📘 Daily Lesson: The Hidden Killer in Real Estate Deals — Underestimating Rehab
One of the fastest ways new investors lose money is by underestimating rehab costs. On paper, deals look incredible: low purchase price, solid ARV, strong margins. But when the dust settles, the profits vanish — not because the market shifted, but because the rehab budget was fantasy. Here’s why this happens: - Beginners assume “cosmetic” updates will be enough. They forget roofs, HVAC systems, plumbing, or electrical work can eat tens of thousands. - They trust one contractor’s verbal estimate without getting it in writing. - They skip adding a contingency buffer, leaving no room for surprises. Flips: If you underestimate rehab by $15,000, that’s not just $15,000 gone — it’s $15,000 straight out of your profit margin. A $25,000 projected gain quickly shrinks to $10,000. Rentals: Skipping needed repairs to “save money” leads to higher maintenance costs later. Tenants won’t stay in properties with constant problems, and turnover destroys cash flow. BRRRR: Rehab is even more critical here. The refinance depends on the ARV. If your upgrades don’t actually raise value, the bank won’t appraise high enough for you to pull your money back out. How to Fix It: Walk properties with contractors. Don’t guess — get line-item bids. Always add 10–15% buffer. Something always goes wrong. Budget for it. Distinguish between must-do repairs and nice-to-have upgrades. Focus on what increases value. Use a written scope of work. No vague agreements. Details protect you. 👉 Takeaway: Rehab isn’t just a line item — it’s the lever that makes or breaks your deal. Get it wrong, and you’ll kill your profit. Get it right, and you’ll create the value that powers flips, rentals, and BRRRR.