[Gerald Withworth]

Hey everyone!

Not sure if I’m on the right place but I’m reaching out for some advice. I’ve been having a bit of trouble with rehab projects lately, especially when it comes to keeping contractor estimates from blowing way out of budget.

I’m trying to build long-term relationships with contractors, but I’m struggling to bridge the gap between their estimates and the actual costs. Let me give you a couple of examples:

First, I had a single-family home project where estimates ranged from 20k to 40k. I went with a contractor who quoted 30k, but the project ended up costing a whopping 65k!

Then, there’s my most recent project, a 4-unit property. The initial estimate was 35k, but now I’m looking at nearly 80k in total invoices!

Fool me once, shame on you. Fool me twice… well, you know the rest!

These were two different contractors, and not only did they go over budget, but they also missed their projected deadlines.

So, how does everyone here prevent this from happening? I get that there’s usually a 10% to 25% buffer for unexpected costs, but I’ve definitely exceeded that range.

What’s even more frustrating is that corners sometimes get cut in the finishing touches to stop the financial bleeding, which directly impacts property appraisals and, ultimately, the money I get back at the end of the deal.

I know there’s an element of luck involved in finding deals, but if that’s the case, I might need to steer clear of any casinos I come across! Any advice or insights would be greatly appreciated.

[Jeff Clifford]

In the construction industry, there’s an old saying about cost overruns: “You never know what you have until you put your hammer in a wall.” And it seems like you’re experiencing this firsthand.

Here’s where things might be going wrong:

You’re getting persuaded to buy “deals” that involve opening up walls or other hidden areas. The key is to stick to standard rehab areas that are open and exposed, or where there’s minimal risk of unexpected costs. Focus on things like floors, kitchens, and painting.

Don’t rely on estimates alone. Always insist on a final written quote with a detailed scope of work. Otherwise, you might as well be handing over a blank check. Stick to the first point, and this shouldn’t be an issue. If it is, consider finding different contractors.

Once you’ve established a relationship with your contractors, agree on set costs for all items and stick to them. Avoid the temptation to make changes or get creative.

Maintain control of the rehab process. Avoid making changes to the scope of work unless absolutely necessary. Asking “what if” questions often leads to cost overruns.

[Simon Hastings]

The main reason for the budget hiccup? It was just plain wrong!

But why the blunder? Well, there could be a bunch of reasons…

First off, unexpected hiccups. Sometimes, we’re tackling projects that are totally new and end up way trickier than we thought!

Then, there’s the sneaky low-ball tactic. Sometimes, budgets get intentionally lowballed just to get the green light from management. Sneaky, right?

Even if it’s not on purpose, we might’ve been a tad too optimistic. I once had a boss who was super creative but totally clueless about timeframes!

Oh, and let’s not forget the top-down dictators. Sometimes, the budget gets set by higher-ups who might not be too in tune with the nitty-gritty of operations.

And last but not least, sometimes we just use the wrong method for estimating. It’s a tricky balance, especially when you’re bidding on contracts. You wanna be low enough to win but high enough to actually make some dough!

[Joan Silva]

When owners pick the cheapest contractor, things can get messy. That cheap contractor might try to make extra cash through change orders, which can blow the budget.

But if owners went for the BEST contractor, not necessarily the cheapest, the bid would probably be more spot-on. That means the project is more likely to stay within budget.

[Malcolm Brewer]

I think a big part of it is not realizing how much materials and maybe labor will actually cost. Cost overruns are so common now that some people might purposely underestimate the project’s cost to win the contract, then cover the extra expenses later. Once you’ve started a project and done a lot of work, it’s hard to stop and waste what you’ve already done. So, everyone just goes along with the overruns. That’s how I see it, but I’m not in the construction business. I’ve been doing it for 35 years and haven’t experienced this firsthand.

[Patricia Frawley]

It’s not always the case that projects go over budget. If you’re working with a skilled contractor, you should be pretty close to the estimated cost.

But sometimes, during remodeling, you find unexpected things that need fixing, which adds to the cost. Also, your ideas about the remodel might change after you start the job, which can increase both the time and the cost.

If you trust your contractor, it’s better to agree on a time and materials basis so that everyone is treated fairly.

[Felix Martin]

My dad worked as a contractor, and the builder often made changes. Sometimes unexpected things happen during projects that nobody could predict. It’s just how it goes. I know this might not be the answer you want to hear, but I’m being honest.

[Gerard Nielsen]

This happens because unexpected things come up during construction, and owners sometimes make changes that end up costing more than their original plans. It’s common in construction to set aside around 30% of the budget for any unexpected issues that might arise.

When I added two extensions to my house, the first one stayed within the 20% buffer, but the second one didn’t need it, so it came in under budget. However, when I renovated my kitchen, I had to dip into that 30% reserve, and I even had to opt for a cheaper countertop.

During my time in construction management for a corporation’s design and construction department, we always factored in this 30% buffer because unexpected things are just part of the deal. Contractors aren’t trying to cheat you, and it’s important not to hide any problems you’re aware of, as that could end up eating into your 30% buffer and then some.

[Cody Bently]

Projects often go over budget because the initial estimate doesn’t quite nail down all the costs. Even if a project manager has a good handle on expenses, there are always surprise issues that pop up and jack up the bill. The problem is, if you bid too high, you might lose the job, but if you bid too low, you’ll end up asking for more money later on, when everyone’s already invested a lot of time and effort. So, there’s not much incentive to give a realistic bid. Contractors often lowball their bids to win the job.

Plus, newer contractors might feel pressured to be overly optimistic about what they can achieve with the given resources. They might think they can figure out how to make things work within the budget, even if it’s a bit of a stretch.