What exactly is holding cost?

Question

Do holding cost include things such as electricity, water, heat, ect... if so/not how is this calculated?

Thanks

J Scott · Answer

Some more information:

http://www.biggerpockets.com/renewsblog/2010/03/17/calculating-fixed-costs-flip-rehab-wholesale-real-estate-deal/

James Vermillion · Answer

You better be very careful because holding costs will be incurred as you rehab the property all the way until you sell it.  Gene listed some good examples of holding costs and you need to be able to estimate these just as you need to estimate rehab costs.  Taxes you can figure out once you know what the tax rate is where the property is located.  You can estimate insurance costs based on previous projects or if you haven't completed a deal you can talk to several insurance agents to get a good baseline.  Debt service is obviously going to depend on the terms of the loan and loan amount.  Utilities will depend on the utility costs in your area, time of year, efficiency of property, size of property, etc.

The timeframe of holding costs depends on how long the project will take and the average time on market for similar properties.  You need to give yourself a lot of cushion at first as your initial projects are likely to take longer than you expect, so be very careful.

Gene Hacker · Answer

Yep, there can be utility costs.  Its is basically all the costs incurred to hold the property until its sold or rented.  Insurance, property taxes, debt service, yard service, etc.  This is where a lot of newbies skip over things that end up hitting the bottom line pretty hard.

Robert Taylor · Answer

I'd say that it also depends on how you name your accounts, for me, "holding costs" are more of a category with several sub-categories or individual accounts. There are a LOT of different costs you will incur during the time you own the property, I lump nearly everything not related to the work going on as a holding cost. As Gene mentioned too, don't forget about how much you are paying to borrow whatever money you are using for the project, which usually ends up being a major part of holding costs.

Shannon X. · Answer

Thank you too all three, and thanks for the link. Summed up a lot.

Shannon X. · Answer

What is the best way to add these numbers into a flip? should one add maybe 4 months holding cost if expected to sell within 3 months?

What exactly is holding cost?

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