Managing risk in rehab projects

[Luis A.]

This is me thinking out loud :roll: but up to this point I have considered the implications of risk in a rehab project as either and increase in cost and/or a delay in schedule.

In order to account for risk I add a lump sum amount to my project budget of 10-20%. That is, after I have done a detailed analysis of all the work to be done and estimated costs as closely as I can I then add 10-20% to the final amount. The more uncertainties there are in the project the closer I get to 20% and viceversa.

However I am now considering doing it a bit different and assesing different levels of risk to different portions and then adding a different percentage to each. So that if I get a house with several water stains in the ceiling and I don't know where they are coming from I would add a 20% buffer to my plumbing and drywall work in case I got to go fishing for leaks once I start running water.

On the other hand, is there really a lot of risk in say, paint or appliances or landscaping? Probably not, so then I would just add 10% or less to these as a buffer.

What do you think?

[Christopher Davis]

Hi Luis

I automatically add 15% to my re-hab estimate on every single deal. No exceptions.
Just so you know I didn't pull this # out of my ear. This was taught to me by someone who has been successfully re-habbing for about 8 yrs,and it has served him well.

Chris