The Importance of Adding Contingencies to Rehab Budgets in Real Estate Investing

I’ve been investing in real estate since 2005, and to this day, I have yet to hear any other investor say, write or even hint at anything that resembles the following,

“You know, I have this problem where I’m just budgeting too much for rehabs. I end up borrowing more than I need, and I’m probably missing out on deals because my rehab budgets are too large. I just always seem to come in under budget.”

I’ve gotten better and better at hitting budgets since I started, but I still go over more often than I’d like to admit, and very rarely do I come in under. So, from what I’ve experienced (and heard about), mistakes are not made evenly in both directions when it comes to rehab budgets. We are biased heavily toward under-budgeting for rehab expenses.

Indeed, we are biased toward under-budgeting in general.

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