Contractors will tell you 10% is enough. They're wrong or they're padding their profit.
The Hidden Costs Contractors Don't Mention
Permits: $500-2,000+ (varies by jurisdiction and scope)
Inspections: $300-800 (required by lenders, often needed mid-project)
Dumpster rental: $400-800 (doesn't seem like much until it's 3 months of construction)
Temporary utilities: $100-300/month during reno
Site cleanup: $500-1,500
Labor for salvage/demo: $1,000-3,000 (if you want anything reused or carefully removed)
Real Budget Example: $200k House, Bad Condition
Item
Low
Mid
High
Structural/roof
$5,000
$10,000
$20,000
Systems
$8,000
$12,000
$20,000
Kitchen
$3,000
$6,000
$12,000
Bathrooms (2)
$3,000
$6,000
$10,000
Flooring
$2,000
$4,000
$8,000
Paint/drywall
$2,000
$3,000
$5,000
HVAC
$4,000
$8,000
$12,000
Hidden costs
$3,000
$6,000
$10,000
Subtotal
$30,000
$55,000
$97,000
+20% contingency
$36,000
$66,000
$116,400
Reality check: Most "bad condition" houses in the $200k range cost $50-80k to make rentable, not $30k. The $30k estimates come from contractors who either underestimate or cut corners.
How to Get Better Estimates
Get 3 bids, minimum.
- If all three are within 10%, that's probably real.
- If one is 20% lower, it's either a loss leader or they're missing scope.
Walk through WITH the contractor.
- Don't email photos. Be there. Point at things.
- Ask: "What's the worst thing you see in this house?"
- If they say "nothing major," they're either new or lying.
Itemize everything.
- Don't accept lump sums.
- "Electrical: $5,000" is vague.
- "Rewire kitchen + 3 new outlets in bedrooms: $5,000" is real.
Build in stage payments.
- Don't pay 50% upfront.
- Pay 20% to start, 50% at halfway, 30% at completion.
- Holds leverage if quality drops.
Include a schedule with penalties.
- "30 days, $100/day late = -$100/day."
- Contractors finish on time when money's on the line.
The Contingency Conversation
When contractors say "Oh, we've priced for contingencies," ask:
"How much is the contingency as a % of the bid?"
"If we discover X problem, how is that covered?"
"What's the change order process?"
Good contractors: "I've budgeted 15% for unknowns. Anything above that, we price as change orders. Here's the process."
Red flags: "We'll figure it out as we go" or "Contingencies are already in there, trust me."
The Honest Take
Renovation budgets fail because owners underestimate complexity and contractors lowball to win the bid. Protect yourself:
Assume your budget is 20% too low.
Get written, itemized estimates from 3+ contractors.
Include contingency in your reserve, not in the contractor's bid.
Walk the house yourself — you'll spot things contractors miss.
Expect discovery during demo. Budget for it before you close.