How to Analyze a BRRRR Deal When Contractors Are Quoting 30% Over Budget

You found a property that pencils out perfectly on paper. Three bedrooms, decent bones, ARV of $285,000. You budgeted $45,000 for the rehab based on comparable flips in the area. Then you got contractor quotes back: $58,000, $62,000, and one that just said "we're really busy right now" (which translates to $70,000+).

This is the reality of [BRRRR investing](https://www.biggerpockets.com/guides/brrrr-method) in 2024 and beyond. Labor costs have increased 25-40% since 2020 in most markets. Material costs spiked, dropped, and settled somewhere higher than before. The contractors who will actually show up and finish a job know they have pricing power.

The question isn't whether contractor costs are high. They are. The question is whether your deal still works at these numbers, and how to figure that out.

The Problem With Using Old Rehab Estimates

Most BRRRR calculators and spreadsheets still default to renovation cost assumptions from 2018-2019. You'll see guides suggesting $15-25 per square foot for light rehabs and $30-50 for gut jobs. Those numbers are outdated in most markets.

I ran numbers on a 1,400 square foot property last year using $25/sqft for a medium rehab. That gave me a $35,000 budget. Actual quotes came in between $52,000 and $67,000. The difference wasn't scope creep or contractors padding their margins. It was the actual cost of labor, materials, and the fact that good contractors have 3-6 month waitlists.

When your rehab estimate is off by 30%, everything downstream changes:

Adjusting Your BRRRR Analysis for Real Contractor Costs

Step 1: Get Real Quotes Before Running Final Numbers

This sounds obvious, but most investors analyze deals using estimated rehab costs, then get surprised when actual quotes come in higher. Flip the order.

Before you commit to a purchase, get at least two contractor walkthroughs and rough quotes. Yes, this takes time. Yes, some contractors won't do it for a property you don't own yet. Find ones who will, even if you have to pay a small fee for their time.

A $200 consultation fee to get accurate numbers is cheaper than buying a property based on a $45,000 rehab budget that actually costs $65,000.

Step 2: Build Your Actual All-In Cost

Your all-in cost is everything you spend before you have a rented, stabilized property:

> All-In Cost = Purchase Price + Closing Costs + Rehab + Holding Costs + Refinance Costs

Using real numbers from a deal I analyzed recently:

That $17,000 difference came primarily from the rehab overage, but also from extended holding costs because the higher-priced contractor took longer to start.

Step 3: Recalculate Your Cash-Out Position

Most lenders will refinance at 70-75% of the After Repair Value (ARV). If your ARV is $285,000:

> Maximum Refinance Loan = $285,000 × 0.75 = $213,750

With the original $223,500 all-in cost, you'd leave $9,750 in the deal. Annoying but workable.

With the actual $240,500 all-in cost, you'd leave $26,750 in the deal. That's a significant difference in capital efficiency.

Step 4: Run the Returns Both Ways

The BRRRR strategy is attractive because you can theoretically recycle your capital infinitely. But leaving money in deals isn't failure. You just need to know what return you're getting on the capital you can't pull out.

Assume this property rents for $1,850/month with operating expenses (taxes, insurance, maintenance, vacancy, property management) of $650/month. That's $1,200/month in net operating income, or $14,400/year.

If you refinance and leave $26,750 in the deal:

> Cash-on-Cash Return = $14,400 / $26,750 = 53.8%

That's still excellent. The deal works even with inflated contractor costs. But you need to run these numbers to know that.

When Higher Contractor Costs Kill the Deal

Not every deal survives a 30% rehab increase. Here's how to identify the ones that don't.

The ARV Ceiling Problem

In some neighborhoods, there's a ceiling on what properties sell for regardless of how nice you make them. If comparable sales max out at $285,000 and you were already counting on hitting that number, you have no cushion for cost overruns.

I passed on a property last year in this exact situation. The numbers worked at a $48,000 rehab. Contractor quotes came in at $63,000. The ARV couldn't go higher because the neighborhood wouldn't support it. The deal math fell apart.

The Rent-to-Price Ratio Problem

Higher all-in costs don't automatically mean higher rents. If you're spending an extra $15,000 on granite countertops and LVP flooring, but the rental market in that area tops out at $1,600/month regardless of finishes, that extra spend doesn't generate extra income.

