Holding and Financing Costs? Calculating and difference??

Question

I am a brand new investor and have a couple questions.  Ok so I have a property that I am looking at that has a potential to be a good flip.  Profit is $20,000 BUT I have not calculated the Holding costs or Financing costs yet.  For safety's sake say it took 5 months to fix this house up.  Then what?  The monthly insurance is roughly $40 rounding up.  And monthly property tax is about $130 rounding up.  Any help?  Google has not helped much these past two hrs.  What else do I need?

Ed Emmons · Answer

Unless you are paying cash you have interest expense, and utilities. If you are in a hot market and you estimate 5 months rehab figure on 8 months hold. If market is soft figure one year and be ready to short term rent. I always figure 60 days after I have a sales contract.

Do you have to do rehab work? If so are you experienced enough to be sure of you costs? 20,000 is not that much margin unless everything is figured correctly.

Basit Siddiqi · Answer

@LeAnna DavisI think Ed Emmons gave you some solid advice.

Even if it takes you 3 months to "rehab" the property - you still need to factor in the time to find a buyer and the time the buyer will need to close.So 5 months may not be a conservative holding period for a new investor.In regards to private investors - are you talking about investors who will share in the profit's of the flip? or are you talking about investors who will provide you a loan in exchange for interest?

If it is private investors looking to share in profits - they will take a share of the projected $20,000. You will need to negotiate with them what each person's share of profits will be. Since you are a new investor - they may ask for a higher return.If you go with the investors who will loan you money - they may ask for a rate likely higher than the rate you would get on a mortgage. Regardless of the rate - you would still be required to calculate interest in the holding costs.There will also be some compliance costs associated with either route.You may need to have some legal documents drafted(loan agreement or a partnership agreement). You may also have to issue 1099-Int or K-1's to the private investors depending on route.

LeAnna Davis · Answer

Hey, can anyone else help me out please? I’m still googling but am having a hard time coming up with anything.

LeAnna Davis · Answer

@Ed Emmons  No. I don't think it will be 5 months rehab.  I rounded up from three.  I looked up everything I would need for the house including installation costs for what I can't do.  Down to the colors and designs of everything.  I'm hoping I can get this privately funded. If it is privately funded I can cut out the loan interest right?  And the closing costs would be less.  What about financing?