Why the rehab budget decides the deal
The rehab number shows up three times in a flip. It sets your maximum offer, because the 70% rule subtracts it from the after-repair value. It sets how much cash you need, because the lender funds only part of it. And it sets your profit, because an overrun comes straight out of the spread. A guess like "about $60K" is how good deals turn into break-even ones.
This calculator keeps the budget honest. You enter what each part of the job will cost, from your contractor's bids or your own past jobs, add a contingency, and get the total and the cost per square foot. Then it prices a fix and flip loan on the deal so you can see how much of the work the lender would fund and how much you would carry yourself.
How to build the budget
- Start with the systems. Roof, HVAC, plumbing, electrical and foundation come first. Buyers' inspectors check them, and they are the items that blow up budgets when skipped.
- Then the rooms that sell the house. Kitchen and baths take the biggest share of most cosmetic budgets. Price cabinets, counters, fixtures and labor separately so you can trim one without guessing at the rest.
- Add the finishes. Flooring and paint touch every square foot, so they scale with the size of the house. Include exterior paint, siding and landscaping if the curb appeal needs work.
- Don't forget the soft costs. Permits, plans, dumpsters, and inspections after each draw are real line items. They are easy to leave off and hard to avoid.
- Add a contingency. 10% is a common floor for a newer house with a cosmetic scope. Older houses and anything that opens walls deserve more.
Cost per square foot is a sanity check, not an estimate. Compare it with jobs you have actually done in the same neighborhood and price band. If this budget comes in far below your past work, look for the line item you missed.
How a lender funds the rehab
A fix and flip loan has two parts. The purchase advance pays most of the price at closing. The rehab holdback is set aside at closing and released in draws: you or your contractor finish a stage, an inspector confirms it, and the lender reimburses that stage. You need enough cash to get each stage done before its draw comes in.
The total loan is capped at a share of the after-repair value and of the total project cost. Your experience, credit score, the property and the size of the rehab compared with the price all move those caps. When the cap binds, the lender cuts the rehab funding first, and the gap becomes cash you bring.
A worked example: the contingency is the part you pay
Take a single-family house in Columbus, Ohio, bought for $200,000 with an after-repair value of $340,000. The line items add up to $68,000, and a 10% contingency brings the budget to $74,800. The borrower has a 720 credit score.
For an investor with one to four completed flips, current lending rules fund the whole $74,800 rehab: a $254,800 loan, with a $180,000 purchase advance and $20,000 down. For a first-time flipper, the same deal is capped at 70% of the ARV, or $238,000. The rehab funding stops at $68,000, so the $6,800 contingency is cash out of pocket, on top of a $30,000 down payment. Lenders fund the contingency only if the deal has room for it.
The same budget also caps the offer. At 70% of $340,000 minus $74,800, the 70% rule tops out at $163,200, well under the $200,000 price. That doesn't kill the deal, but it does mean the house flipping profit calculator should have the last word before you sign. You can test the offer side on the 70% rule calculator.
Keeping the budget on track
Get bids that list the scope room by room, so a change order has something to point at. Order long-lead items such as windows and cabinets early, because a month of waiting is a month of interest and holding costs. Match your draw schedule to the contractor's payment schedule so neither of you is waiting on the other. And when the walls are open, update the budget here: knowing a deal got $8,000 worse in week two is better than finding out at the closing table. When the numbers hold up, you can request a term sheet that shows the rehab holdback for your deal.
Related calculators
- Fix and flip loan calculator: loan amount, rate options and cash to close
- House flipping profit calculator: net profit and ROI after every cost
- 70% rule calculator: maximum offer from ARV and rehab
- Hard money payment calculator: monthly payments on a loan you were quoted
Frequently asked questions
How do I estimate rehab costs on a flip?
Walk the house with a contractor, write down every room and system that needs work, and price each line: kitchen, baths, flooring, paint, roof, mechanicals, windows, exterior, permits. Use written bids where you can and your own past invoices where you can't. Add a contingency on top, then compare the total per square foot with recent jobs you or your contractor have done in the same area.
How much contingency should I add to a rehab budget?
Many flippers add about 10% for a cosmetic job on a newer house and 15–20% for older houses or work that opens walls, floors or the roof. The cushion pays for what nobody can see at the walkthrough: rot, old wiring, plumbing that fails inspection. The calculator lets you set any percentage.
Will a fix and flip loan pay for the whole rehab?
Often, but not always. The lender funds the rehab through a holdback that is released in draws after each stage is inspected. The total loan is capped by a share of the after-repair value and of the total cost, so on a tight deal or for a newer investor part of the rehab can fall outside the loan. The financing check shows exactly how much of your budget would be funded.
What counts as a heavy rehab?
Lenders size a rehab against the purchase price. A budget that is small next to the price is a light rehab; one that approaches or exceeds the price, or that adds square footage or changes the property type, is treated as heavy. Heavy rehabs can mean lower leverage, a higher rate, or more experience required. The calculator shows the classification the lending rules give your budget.
Do I pay interest on rehab money before it is drawn?
On most fix and flip loans, no. Interest accrues on the purchase advance from closing and on each draw from the day it is released. That is why the house flipping profit calculator assumes, on average, about half of the rehab holdback is outstanding over the project.
Estimates are for planning only and are not a commitment to lend.