Holding costs, month by month

Every dollar figure in this lesson is a made-up example. Every price, fee and offer in real life is per house, built from that house's beds, size, condition and neighborhood; county or market averages are only summaries.

Bottom line first. A flip is not paid for when the repairs end. You pay to carry the house the whole time you own it: loan interest, property tax, insurance, utilities and any association dues. The longer the house sits, the more you spend. Every investor should know the cost of one extra month for each house.

What counts as a holding cost

Holding costs are the bills that keep coming from the day you close on the purchase until the day you sell. They are different from repairs (one-time work) and from closing costs (one-time fees at the table).

• Loan interest. If you borrow to buy, you pay interest every month. Many short-term loans are interest-only: each payment covers just the interest, and the balance you owe stays the same until the end.
• Points. A point is a fee equal to one percent of the loan, paid to the lender, usually at closing. Two points on a $100,000 loan is $2,000. Points are paid once, not monthly, but they belong in your hold math because you only pay them because you borrowed.
• Property tax. The county bills it. The amount depends on that house's assessed value and the local rates, so look up the actual bill for the house you are buying. If the seller owes some at closing, that is handled at the table.
• Insurance. A house that is empty or under renovation often needs a different kind of policy than a lived-in one. Ask an insurance professional what applies to this house.
• Utilities. Power, water, gas and sometimes trash. Contractors use electricity and water, and in winter you must keep the heat on enough to protect pipes.
• HOA dues. If the house is in a homeowners association, dues are monthly or quarterly and unpaid dues can block a sale.
• Other items: lawn and snow care, lockbox and security, and the interest on money you borrowed for repairs.

Think in months, not in totals

Draw a timeline. A typical flip has three stretches: the rehab (the repairs), the listing (the time to get an offer after the house is ready) and the closing (the weeks between a signed sale and the money arriving). Add them. A guess of four months of work plus one month to sell gives five months of holding. Then ask what happens if it is seven. A late permit, a backed-up contractor or a slow season can cost two months with no warning.

Example with real numbers

Our made-up house in Aspen Bend Heights again: 3-bed, 2-bath, 1,400 square foot ranch, $450,000 example ARV, $75,350 example repair budget. For this lesson only, say we buy it for $280,000. (Lesson 5 shows how to pick a purchase price properly; here we only need a number to carry.) Say we borrow 90 percent of the purchase price, with an interest-only loan at 11 percent a year and 2 points. These are made-up terms, not an offer or a typical rate.

• Loan: $280,000 x 0.90 = $252,000.
• Points: 2 percent of $252,000 = $5,040, paid once.
• Monthly interest: $252,000 x 0.11 = $27,720 a year. Divided by 12 = $2,310 a month.
• Property tax: say the county bill is $2,400 a year. $2,400 / 12 = $200 a month.
• Insurance: $150 a month (example).
• Utilities: $220 a month (example).
• HOA dues: $60 a month (example).

Monthly total: $2,310 + $200 + $150 + $220 + $60 = $2,940. Here is the plan over five months:

Month	What is happening	Carrying cost
1	Closing, demolition, permits	$2,940
2	Kitchen and bath work	$2,940
3	Roof, floors, paint	$2,940
4	Finish work, clean, list	$2,940
5	Under contract, closing the sale	$2,940

Five months x $2,940 = $14,700. Add points of $5,040: $19,740 of holding cost.

Now the slip. If a late permit adds two months, we pay two more months of $2,940 = $5,880, and holding becomes $19,740 + $5,880 = $25,620. The points do not grow, but everything else does. That is why a plan with no cushion on time is a plan with no cushion on money.

Ways to keep holding costs down

• Line up the contractor and permits before closing so the clock starts working right away.
• Order long-lead items (windows, cabinets) early.
• Price the house to sell when it is listed; every extra week of hope is another week of carry.
• Compare loans on total cost for your expected months, not just the rate. Points matter more on a short hold.
• If you pay cash, you skip the interest, but the money has a cost too: it could have been doing something else.

Next lesson adds the costs of the two closings: the one that buys the house and the one that sells it.