If you have done a couple large renovation projects then you know what I’m talking about. When estimating rehab costs – always add a buffer on top of your total number.
Here’s Why You Always Add a Buffer to Your Reno Budget
This isn’t about how good an investor is at estimating the costs of repairs and replacements. Most of us can get good at that with some experience.
This is about the stuff that you generally can’t foresee. The stuff that just pops up, and trust me there will be things that pop-up. Especially if you are working with properties that are much older. In fact, the older the property the more likely you will have “surprises.”
Real Life Examples
I’m going to keep it simple and give you a “cheapie” I’ve personally experienced so not to scare you off. Just know, the surprises can range much higher is cost.
This is one of the reasons I stress performing as much due diligence on a property as you can before purchasing.
There are many “surprises” that can be avoided – then there are some that are just part of doing business.
My latest example fits into that category.
Main Water Valves and Sleeves
We are finishing up a major renovation on a property that was built in 1901. However, along the way we got caught with a few surprises. One of which had to do with the main water shutoff and the sleeve pipe that runs to the water department’s main valve.
Long story short is the sleeve had become so cockeyed that it was not possible to access the valve to turn it back on. Considering you need water in a home this was a bit of a must fix.
The real question was – is the sleeve bad or the valve too. Either way we needed to have a qualified operator come in a do his thing to repair.
After widening the opening to the exterior piping/valve and doing a little digging out the earth he was able to access the sleeve to replace and test the valve.
Good news – valve was fine. Bad news – sleeve needed to be replaced. $1200 later all is good an we can got water turned on.
Unexpected cost, yes, but at only $1200 feelt like a win. Here’s the things though. What happens when you have 4 or 5 items come up that cost that?
Since this property was so old that is exactly what happened because things needed to be up to code. Replacing the side door entrance became a $1500 costs instead of $300 because of all the layers of siding that had been slapped on over the decades. The flashing had been bumped out so far it was a mess and we basically needed to re-frame it.
These examples are the cheap ones. I have heard plenty of stories from other investors that got hit with $5-10K “surprises.”
Add a Reno Budget Buffer
This is why on the majority of big rehab projects I always slap an extra $10K on my total expected budget.
If the numbers still work with that then I know in the end I should come out in decent shape and better yet, if the “surprises” are limited or not existent than the deal becomes even more profitable.
Always be working your numbers and buying right!
To get the full guide on how I buy right check out the videos or the book. Remember to use the property calculator when analyzing deals!