OPERATIONS: REHAB BUDGETS
to factor in additional expenses that may arise during rehab. These include permits, inspections, insurance, and any fees contractors or professionals charge. Research your area’s specific requirements and regulations to determine the permits and inspections needed for your project. Allocate funds to cover these expenses and ensure compliance with local laws and building codes. For example, document changes that might warrant additional inspections and permits, such as a ceiling lift for stairs. ALLOCATE CONTINGENCY FUNDS FOR UNEXPECTED EXPENSES Even with thorough planning, unexpected expenses can arise during a rehab project. It’s crucial to allocate contingency funds to handle these unforeseen costs without derailing the entire project. Including contingency funds makes good common sense, but many lenders also demand contingency funds as a required part of the budget because virtually every project will face unexpected issues and expenses. A general guideline is to set aside
Avoid using the contingency funds for additional upgrades or cosmetic improvements unless necessary. CREATE A SPREADSHEET WITH DETAILS OF ALL LINE ITEMS Using a detailed itemized list of all the elements for your rehab project will be critical to ensuring you properly establish and manage your budget, from the start to its completion. Remember that many contractors will not provide an estimate with full line-item detail. It would be best to translate your contractor estimate into a fully detailed estimate that will function as an itemized road map for you and your lender. One effective way to do this is to create a comprehensive spreadsheet that includes details of all line items for your project. This spreadsheet will be a valuable tool for organizing and tracking expenses, materials, labor costs, and other important information throughout the project. The spreadsheet should have columns for each relevant category, such as rooms (e.g., kitchen, master bathroom, etc.), materials, labor, permits, utilities, and miscellaneous expenses. Within each category, line items can be listed individually with their respective
costs and quantities. This level of detail provides a thorough understanding of the project’s financial aspects and a clear overview of expenses at any given time. It is critical to make sure all the details are included (e.g., trim work and other finishing items). If you leave these out of your budget, they will add up and you may have to pay for them out of pocket. Together, these smaller items can add up to a significant amount.
Including additional columns for notes or descriptions can also be
beneficial. This allows for any additional relevant information to be recorded (e.g., specific details about the materials used or any required changes made to the initial plan). This level of documentation not only helps with project management but also serves as a valuable reference tool for future projects. The accompanying table provides an example of filling in your budget spreadsheet’s information. Remember, tracking budget estimates and actuals is crucial to stay on track. DISCUSS THE REHAB BUDGET WITH YOUR CONTRACTOR Before finalizing your rehab budget, it is wise to review it with your contractor. Be sure to discuss the work scope and budget constraints. The contractor’s expertise can help identify potential
between 10%-15% of the total rehab budget as a contingency
fund. This will provide a safety net in case of unexpected repairs, delays, or changes in the scope of work.
TABLE 1. A PARTIAL REHAB BUDGET ITEMIZING DETAILS
PROJECT ITEMS
BUDGET ESTIMATE
BUDGET ACTUAL
$4,500
Kitchen Countertops
$4,350
$7,500
Kitchen Appliances
$7,150
$3,500
Kitchen Plumbing-Rough-in
$3,650
$2,500
Kitchen Plumbing-Finish
$2,500
60 | think realty magazine :: july - august 2024
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