contingency to Tier 2 finishes (upgraded flooring, bathroom fixtures) to maximize rental appeal. Others pocket it as profit. Both are valid.

Real-world example: $35,000 budget

A 1,400-sq-ft single-family home in Nashville requires full rehab. Estimates (after obtaining three quotes per trade):

Category	Estimate	Confidence
Structural (roof, siding)	$8,500	High
HVAC	$4,200	High
Electrical	$3,600	Medium (panel may need upgrade)
Plumbing	$2,900	High
Flooring (1,400 sq ft @ $3.50/sq ft)	$4,900	High
Kitchen (cabinets, countertop, appliances)	$4,100	Medium (may upgrade to attract rent)
Bathroom	$2,200	High
Paint (interior + exterior)	$2,000	High
Permits, waste, misc	$1,200	Medium
Hard costs subtotal	$33,600
Contingency (12%)	$4,000
Total	$37,600

You budget $37,600 to stay under $40,000 including contingency. The purchase price is negotiated to $145,000. Total investment: $145,000 + $37,600 = $182,600. ARV is $235,000. Investment ratio: 77.7%. Tight, but acceptable if the rehab executes on schedule and costs.

If kitchen upgrades are deferred to contingency, the hard-cost estimate is $33,600 − $1,000 = $32,600. Contingency is then $3,900. Total is $36,500, bringing investment ratio to 77.1%—marginally better, but you sacrifice kitchen appeal and possibly rental income.

Budget completion and post-project analysis

Once the project closes and the certificate of occupancy is issued, conduct a post-mortem:

• Compare actual costs to budget by line item.
• Identify which trades/items ran over/under.
• Interview the GC: what caused overages? What went well?
• Update your budget template for the next property, incorporating lessons learned.

Over time, your estimates improve. After 3–5 BRRRR deals, your contingency burn rate stabilizes, and you refine estimates for your market. This historical data becomes your underwriting foundation.

Cost control decision tree

Related concepts

• The Five Stages Explained
• Hard Money for the Buy
• The Rehab Timeline

Next

Budget precision depends on schedule execution. If the rehab stretches from 120 days to 150 days, hard money interest compounds, and the cost structure deteriorates. The next article covers realistic rehab timelines and the operational factors (permits, weather, contractor coordination) that determine project speed.