Why you should add a 10% cushion to your rehab budget

As a real estate investor, I understand the importance of budgeting a cushion for unexpected additional costs when planning a rehab project. In my experience, the actual rehab cost is always more than what I initially budgeted for, which is why I always add a 10% cushion to my rehab budget. In this blog, I will share why it's important to budget a cushion on a rehab budget and how it can help you save money and avoid costly mistakes.

1. Unexpected Repairs:

No matter how thorough my due diligence is, there are always unforeseen additional repairs that I cannot anticipate. A hidden water leak, termite damage, or issues with the electrical system can quickly inflate the rehab cost. I once budgeted a $30k rehab cost that ballooned up to $38k. Budgeting a cushion for unexpected repairs helps me cover the cost of these repairs without derailing the entire project.

1. Material and Labor Costs:

Material and labor costs can fluctuate. For example, if you don't plan on updating the units until years later you can expect cost to increase in the mean time. By budgeting a cushion, I can account for these price increases and avoid having to cut corners or delay the project. It also gives me the flexibility to choose better quality materials and labor that can improve the property's overall value.

1. Contingency Plan:

Budgeting a cushion on my rehab budget gives me peace of mind in case something goes wrong. For example, if I discover issues that were not discovered during the due diligence process, I may need to adjust our capex plan to reassess what items need to be prioritized first. Having a cushion in my budget can give me the flexibility to address unexpected problems without putting the entire project on hold.

1. Protecting My Profit:

Finally, budgeting a cushion on my rehab budget can help protect my profit margin. If unexpected expenses arise and I don't have a cushion in my budget, I may have to dip into my profits to cover the additional costs. By budgeting a cushion, I can protect my profits and ensure that my rehab project is still a profitable investment.

In conclusion, as a real estate investor, I know that budgeting a cushion on my rehab budget is crucial to the success of any real estate deal. It helps me avoid costly mistakes, protects my profit margin, and ensures a successful rehab project. By adding at least a 10% cushion to my rehab budget, I can save money in the long run and maximize the property's value.