The Quick Read: Treat the contingency as your own cash, size it from the scope and age of the house instead of a flat guess, and hold it in an account separate from the rehab spend, because a hard money purchase loan that funds no rehab leaves every overrun dollar with you. No lender draw will ever backstop a surprise. The buffer you set at the offer stage is the whole safety net.
- Most sourced rules of thumb land between 10% and 20% of the contractor bids, scaled to scope. Older homes and structural work run higher.
- Build the number trade by trade, then check it against a flat percentage.
- Keep contingency, rehab spend, carry and lender reserves as four separate buckets.
- Spend contingency only on documented, unforeseen items, with a written change order first.
- An overrun does not raise the appraisal, so every extra dollar is cash the exit may not return.
Key Terms Defined
Contingency is cash set aside for repair costs you cannot see yet, held on top of the contractor bids.
Reserves are liquid funds a lender wants to see after closing, commonly around 6 months of PITIA on a DSCR file. PITIA is the full monthly obligation: principal, interest, taxes, insurance and any association dues. Reserve rules vary by lender, leverage, loan size and transaction type.
Carry is what the property costs you while it sits unrented: bridge interest, taxes, insurance and utilities.
Draw is a payment a lender releases against completed work. It matters here as a contrast, because your loan has none.
Cost basis is your purchase price plus closing costs plus everything you spend on the rehab, overruns included.
ARV is the after-repair value, meaning what an appraiser says the finished property is worth.
What this loan actually costs to carry.
Hard money is sized against the project and priced by time. Enter the deal and see how much the program will lend, the cash required at closing, the carry while you hold it, and what is left at the exit.
Leverage tiers on the current program: 85% with fewer than 2, 90% with 2 or more, 93% with 5 or more completed projects — every tier capped at 75% of after-repair value. Loan amounts up to $5,000,000, larger by exception; terms of 6 to 18 months, interest-only, no prepayment penalty. The rehab portion funds in draws against completed work, not at closing.
Program parameters shown update from Lendmire’s centralized guideline source. Rate, points, and months are editable assumptions, not quoted terms.
Cost cap sets the loan · positive spread
Illustrative estimate only — not a quote, Loan Estimate, approval, or commitment to lend. Rate, points, and months are editable assumptions. Hard money is business-purpose financing for real estate investors, not a consumer mortgage. Leverage on the current program tops out at 93% of project cost for investors with a documented track record, capped at 75% of after-repair value, with rehab funding up to 100% of the documented budget released in draws; actual terms vary by lender, borrower experience, property, and exit. Lendmire is a mortgage broker, not a lender.
What Changes When Hard Money Covers No Rehab?
Everything about who carries risk shifts to you. On a bridge purchase that funds no rehab, the loan covers part of the purchase price, up to 80% of purchase price on programs we place, and you fund the entire renovation from your own pocket. Leverage and eligibility vary by lender, property and experience, and nothing here is a commitment to lend.
Compare that with a fix-and-flip structure. There, leverage is measured against total project cost, often 85% to 93% of project cost depending on completed projects, and every tier is capped at 75% of after-repair value. Up to 100% of the rehab budget can fund in draws against completed work.
| Factor | Draw-funded rehab | No rehab funded |
|---|---|---|
| Who pays for repairs | Lender releases draws | You, from your own cash |
| Who checks the work | Lender inspects before release | You do |
| Who absorbs overruns | You, after the budget revision | You, immediately |
| Where contingency lives | Inside and beside the budget | Your separate cash account |
Even in a draw structure, overruns are yours. The difference is that a draw lender forces some discipline on you. Without one, you have to build that discipline yourself.
How Much Contingency Should You Hold?
Hold roughly 10% to 20% of your contractor bids, and move toward the top of that band for anything old or structural. No regulator or agency sets a number. Contingency is a self-imposed buffer, so the credible guidance comes from investor-education sources that agree more than they disagree.
Real Estate Skills suggests about 10% for a light cosmetic job, about 15% for a moderate rehab and up to 25% for a gut renovation. Stephen Husted’s investor blog uses a tiered rule. Add 10% for cosmetic-only work and 15% for a full renovation with minor system upgrades. Add 20% to 30% for a pre-1980 home or major structural work. It also describes a separate 10% to 15% cushion for swings in material prices.
Those ranges are a starting point. They are not a guarantee that a project will stay inside them. Nobody publishes a reliable average overrun rate, so treat any claimed statistic with suspicion. Rehabs can go over, which is why a thin buffer is a real risk.
Here is the broker-side reason to size high when you self-fund. On the bridge side, programs generally lend against the purchase and ask little about the rehab. On the exit side, a refinance lender cares about value and your documented cost, not how rough the job got. Nobody in the chain is watching your budget, so you must.
How Do You Build the Number Bottom-Up?
