Use this tool to quickly and accurately estimate the total budget required for your property renovation or “fix-and-flip” project, including essential contingency funds.
How to Calculate Rehab Costs
Total Estimated Rehab Cost:
How to Calculate Rehab Costs Formula
Variables Explained
- Estimated Material Cost: The budgeted cost for all physical materials, including lumber, tiles, fixtures, paint, etc.
- Estimated Labor Cost: The total cost of hiring contractors, subcontractors, and specialized labor (plumbers, electricians).
- Contingency Percentage: A critical safety buffer (usually 10% to 20%) added to cover unforeseen expenses, structural issues, or sudden price spikes.
What is Rehab Cost?
Rehab cost, short for rehabilitation cost, is the total expenditure required to restore, repair, or modernize a property to a habitable or market-ready state. In the context of real estate investing, particularly house flipping, accurately estimating the rehab cost is arguably the most crucial step for determining profitability.
A comprehensive estimate should include everything from the smallest materials (like nails and caulk) to major structural repairs (like a new roof or foundation work). Failing to account for a contingency buffer is the number one reason real estate projects run over budget, making the use of a calculator essential.
How to Calculate Rehab Costs (Example)
- Determine Material Cost: Estimate materials for all planned jobs (e.g., $45,000).
- Determine Labor Cost: Get quotes for all labor/contractors (e.g., $35,000).
- Calculate Subtotal: Add Material and Labor Costs: $45,000 + $35,000 = $80,000.
- Apply Contingency: Decide on a contingency percentage (e.g., 10%). Calculate the contingency amount: $80,000 × 0.10 = $8,000.
- Calculate Total Rehab Cost: Add the contingency to the subtotal: $80,000 + $8,000 = $88,000.
Frequently Asked Questions (FAQ)
What is a good contingency percentage?
For most residential flips, a contingency of 10% to 15% is standard. If the property is very old, has visible structural issues, or is in an unknown condition (e.g., hasn’t been inspected fully), it is wise to increase this to 20% or even 25%.
Should closing costs be included in the rehab cost?
No. Rehab costs are strictly construction-related expenses. Closing costs, holding costs (utilities, taxes), and loan interest should be calculated separately as part of the total project cost.
How accurate are these online calculators?
The accuracy depends entirely on the accuracy of your input estimates for materials and labor. While the formula is precise, the underlying data (your cost estimates) must be based on solid contractor quotes and realistic material pricing.
What is the “70% Rule”?
The 70% Rule is a common real estate investing guideline: Investors should pay no more than 70% of the After Repair Value (ARV) of a property minus the total estimated rehab costs.