Rehab Costs
The total estimated cost to renovate a property, including materials, labor, permits, and contingencies.
Definition
Rehab costs (or renovation costs) encompass everything required to bring a property from its current condition to its target finished state. This includes materials, labor, permits, inspections, waste removal, and a contingency budget for unexpected issues.
Accurate scope of work and cost estimation is the most critical skill for flippers and BRRRR investors. Common line items: roof, HVAC, electrical, plumbing, foundation, windows, flooring, kitchen, bathrooms, paint, landscaping, and cleaning. Always get three contractor bids minimum, and add a 10–20% contingency for surprises.
Underestimating rehab costs is the #1 mistake that causes flips to lose money. Old properties hide problems: knob-and-tube wiring, galvanized pipes, asbestos insulation, mold behind walls, settling foundations. A thorough inspection before finalizing your offer helps, but never assume a clean inspection means no surprises during demo.
Related Terms
After Repair Value (ARV)
The estimated market value of a property after all renovations are completed.
Fix and Flip
Buying a distressed property, renovating it, then selling it quickly for a profit.
Maximum Allowable Offer (MAO)
The highest price an investor can pay for a property and still achieve their target profit.
BRRRR Method
Buy, Rehab, Rent, Refinance, Repeat — a strategy to recycle capital into multiple rental properties.
Due Diligence
The investigation and verification process buyers conduct before committing to a real estate purchase.
Related Article
Estimating Rehab Costs Without a Contractor (And When You Should Get One)
7 min · Flipping