Start with line-item bids, rate each trade for hidden-condition exposure, and let the exposure set the buffer. A flat percentage is a sanity check afterward, not the method.
Get written bids for every major item, ideally three per item. Then tag each trade by how much of it you can actually see before demolition.
| Trade or item | Hidden-condition exposure | Contingency tilt |
|---|---|---|
| Paint, flooring, fixtures | Low | Light |
| Roof and exterior | Medium | Moderate |
| Electrical and plumbing | High, especially pre-1980 | Heavy |
| Foundation and structure | Highest | Heaviest |
| Code upgrades to pass final inspection | Medium to high | Moderate to heavy |
Add the weights up, then compare. If your trade-by-trade build lands at 12% on a house that looks like a gut job, the build is wrong, not the rule of thumb. If it lands at 28% on a fresh paint-and-carpet job, you probably double-counted.
Split the buffer into three tiers, because each one gets spent under different rules:
1. Known-risk tier. Items you can see but cannot price exactly, such as material escalation. A signed bid is not a price lock unless the contract says so.
2. Unknown-risk tier. Rot, wiring, old plumbing and anything behind a wall.
3. Soft-cost tier. Permit changes, extra inspections and added carry from a longer schedule.
Never create a line called miscellaneous. Vague lines are where budgets go to die, and they make your own tracking useless.
What Does the Full Cash Stack Look Like?
Your real cash requirement is six buckets, not one. Investors who plan only the down payment and the bids are the ones who end up scrambling mid-project.
| Cash bucket | What it covers |
|---|---|
| Down payment | The part of the purchase price the bridge loan does not fund |
| Closing costs | Fees to buy the property |
| Rehab hard costs | The full contractor bid total |
| Contingency | Unforeseen repairs, in three tiers |
| Carry | Bridge interest and holding costs until the exit |
| Exit reserves | Cash the next lender may want to see after closing |
Terms on hard money programs run 6 to 18 months, interest-only, and the term varies by lender, property and experience. Carry runs for that entire stretch, and a delayed rehab stretches it. Auben Realty’s BRRRR guide makes the same point from the investor side: have cash for the purchase, the full rehab budget plus contingency, and holding costs until the property is rented and refinanced.
Contingency and reserves are different things. Contingency pays for repairs. Reserves are a lender requirement at the exit, so cash you burn on an overrun is not available to show as reserves later. Do not count the same dollar twice.
A Worked Example (Modeled, Not Market Data)
Run the numbers on a pre-1980 house with an exposed electrical panel and an unknown plumbing run. The figures below are modeled assumptions, expressed as index points where your total contractor bids equal 100.
- Bids: 100.
- Known-risk tier: 6 points, for material price drift and a bid that expires.
- Unknown-risk tier: 10 points, for what the walls hide.
- Soft-cost tier: 4 points, for permit changes and extra carry.
- Total contingency: 20 points, so the cash you plan to commit to the rehab is 120.
The 20-point buffer sits at the bottom of Husted’s 20% to 30% range for older homes, which is where a pre-1980 house belongs.
Base case. The walls open and the wiring is worse than expected. Costs run 12 points over bids. The unknown tier absorbs most of it, the known tier covers the rest, and you finish with a few points unspent.
Overrun case. A foundation issue surfaces and costs run 28 points over bids. The buffer covers 20. The last 8 points come from your cash reserves, and you revise the budget in writing before spending.
That second case is the one to plan for. If the deal only works when contingency stays untouched, it does not work.
Paying Your Contractor When No Lender Draws Exist
You control the pace of payment, which is leverage you should use. With no lender releasing money against inspections, the temptation is to pay up front or pay whenever the contractor asks. Don’t.
- Tie payments to milestones you can see: demolition done, rough-in passed, drywall hung.
- Hold back a final slice, called retainage, until the punch list is complete.
- Pay for verified work only, and photograph it.
- Keep every receipt and change order in one folder.
Written bids beat verbal estimates every time. A written bid defines scope, so when the contractor says something extra is needed, you can tell a real surprise from a scope gap. That distinction decides whether the cost belongs in contingency or in a dispute.
When the Buffer Runs Out
You have four options, and the right one depends on how much work remains. Decide in this order.
1. Cut scope. Drop anything that does not help value or rentability. A high-end finish can wait.
2. Add cash. Use reserves, but only after you confirm the exit still pencils.
3. Pause. Stop spending, re-bid what remains and re-forecast. Carry keeps running, so pause to think, not to drift.
4. Sell or exit early. If the numbers no longer work, a loss now can beat a bigger loss later.
An under-sized buffer becomes a gap at the refinance. Lofty’s BRRRR guide identifies the appraisal as the biggest risk and notes that hidden foundation, plumbing or electrical problems can turn a profitable deal into a break-even one. The gap gets filled one of three ways: cash to close, a smaller loan, or waiting and reappraising while bridge interest keeps running.
