Key Takeaways
- A systematic assessment-to-scope-to-budget workflow enabled accurate pre-acquisition underwriting within 3.8% of actual costs.
- Change orders totaling $2,750 (3.8% of construction budget) were within the 10% contingency, demonstrating adequate planning.
- The two-week schedule overrun was caused by a preventable cabinet delivery delay—early ordering would have avoided it.
- Sewer line inspection during due diligence would have identified the $950 repair and could have been negotiated into the purchase price.
This case study follows a complete renovation project from initial walkthrough through certificate of occupancy, demonstrating how assessment, scope development, contractor selection, and monitoring workflows integrate in practice. The property is a 1,600 SF brick ranch built in 1958, purchased for $125,000 with a target ARV of $245,000.
Phase 1: Assessment and Scope Development
The walkthrough revealed: original cast iron DWV plumbing with partial blockages, a 100A Federal Pacific electrical panel (known defect), single-pane aluminum windows throughout, a 12-year-old roof with 5-8 years remaining life, original kitchen and two bathrooms, and hardwood floors hidden under carpet. The assessment categorized items as: Must Fix (electrical panel, cast iron drain replacement), Should Fix (windows, kitchen, bathrooms, HVAC replacement), and Could Fix (roof—still functional but aging, exterior paint). A detailed SOW was developed with 47 line items across all trades, and three contractors were invited to bid.
Phase 2: Construction Execution
The selected contractor proposed a 14-week schedule at $72,000. Construction proceeded through four phases: Demo and Rough (weeks 1-5)—demolition of kitchens and baths, electrical panel replacement, plumbing replacement, HVAC installation, and window replacement; Insulation and Drywall (weeks 6-8)—insulation, drywall hang and finish; Finish Phase (weeks 9-12)—cabinet installation, countertop template and install, tile work, trim, painting; and Final Phase (weeks 13-14)—flooring, fixtures, appliance installation, punch list, and final inspections. Two change orders occurred: $1,800 for termite damage discovered during demo and $950 for a sewer line repair at the street connection.
Phase 3: Results and Lessons Learned
The project completed in 16 weeks (2 weeks over schedule due to cabinet delivery delay and the sewer line repair). Total construction cost was $74,750 (original $72,000 plus $2,750 in change orders), against a contingency budget of $79,200 (10% over the bid). All-in cost (acquisition $125,000 + renovation $74,750 + holding costs $8,200 + closing costs $14,700) totaled $222,650. The property sold for $248,000, yielding a gross profit of $25,350 and a cash-on-cash return of 18.2% on the $139,200 cash invested. Key lessons: the cabinet delay was preventable with earlier ordering, the sewer line should have been scoped during due diligence, and the decision to skip the roof replacement was validated by the buyer's inspector.
| Category | Budget | Actual | Variance |
|---|---|---|---|
| Acquisition | $125,000 | $125,000 | $0 |
| Construction | $72,000 | $74,750 | +$2,750 (3.8%) |
| Contingency Reserve | $7,200 | $4,450 remaining | Under budget |
| Holding Costs (5 months) | $8,000 | $8,200 | +$200 |
| Selling Costs (6%) | $14,700 | $14,880 | +$180 |
| Total Investment | $226,900 | $222,830 | -$4,070 |
| Sale Price | $245,000 | $248,000 | +$3,000 |
| Gross Profit | $18,100 | $25,170 | +$7,070 |
Project budget vs. actual results
Key Takeaways
- ✓A systematic assessment-to-scope-to-budget workflow enabled accurate pre-acquisition underwriting within 3.8% of actual costs.
- ✓Change orders totaling $2,750 (3.8% of construction budget) were within the 10% contingency, demonstrating adequate planning.
- ✓The two-week schedule overrun was caused by a preventable cabinet delivery delay—early ordering would have avoided it.
- ✓Sewer line inspection during due diligence would have identified the $950 repair and could have been negotiated into the purchase price.
Sources
- NAHB Remodeling Contractor Survey(2025-01-15)
- RSMeans/Gordian Residential Cost Data(2025-01-15)
Common Mistakes to Avoid
Not ordering cabinets early enough in the project timeline
Consequence: Cabinet delivery delays of 4-8 weeks idle all downstream trades and extend the project schedule
Correction: Order cabinets during the planning phase before construction begins to remove lead time from the critical path
Skipping sewer scope inspection during due diligence on older properties
Consequence: Sewer line issues discovered during construction become change orders instead of negotiation leverage
Correction: Include sewer scope inspection ($150-$300) in due diligence for all properties built before 1980
Using the initial bid amount as the project budget without contingency
Consequence: Any change order creates a budget crisis because there are no reserves
Correction: Always add 10-20% contingency above the accepted bid to create a true project budget
Test Your Knowledge
1.In the case study, what was the actual construction cost variance from the original bid?
2.What caused the two-week schedule overrun in the case study?
3.What should have been done during due diligence to avoid the sewer line surprise?