Community/Rehab budget overruns — how do you protect your borrowers?
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Donna Hartleybroker
Oct 12, 2025 at 8:00 AM
Rehab budget overruns — how do you protect your borrowers?
I've had 3 fix and flip borrowers in the past year who ran out of money mid-rehab because costs came in higher than expected. Two of them had to do emergency refinances at terrible terms. How do you help borrowers build realistic rehab budgets and what contingency do you recommend?
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4 Replies
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Marcus WebbbrokerOct 12, 2025 at 10:00 AM
Donna, this is one of the most important conversations to have before a flip. My standard advice:
1. Get 2-3 contractor bids before submitting the loan — not estimates, actual bids
2. Add 15-20% contingency to the highest bid, not the average
3. For first-time flippers, I recommend 25% contingency
4. Identify the "scope creep" risks upfront: what happens if they open a wall and find mold? Knob and tube wiring? Foundation issues?
5. Make sure the borrower has personal reserves beyond the loan proceeds
The borrowers who get into trouble are the ones who use the best-case budget and have no reserves. The ones who succeed plan for the worst case.
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Maria FloreslenderOct 12, 2025 at 12:00 PM
From the lender side: we require 2 contractor bids on all rehab loans over $50k. It's not optional. Brokers who submit with a single contractor estimate are setting their borrowers up for failure.
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Donna HartleybrokerOct 12, 2025 at 1:00 PM
Marcus and Maria — this is exactly the framework I've been missing. Going to make 2 bids + 20% contingency a requirement for all my fix and flip borrowers going forward.
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Darnell JacksonbrokerOct 12, 2025 at 2:00 PM
the 20% contingency thing is so real. i've never seen a flip come in under budget. ever.