We recommend about 1.5%. This is calculated monthly as a factor of Purchase Price.
Top Holding Cost Tips
- Keep it simple – see below how we calculate holding costs.
- This is a major reason why investors lose money on deals. Do not leave it off your costs calculations.
- If you do the work yourself you will still have holding costs. See below.
What are holding costs
Holding costs cover the monthly expenses while you rehab a house. They include insurance, taxes, utilities staging, inspections, trash removal, security systems and can cover other miscellaneous costs.
Why we calculate it at 1.5% of Purchase Price
Decades of flipping experience has resulted in the 1.5%. You are welcome to use whatever way you want to calculate these costs, just change the %. Know that in our calculator we multiply this percentage times Purchase Price.
Can holding costs be more than the 1.5%?
Absolutely. In some areas property taxes are so high that 1.5% will not cover actual monthly costs. It can also be less.
If I flip a home myself, can I leave off Holding Costs?
You cannot rehab a house with utilities turned off, and in most States you will have property taxes. You also cannot avoid inspections. Flipping without insurance is possible if you self-fund but is an amateur mistake we would not recommend. It is possible to lower these costs in the calculator, but why would you risk ending up with less profit and a huge bill?
Take a home with $100k purchase price. This would result in $1,500/mo holding costs, or $9,000 total if you flip the home in 6 months. Remember that closing can take more than a month, so don’t forget to add this into your calculations. Statistics however show that average flips with rehab over $40,000 take around 9 months. This suddenly results in you losing $14,500 of expected profit. As you can tell, these numbers quickly become significant. Our advice is to never discount the effect of Holding Costs on profit.
Need more information? Everything can be obtained by searching online. This site is not specific to a particular way of flipping, it is common “industry” standards and practices only. But you are welcome to contact us – we are a members-only flipping and funding company.
Keystone Funding Network