"Flip This House" question

[Stephon Blackwell]

Without exception, every episode of "Flip This House" that I've seen has a portion of the show in which almost immediately after purchasing the house and beginning the rehab, they uncover some sort of problem that they didn't budget for.

Is this common when rehabbing or is it just simply a lack of "due diligence" on their part? Or is it just apart of the show?

[J Scott]

After you get through a handful of houses, you'll start to figure out what things tend to catch you by surprise, and the surprises really won't be that surprising. Until then, you should always assume worst-case and make sure the numbers support the worst-case scenario.

For example, even if I don't see any evidence of termites on the initial walk-through, I assume we'll find termites and will need to treat for them and fix some damage (add $1000 to my worst-case budget).

Even if the HVAC system seems to be working, if it's older than 10 years, I'll budget for a new system just in case (add $3000 to my worst-case budget).

I'll always budget for some rough plumbing and electrical work, even if both systems are working, as once you get into the rehab, you're likely to find some issues (add $2000 to my worst-case budget).

No matter how good your rehab is, a good inspector will find issues when your buyer has their inspection (he'll make up issues if he has to, as it's embarrassing if an inspector can't find anything wrong), so expect to spend money after the rehab is done as well (add $1000 to my worst-case budget).

When I started, my worst-case budget was always about $10-15K above my target budget. These days, I'm generally within a few hundred dollars of my target budget, but I always know that if there is a $5K surprise, my project can handle it.

And the nice thing is, if the numbers support a worst-case situation, and you expect a worst-case situation, you'll often find that you come in well below budget and make more of a profit than you expected.

On every project, I still have a worst-case budget, a target budget, and a best-case budget. For example, my last project had a worst-case budget of $55K, a target of $50K, and a best-case of $45K. We strived really hard to hit the $45K, but in the end we hit $50K, knowing that even if it ended up at $55K, we still would have hit our profit target.

That's how we like to treat our budgets...