Are Holding Costs the New Profit Killer?

Question

Between interest, taxes, and delays —
are holding costs eating more margins than before?

Marnit Brown · Answer

You're spot on that holding costs are eating into margins harder than ever right now. With conventional money at 7-7.5% and hard money between 11-13%, every extra month on a deal can wipe out your profit. I've seen flippers get burned because they estimated a 4-month hold but ended up at 8 months thanks to contractor delays or slow permits. The key is baking in a realistic buffer—I always assume at least two extra months of carrying costs in my underwriting. Also, don't overlook the smaller stuff like utilities, HOA fees, and insurance that stack up fast. What's your typical hold time on your current projects?

Peter Mckernan · Answer

These are eating a lot more costs then before, however, I believe this is also issues with not being fully accurate on an ARV when getting the deal that is really killing a lot of profits.

Richard Golding · Answer

Holding costs have always mattered, but they hurt more when sale timelines stretch, rates are higher, and buyers negotiate harder. A rehab budget can look fine and the deal can still lose money if the property sits longer than expected.

I would underwrite holding costs as part of the rehab plan, not as an afterthought. Include interest, taxes, insurance, utilities, lawn/pool/snow maintenance, security, HOA, loan extension fees, and the cost of keeping subs or punch work moving after the main rehab is done. Then add the selling side: staging, cleaning, price reductions, seller credits, and extra months of debt service.

The biggest issue is that delays compound. A late permit, backordered window, failed inspection, slow contractor, or missed listing window can push the sale into a weaker market. That is not just time. It is cost plus pricing risk.

I like stress testing every flip with 30, 60, and 90 extra days. If the profit disappears with one normal delay, the deal is too thin.

The answer is not only “rehab faster.” It is buy with enough spread, control the scope, avoid permit surprises, and price the exit realistically from day one.

Greg Scott · Answer

Those that survive, thrive.

Times are good and times are bad.  It hurts when taxes, insurance, etc go up fast.  If you can survive those, you get the benefits of appreciation, the greatest wealth builder on the planet.

Are Holding Costs the New Profit Killer?

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