In today’s market, one of the biggest mistakes real estate investors can make is relying on numbers that only work on paper.
At first glance, a deal might look solid—purchase price checks out, rehab budget seems reasonable, and the projected exit shows a profit. But what many investors underestimate are the variables that can quickly eat into those margins.
That’s where a contingency buffer becomes critical.
Costs Are Rising—And They’re Unpredictable
We’re seeing it across nearly every deal:
- Insurance premiums are increasing
- Labor costs continue to fluctuate
- Material prices aren’t as stable as they once were
- Projects are taking longer than expected, increasing holding costs
Even well-planned projects are encountering unexpected expenses. And without a buffer, those surprises can turn a good deal into a risky one.
The 10–15% Rule
A simple but effective rule of thumb is to build in a 10–15% contingency on top of your rehab and holding costs.
This isn’t about being overly conservative—it’s about being realistic.
If your deal still works after adding that cushion, you’re likely in a strong position.
If it doesn’t, it’s worth taking a step back before moving forward.
Why This Matters More Than Ever
In tighter margin environments, there’s less room for error.
We’re seeing more deals where:
- ARVs are slightly overestimated
- Rehab scopes are underestimated
- Timelines are longer than planned
Individually, these may seem small—but together, they can significantly impact your bottom line.
A contingency buffer helps protect against all three.
How Low Tide Helps Investors De-Risk Deals
At Low Tide Private Lending, we work with investors every day to evaluate deals before they move forward.
Because we review so many projects, we’re often able to quickly identify:
- Where numbers may be too tight
- Where costs may be underestimated
- Whether the exit strategy is realistic
Our goal isn’t just to fund deals—it’s to help ensure they make sense from the start.
Final Thought
The best investors aren’t the ones who avoid risk entirely—they’re the ones who account for it.
Building in a contingency buffer is one of the simplest ways to protect your investment and make smarter, more confident decisions.
Have a deal you want a second set of eyes on?
We’re always happy to take a look and provide honest feedback before you move forward.