Real estate investors who buy and sell real estate take great care when evaluating a potential purchase. And there’s more due diligence required than many may think. There are legal and title issues to review, vacancy and rental rates, demographics and more.

One of the more important considerations ischange orders and contingency funds the current condition of the property, how much any needed repairs will cost and how long they will take as well as what the unit will ultimately sell or rent for.That’s why successful real estate investors rely heavily on an experienced contractor to work with them to identify any and all issues that need to be considered. Most investors will tell you that most properties considered never make it past the evaluation stage. But sometimes there are things overlooked. Sometimes there are surprises and those surprises cost money. Or at worst, make the transaction a losing proposition long after the closing has taken place.

That’s why investors figure in a contingency fund for change orders when needed. For example, a duplex is identified as a potential project. A contract is signed and an inspection quickly ordered. The contractor reviews the property, making notes throughout. The contractor gives the green light and the closing takes place. Afterward however, the investor discovers there are issues with the plumbing. When pulling up the tile and preparing for wood floors, there are tell-tale cracks in the cement flooring. A hot spot is felt and after tearing out some concrete, a plumbing leak is detected. The foundation has shifted over time and plumbing lines have twisted and cracks in certain areas. A plumber is called and the repairs costs add up to $6,000. The $30,000 profit to be made will now be $24,000.

But the investor set aside a contingency fund of 10 percent of the sales price when estimating profits adding up to $12,000. If the contingency amount remains untapped, the fund remains a bonus. If the fund is used, it doesn’t affect the investor’s projections. Most every construction and rehabilitation project has a similar fund. There will be surprises during renovations, but not as it relates to profits.