Rehab Budget
Quick Answer
The estimated total cost to complete all planned renovations on an investment property.
Definition
A rehab budget is a detailed estimate of all costs required to complete the planned renovations on an investment property. It includes materials, labor, permits, contractor fees, and a contingency reserve. For fix-and-flip lending, the rehab budget directly affects loan sizing — lenders will finance a portion of the approved budget through a draw schedule. An accurate rehab budget is one of the most important risk controls in any flip deal.
Why It Matters for Flippers
Underestimating rehab costs is the most common reason fix-and-flip deals fail to hit their profit targets. A realistic, line-item budget prevents mid-project cash shortfalls, protects your ARV assumptions, and gives your lender confidence. Most lenders require a detailed scope of work before approving the rehab line of a flip loan.
Example in a Flip Deal
A flipper estimates $55,000 in renovations: $18,000 kitchen, $12,000 bathrooms, $8,000 flooring, $6,000 HVAC, $5,000 paint/trim, $3,000 landscaping, $3,000 permits. Adding a 10% contingency ($5,500) brings the total budget to $60,500. The lender approves $55,000 in rehab draws with verification required before each disbursement.
Related Terms
ARV (After Repair Value)
The estimated market value of a property after all planned renovations are complete.
Draw Schedule
A structured plan for disbursing rehab loan funds in installments as renovation work is completed and verified.
LTC (Loan-to-Cost)
The ratio of the total loan amount to the total project cost (purchase price + rehab budget).
Holding Costs
The ongoing expenses an investor incurs while owning a property — including interest, taxes, insurance, and utilities — before it is sold or refinanced.