What a Spent Buffer Does to Your Exit
An overrun raises your cost basis but not your value, so the exit lender never reimburses it. A DSCR cash-out lender sizes on its own appraisal. Repairs may support a higher appraised value, depending on comps and underwriter review. Rot repair, code work and hidden systems rarely show up in the number.
Many investors refinance out of a hard money bridge into long-term DSCR financing once the property is stabilized, and Lendmire arranges that path through lenders in its wholesale network. Typical parameters on those files: cash-out tops out around 75% LTV on a standard rental, about 6 months of seasoning is the common expectation, and most programs want a credit score near 660 or better, with 700 and above unlocking the strongest tiers. Seasoning is the waiting period between buying and refinancing, and on many files it starts when the deed records, not when the rehab ends. A long renovation can burn most of it.
The debt service coverage ratio (DSCR) compares a property’s rent to its PITIA, and select programs set the minimum at a 1.00 floor. A separate select-lender path takes coverage below 1.00, with leverage and terms adjusted. Clearing the ratio does not mean the property cash flows, because DSCR compares rent to PITIA only. Repairs, vacancy, management, utilities and capital expenses sit outside it. Plan your contingency against real cash, not against the ratio.
If you want the broader picture of how those loans work, the complete DSCR loans guide lays it out.
Where the General Rule Breaks
Four situations change the answer.
Old houses and systems work. The 20% to 30% tier from Husted is the right zone, not a worst case. A pre-1980 house with a failing panel can eat the whole buffer.
Mid-renovation exits. Most DSCR lenders want the property rentable, so a half-finished house usually cannot refinance. Select lenders offer a no-ratio path, available only for borrowers who generally already own a primary residence, but expect different leverage and terms. It is not a rescue plan.
Draw-funded loans. If your lender does fund rehab in draws, contingency lives partly inside a lender-approved budget. The contract defines the rules, not a standard.
Thin-margin deals. If the margin disappears at a 10% overrun, the deal is too tight to buy with self-funded rehab.
Stress Test Before You Offer
Run the deal three ways before you commit. RentalInvestCalc’s BRRRR page suggests stress-testing at 95% of your projected ARV with a rehab running 10% over budget. Add a third stress, a longer rehab schedule, to see what extra carry does.
Then ask one go/no-go question: can I afford this deal if the contingency is fully spent and I still hold exit reserves? If yes, proceed. If no, lower the offer, shrink the scope or walk away.
Avoid these common mistakes:
- Treating 10% as always enough.
- Using contingency to fund upgrades.
- Counting contingency as reserves.
- Assuming the refinance refunds overruns.
- Committing the buffer cash to the next deal.
Frequently Asked Questions
What if I spend all my contingency?
Stop and re-forecast before spending another dollar. Pull from cash reserves only if the exit still works, or cut scope and re-bid what remains. Document every change so the file stays clean.
Is unused contingency profit?
Not until the work is complete and the exit has closed. Keep it available through the final inspection, because late code items are common. Whatever remains after that is cash back in your pocket, not a planned return.
Do I need reserves on top of contingency?
Usually yes. Contingency pays for repairs, while reserves are what a refinance lender may want to see after closing, commonly around 6 months of PITIA.
Will the DSCR refinance reimburse my overruns?
No. The new lender sizes on its own appraisal and your documented basis, not on receipts. Overruns raise what you have invested without necessarily raising value.
How much cash should a first deal require beyond the down payment?
Enough to cover the full bid total, a buffer in the 10% to 20% range or higher for older homes, carry through the 6 to 18 month bridge term, and exit reserves. Hard money terms and eligibility vary by lender, property and experience.
If you are buying, rehabbing or refinancing an investment property on a short timeline and want to see how the numbers work, Lendmire, a broker arranging financing through select lenders in 41 markets including Washington, D.C., can help you compare hard money options based on the project, the exit plan, leverage and your goals.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage brokerage specializing in DSCR investor loans, helping arrange financing across 41 markets, including Washington, D.C., through wholesale and investor-lending channels. The model centers on property-level rental income reviewed by the lender rather than W-2 documentation, subject to lender guidelines, suiting entity-owned and multi-property investors. Lendmire holds Scotsman Guide Top Mortgage Workplace recognition for 2025 and 2026.
Hard money often opens the deal, and a refinance typically closes the chapter – see the hard money loan overview.
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References
1. Real Estate Skills — Estimating Rehab Costs
2. Stephen Husted — What Every New Investor Gets Wrong About Rehab Budgets
3. Auben Realty — BRRRR Method
5. RentalInvestCalc — BRRRR Calculator
This article is part of Lendmire’s hard money loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can You Refinance Out of Hard Money After an Overspent Rehab? · Can a Two-Project Rehabber Use Gap Funding With Hard Money? · Hard Money Lender Requirements for the Seller of a Flip
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.