The direct answer
A rehab contingency is an allowance for uncertain costs beyond the documented base scope. It should be distinguished from expected repairs, owner-requested upgrades and carrying costs. A contingency percentage is a planning assumption, not a universal requirement or a substitute for inspecting the property.
Build a scoped base repair budget
List demolition, structure, mechanical systems, finishes, permits, labor and materials using supported contractor estimates rather than one undifferentiated total.
To apply the approach to an editable scenario, use the House Flipping Calculator. For the neighboring question, explore ARV Calculator.
Size contingency to uncertainty
Hidden conditions, age, access, permit uncertainty and scope completeness determine an appropriate scenario range. Higher uncertainty warrants stronger reserves and alternative estimates.
Separate budget changes from delay costs
Unplanned repair expense and months of extra interest, utilities, insurance and taxes are distinct risks that can happen together.
Worked example
If documented base repairs are $80,000, a 15% illustrative contingency adds $12,000 for a $92,000 planned rehab budget before holding and transaction costs.
Common mistakes and limitations
Do not treat contingency as forecast profit or count the same repair twice in base scope and reserve.
Does not estimate construction quantities or guarantee ARV/sale price. Taxes are excluded unless user includes them in costs.
Frequently asked questions
Is 10% contingency always sufficient?
No. Condition and scope uncertainty vary by property.
Should holding costs be in the repair contingency?
Track them separately so construction overruns and schedule delays remain visible.
Sources and further reading
The article’s examples are illustrative arithmetic. The references below provide context for operating, valuation or transaction concepts; they do not endorse the assumptions or the calculator.
- IRS — Publication 527 (2025), Residential Rental PropertyRental income and expense concepts; operating/rental expense context.
- Office of the Comptroller of the Currency — Comptroller's Handbook — Commercial Real Estate LendingNOI, direct capitalization, cap-rate valuation and DCF concepts for commercial real estate.
Read our editorial policy for the scope of these educational methods.