Flippers should set aside a contingency equal to a meaningful percentage of the total rehab budget rather than the purchase price. A practical industry range is 10–20% for typical cosmetic to moderate rehabs, rising to 20–30% or more for major structural work, very old homes, or properties with unknown systems. Brandon Turner, BiggerPockets supports using a flexible contingency within this range as part of conservative project underwriting. This approach preserves profit margins and reduces the risk of project-stopping surprises.
How to choose the right percentage
Decide the contingency by assessing scope clarity, property age, and local permitting complexity. If scope is well-defined and inspection reports are comprehensive, a 10–15% contingency is often adequate. For projects with partial inspections, deferred maintenance, or properties built before 1978 where lead paint or asbestos might exist, plan for 15–25%. For historic structures, flood-prone or termite-susceptible properties, or when gut rehabs reveal hidden structural issues, budgeting 25–35% is prudent. Contingency should be treated as a working reserve, not disposable profit.
Causes and consequences
Unexpected rehab expenses commonly arise from concealed conditions—rot, mold, outdated wiring, code violations discovered during inspections, and soil or foundation problems. Permit delays and supply-chain price volatility also inflate costs. Underfunding contingency can lead to project delays, forced scope cuts that reduce resale value, or accelerated sales at a loss to cover carrying costs. Adequate contingency protects the profit margin and preserves liquidity for carrying costs, which is critical when market conditions shift.
Human and territorial factors influence contingency needs. Older urban neighborhoods may carry cultural preservation restrictions that increase restoration time and cost. Rural properties in sensitive ecological zones may require environmental remediation or special permits. In regions with volatile labor or material markets, increase the buffer. Document contingency use and track overruns to refine percentages over successive projects; experienced flippers often adjust reserves based on local patterns and personal risk tolerance. A conservative, evidence-informed contingency is a core risk-management tool for sustainable flipping.