What Are Holding Costs?
Holding Costs (also known as carrying costs) are the monthly holding costs that you will incur while you are holding the property, such as property taxes, insurance, utilities and maintenance costs.
What Are The Typical Holding Costs & Amounts I Can Expect To Pay?
Typical Holding Costs
Here's a list of typical Holding Costs and average amounts that you will likely have on your rehab projects.
- Property Taxes - Property taxes will vary depending on your local property tax rates. To find the property tax amount for a property you can search your local county assessor's website.
- Property Insurance ($100 to $150/month) - You will need to get a Vacant Property Insurance which will cover loss of the property and provide liability insurance for a few hundred $ per month.
- Utilities ($200 to $350/month) - For utilities, think about how much you pay for your own personal residence in utilities. Generally, in the Kansas City area you will have around $200 to $350/month in utilities depending on the season.
- Maintenance ($50 to $100/month) - Maintenance costs include any kind of on-going property maintenance such as lawn mowing or snow removal.
- HOA Dues - If your property has a Home Owner's Association, you will likely have Annual HOA dues for the property. Generally, you can find HOA information on the property listing or the neighborhood's website.
How Long Does It Typically Take To Rehab A Property?
A typical rehab project timeline is as follows:
- Purchase Closing (take possession)
- Planning, Permits, Bidding (1 week to 1 month+) - If possible, you will try to start the planning before the closing to gain a head start. The planning process can take as little as 1 week or as long as 2 months if you have large project that requires plans, plan review, & permitting.
- Rehab/Construction (2 weeks to 4 months) - For a cosmetic rehab, the project may only take a few weeks, but for a larger 'gut job' it could take up to 4 months.
- Listing for Sale (1 week to 2 months) - In a hot seller's market in a desirable area, you may have an offer the 1st day you put the property on the market. In a buyer's market, your property could sit for 1 to 2 months before you get an offer.
- Closing (1 to 2 months) - Once you get an offer under contract, it generally takes around 30 to 60 days to process the closing.
In a best case scenario, with a cosmetic rehab that sells quickly, you are looking at a holding period of 2 to 3 months. Overall, the average rehab will likely take around 4 to 5 months.
<span class="lesson-quote--tag blue">PRO TIP</span>
<p>Don't Overthink Or Over Analyze Your Project Timelines. Holding Costs (Excluding Financing) For Utilities, Taxes, & Insurance Are Typically Only $500 To $1000 Per Month. If You Under-Estimate Your Timeline By 1 To 2 Months, It Will Only Cost You A Few Thousand Bucks In Holding Costs...In The Scheme Of Things You Should Be Much More Concerned About Accurately Estimating Your Big Numbers Such As Your ARV And Rehab Costs. When In Doubt, Just Use 4 To 6 Months For Your Holding Period And Move On To Calculating The Big Numbers.</p>
Holding Costs Example
Let's run through a quick example of how to calculate your Holding Costs for an average rehab that takes about 5 months to complete from taking possession to final sales closing.
In the table below, the monthly holding cost amount is being multiplied by the holding period to calculate the Total Holding Costs.
<table id="costs"> <tbody><tr> <th style="width: 50%;">Holding Costs (5 Months)</th> <th style="width: 25%;">$/Month</th> <th style="width: 25%;">Amount</th> </tr> <tr> <td>Property Taxes</td> <td>$125</td> <td>$625</td> </tr> <tr> <td>Property Insurance</td> <td>$125</td> <td>$625</td> </tr> <tr> <td>Utilities</td> <td>$275</td> <td>$1,375</td> </tr> <tr> <td>Maintenance</td> <td>$80</td> <td>$400</td> </tr> <tr style="border-top: 3px double black;"> <td>Total Holding Costs</td> <td>$605</td> <td>$3,025</td> </tr> </tbody></table>
In this example, we are spending $605 a month on holding costs during the 5 months of ownership which amounts to $3,025 in Total Holding Costs.
House Flipping Calculator
To analyze your deals efficiently and systematically you may want to consider building your own deal analysis spreadsheet or utilizing a pre-built software like our Flipper Force software.
Our Flipper Force software has a House Flipping Calculator tool that is pre-built with a step-by-step process to help you can calculate your Buying Costs, Holding Costs, Selling Costs & Financing Costs for your projects.
Having a system in place will ensure that you don't miss any costly items in your analysis so you make the right offer for your property!
Learn more about our House Flipping Calculator