Before accepting higher contractor costs, ask: will this rehab level allow me to charge higher rent? Or am I just spending more to get the same income?

The Holding Cost Death Spiral

Higher contractor costs often come with longer timelines. A contractor quoting $65,000 might also be quoting 4 months of work instead of 2.5 months. Those extra 6 weeks of holding costs add up:

That's $2,850 per extra month. Stretch the timeline by 6 weeks and you've added another $4,275 to your all-in cost.

Strategies for Making Deals Work

Negotiate the Purchase Price Down

This is the most direct solution. If contractor quotes are $14,000 higher than expected, go back to the seller and ask for a $10,000-15,000 price reduction. Explain the situation. Some sellers will negotiate, especially if the property has been sitting.

I've had mixed success with this approach. Motivated sellers will often work with you. Sellers who think their property is worth more than market value won't budge. But it costs nothing to ask.

Reduce the Rehab Scope

Not every property needs the same level of finish. If you're targeting B-class tenants in a B-class neighborhood, you don't need the A-class finishes.

Areas where you can often cut costs without hurting rent significantly:

A $59,000 full rehab might become a $47,000 strategic rehab. The property won't be as pretty in photos, but if it rents for the same amount, the math works better.

Find a Different Contractor

Not all contractors are equally expensive. The busiest, most in-demand contractors charge premium prices. Smaller operations or contractors building their portfolio might bid 15-20% lower.

The risk is quality and reliability. A cheaper contractor who takes 6 months instead of 3 months will cost you more in holding costs than the price difference.

I prefer paying mid-range prices for contractors with a track record of finishing on schedule over the cheapest bid from someone I've never worked with.

Accept Lower Cash-Out

Sometimes the answer is accepting that you'll leave more money in the deal. If a property generates strong cash flow and appreciates in a growing market, leaving $30,000 in it isn't a tragedy. It's just a different return profile.

The BRRRR strategy is about capital efficiency, but capital efficiency isn't the only metric. A property that generates $300/month in cash flow with $30,000 left in it might be better than a property that generates $200/month with $5,000 left in it.

A Complete Example: Running the Numbers Both Ways

Let me walk through a real analysis I did last month.

Property Details:

Original Rehab Budget: $40,000 Contractor Quote: $53,500 (34% over)

Scenario A: Original Budget

Refinance at 75% ARV: $198,750 Cash left in deal: $25,850

Scenario B: Actual Contractor Quote

Refinance at 75% ARV: $198,750 Cash left in deal: $41,050

The Decision

With $1,725/month rent and estimated $575/month expenses, the property generates about $1,150/month or $13,800/year in NOI.

Scenario A cash-on-cash: $13,800 / $25,850 = 53.4% Scenario B cash-on-cash: $13,800 / $41,050 = 33.6%

Both returns are good. But leaving $41,050 in the deal instead of $25,850 means $15,200 less capital to deploy on the next property. Over multiple deals, that compounds.

I ended up negotiating the purchase price down to $163,000 and reducing the rehab scope to $48,000. Final all-in came to $226,500, leaving about $27,750 in the deal. Not as clean as the original numbers, but workable.

Common Mistakes When Rehab Costs Run High

Mistake 1: Using the same contractor quote as your budget

The lowest quote you receive is a starting point, not a ceiling. Add 10-15% contingency for surprises. Old houses always have surprises.

Mistake 2: Ignoring timeline impacts

A contractor quoting $52,000 with a 5-month timeline might cost more than a contractor quoting $58,000 with a 3-month timeline once you factor in holding costs.

Mistake 3: Chasing the original numbers

Once you have real quotes, you have real information. Don't keep searching for a contractor who will hit your original budget number. Either the market rate is what you're hearing, or you'll find an unreliable contractor who underbids and then disappears.

Running Your Own Analysis

Contractor costs vary significantly by market, so there's no universal formula for how much to add to your estimates. The process matters more than specific numbers.

Get real quotes before committing. Build your complete all-in cost including realistic holding periods. Run the refinance math to see what you'll actually have left in the deal. Calculate returns on the capital you can't pull out.

If the deal still works, move forward. If it doesn't, pass and find one that does.

The [Single Family Rental Calculator](/tools/single-family) can help you run these scenarios quickly. Input your purchase price, actual contractor quotes, and holding timeline to see exactly what your cash-out position and returns look like before you commit to a property.