One of the most critical factors for profitability on a rehab project is planning for a sufficient budget at the beginning, before you purchase the property.   This impacts the amount of capital you need to complete the project and the profits that should be making it a worthwhile venture for you. A few factors play into getting the rehab budget right.

First, as the person in charge of the project, it is your responsibility to know costs.  Having a basic idea of non-retail replacement costs will serve you well.  If you’re just getting started, ask other investors what they’re spending on things like roofs, windows, HVACs, etc.  Get very familiar with the inside of your neighborhood Lowe’s or Home Depot.  Knowing the price of interior and exterior doors, plumbing and lighting fixtures, replacement windows, and basic tile will help build the foundation for your material budgeting.

The next step is to get quotes from multiple contractors, based on a standard scope of work, and quoted back to you in line item detail.  For some of the bigger ticket items, you may want further clarification on the labor and material breakouts.  Don’t be afraid to ask contractors for more details on the quote.  You need to know if they’re giving you a fair price, underestimating (which will cost you down the road), or padding their price (time to negotiate). If you haven’t closed on the property yet, even having some rough estimates from contractors during the inspection period will either confirm you’re buying it at the right price or indicate you need to reconsider.

Once you pick the contractor and have a written, fixed price agreement with them, it would be nice to think that everything will go as planned and there wouldn’t be any surprises.  However, in renovations, there are always unknowns and they usually cost more money, not less.  Putting a number in the project budget for an “Oops” factor is the best way to keep this from derailing your profits.  If you make this number 200% what you think it could possibly be, that’s a decent start.  Worst case, you exceed even that number so you’ve minimized your exposure.  Best case, you don’t use any of it and you’ll see profits beyond what you anticipated.

Taking into account your contractor estimates and the “Oops” factor, is the project still worth doing?  If not, can you renegotiate price?  If you’ve already closed, where will the additional capital for repairs come from or is there a better exit strategy?

The more familiar you are with project costs, the better you get at negotiating with contractors for fair prices, and the more you plan for an “Oops” factor, the more smoothly your project should progress.  Every project is a learning opportunity.  For more secrets of successful rehabbing, get the book here.


Partnering with anyone in business always carries potential risk and reward. If you plan to renovate a property, it’s likely that you need to hire one or more contractors. While these contractors may be technically working “for” you, in another sense they are partnering with you on the project. Many factors of the contractor’s performance are going to affect your project’s performance, your company’s reputation, and future headaches down the road.

For example, Jerry the general contractor (GC) comes into the house, assesses the state of the property, asks you what you want done, and comes back with a quote. He mentions he’s not too busy right now and could really use the work. His quote comes back even lower than you expected. Score! Or is it?

Before you make a move and hire him on the spot, ask some more questions. Is this contractor taking into account your full scope of work? How do the different components of labor and material breakout for each major part of the project? What kind of schedule will he be able to keep? At the cost of private money, every day matters. Who are his hired hands? Are they hardworking, reliable and trustworthy? If not, the neighbors might grow weary and you could encounter additional security issues.

Most importantly, who have they worked for in the past and can you get in touch with them? Checking out contractor references is a very valuable way to spend your time. You can learn a lot about the person that will either reinforce your decision to hire or provide major warning flags.

Spending time screening contractors will make the difference between a project where you are hunting contractors down, dragging them to the jobsite to finish, and losing money day by day in the process or one that’s on schedule and profitable where you sleep well because you know the contractor is getting the job done right.

Get more insider information about hiring and working with contractors from the book Stunning Secrets of the House Flipping Business.