Hedging with Cost Overruns

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  • Good morning folks!

    I have a question I want to throw out to the group and the people here doing flips and rehabs.

    How are you hedging with the crazy supply issues affecting the economy right now?

    My partners and I are negotiating with the seller for a major project set to break ground in spring, 2022. In exchange for a generous sale price, the seller is willing to wait for their money while we shepherd the project through the various zoning procedures and permits.

    My big concern with the generous sale price is that we can end up closing on the deal and see construction costs spiraling out of control either through supply issues, labor shortage or price inflation. I’m not so much worried about a 10% margin of error but I don’t think it’s inconceivable for a 20-30% error due to what we saw last year.

    In the end, I realize it all comes down to sale price but I was wondering if anyone else is encountering these sorts of problems and what their due diligence process is to help mitigate these potential cost overruns.


    Whatever you think it will cost, DOUBLE it! That’s the only way to protect yourself. It’s really not a good time to jump into a big project.

    Remember 2008! Everything was going great. Prices were going up and up. Many thought it would last forever. Then overnight, the bubble POPPED big time. That’s coming again.

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