How to Set Your Contingency Percentage Based on Project Risk

Every flipper uses a contingency budget.

But not every flipper uses it strategically.

Some just slap on 10% like it’s a fixed rule.
Others guess based on gut.
And many wait until they’re over budget to think about it at all.

But here’s the truth:

Contingency isn’t a line item; it’s a risk response.

And just like risk varies by deal, your contingency percentage should too.

This guide will teach you:

• What a contingency budget actually protects

• How to assess risk across key flip variables

• How to scale your contingency from 5% to 25% based on real deal data

• How to build it into your offer without blowing up your margin

What a Contingency Budget Really Covers

Let’s start with what contingency isn’t:

• It’s not your full buffer

• It’s not your “oops” fund

• It’s not a catch-all for poor planning

Contingency is a forecasted allowance for unseen or variable costs that are reasonably likely to emerge, even with strong due diligence.

Here’s what that typically includes:

• Unexpected code issues (e.g., outdated wiring behind finished walls)

• Foundation, drainage, or structural issues discovered post-demo

• Delays due to weather, permit backlogs, or contractor no-shows

• Price increases in materials or labor

• Mid-project scope changes required by local inspection or buyer demands

If you’re trying to calculate your contingency after the deal is underway, you’re reacting, not managing risk.

What Most Flippers Get Wrong About Contingency

Mistake #1: Flat 10% rule for every deal

A $50K cosmetic rehab and a $160K full-gut are not equally predictable.
Using the same contingency budget for both is reckless.

Mistake #2: Adding contingency after calculating MAO

You should build contingency into your offer, not tack it on later.

Mistake #3: Only thinking about repairs, not the timeline

Contingency isn’t just about construction; it’s about time-based costs:

• Mortgage interest

• Utilities

• Insurance

• Opportunity cost

The longer a flip drags out, the harder those costs hit.

Step 1: Understand the 3 Types of Flip Risk

Before you assign a percentage, you need to understand where your risk lives.

1. Scope Risk – How invasive and unpredictable is the rehab?

Ask:

• Is it a light cosmetic refresh or a full-gut down to the studs?

• Are you touching plumbing, electrical, or foundation?

• Are there signs of prior DIY work or patch jobs?

The deeper you go, the higher the likelihood of opening walls and discovering surprises.

2. Market Risk – How volatile is the resale price and demand?

Ask:

• Are comps stable or declining?

• Is inventory rising?

• Are days-on-market (DOM) stretching?

• Are you banking on top-dollar ARV?

If your profit relies on an ambitious resale price or quick flip timeline, market fluctuations can eat your margin.

3. Operational Risk – How much control do you have over the process?

Ask:

• Are you managing the rehab remotely?

• Is the GC new to you?

• Are you using multiple subs without a lead contractor?

• Are permits required for major systems?

New teams, unfamiliar cities, or bureaucratic headaches all raise the risk of unexpected costs or delays.

Step 2: Score Your Project Risk (Low / Medium / High)

Use this simple framework to assess risk across the three categories:

Scope Risk:

• Low: Paint, floors, fixtures, light kitchen and bath updates

• Medium: Replacing cabinets, redoing plumbing, new roof, layout changes

• High: Gut rehab, structural work, foundation repairs, major systems overhaul

Market Risk:

• Low: Flat or rising market, strong comp support, short DOM

• Medium: Market cooling, few strong comps, moderate DOM

• High: Declining market, risky ARV assumptions, high DOM, buyer incentives required

Operational Risk:

• Low: Local project, trusted team, no permits, high control

• Medium: Minor permitting, partial remote oversight, mixed team experience

• High: New market, unfamiliar team, heavy permitting, low control

Now assign each deal a combined risk level:

• 1–3 points = Low risk

• 4–6 points = Medium risk

• 7–9 points = High risk

Step 3: Match Your Risk Score to a Contingency Range

Based on your total risk score, assign your contingency buffer accordingly:

Low Risk (1–3 points):

• 5–7% contingency

• Example: Local cosmetic flip with your usual crew in a hot zip

Medium Risk (4–6 points):

• 10–15% contingency

• Example: Partial gut in a softening market, with one new contractor

High Risk (7–9 points):

• 15–25% contingency

• Example: Full gut in a falling market with permit delays and new subs

Always round up, not down.

Pro tip: Use the top of each range if it’s a thin-margin deal or you’re early in your flipping journey.

Step 4: Back Your Contingency into Your MAO

Now that you know your percentage, apply it to your rehab estimate, not the purchase price.

For example:

• Rehab = $90,000

• Risk = High → Contingency = 20%

• Total buffer = $18,000

• Total adjusted rehab = $108,000

Plug $108,000 into your MAO formula, not $90,000.

This prevents you from overbidding based on optimistic numbers.

Step 5: Build the Buffer Into Your Budget Without Overspending It

Here’s the trick: Your contingency isn’t there to be spent, it’s there to be protected.

Here’s how to use it wisely:

• Keep it in a separate line item in your budget sheet

• Don’t let your GC see it, or they’ll “scope creep” into it

• Don’t treat it like your fallback budget unless absolutely necessary

• Track all unexpected costs against it, not your main budget

A well-managed contingency means:

• You don’t panic when a sewer line collapses

• You have room to appease a picky buyer without killing your margin

• You can still walk away with profit even when things go wrong

Real Example: Three Deals, Three Contingency Approaches

Deal #1: Low-Risk Cosmetic Flip

• $45K rehab

• Paint, flooring, cabinets

• Local crew, hot market

• Contingency: 5% = $2,250

• Outcome: No surprises, contingency untouched

Deal #2: Medium-Risk Out-of-State Flip

• $85K rehab

• New roof, HVAC, bath

• Remote management, mid-tier crew

• Contingency: 12% = $10,200

• Outcome: Minor delays + plumbing issue = $9,800 contingency used

Deal #3: High-Risk Full Gut with Permit Delays

• $130K rehab

• Foundation work, full layout change

• New market, permit nightmare

• Contingency: 20% = $26,000

• Outcome: Sewer lateral collapsed, added framing scope → full contingency used and margin preserved

Extra Tips to Get the Most from Your Contingency

Use multiple cost estimators when possible.
Compare bids, per-SF calculators, and your past projects. Your contingency should be based on a realistic midpoint, not your cheapest estimate.

Pad your timelines, time = money.
If you're using financing, your contingency must account for carry costs if your project stretches from 4 months to 7.

Treat 20%+ contingency deals as warning flags.
If you need 25% buffer just to feel safe, this may not be a flip. It may be a liability.

Log every contingency expense.
Start a “contingency ledger” in your spreadsheet to track:

• Issue discovered

• Cost incurred

• Which category did it come from (scope, market, or ops)

This helps you spot patterns and learn from them.

Contingency Is Not Just a Safety Net, It’s a Strategic Tool

The best flippers don’t avoid risk, they price it in.

Your contingency percentage is your risk-adjusted margin shield.
It’s not an afterthought. It’s not a one-size-fits-all rule.

It’s a deliberate number based on:

• Scope depth

• Market volatility

• Your operational control

Use the 5–25% range, score each deal honestly, and back it into your offer price from day one.

Because flipping isn’t about being fearless. It’s about being prepared.