Do You Calculate Your Holding Costs Before You Buy a Flip?

Question

A lot of investors focus on the purchase price, rehab budget, and ARV, but holding costs can quietly eat into the profit.

Before closing, I think it’s important to account for things like interest, utilities, insurance, taxes, maintenance, and the possibility that the project takes longer than expected.

Financing can give you access to capital, but the numbers still have to make sense. Always do your own due diligence and only leverage what you can realistically afford.

For the experienced flippers: how many months of holding costs do you normally build into your numbers before buying a property?

Divin Kanyama · Answer

Great point, @Nicholas Floyd . Holding costs are easy to underestimate because they accumulate quietly while attention stays on the rehab and resale numbers. I would rather underwrite beyond the ideal schedule and be pleasantly surprised than depend on a perfect timeline. A practical approach is to budget for the expected renovation and sale period, then add at least two or three months as a cushion for permit delays, contractor availability, inspections, weather, or a slower closing. The right buffer will vary by project and market, but the deal should still be workable if the timeline slips. If a few extra months of interest, utilities, insurance, taxes, and maintenance eliminate the profit, the margin may be too thin from the start.

Erik Estrada · Answer

On the lending side, having at least 6 months of interest reserves helps a lot.

Deborah Wodell · Answer

Absolutely agree. Holding costs can make a big difference in the actual profit, especially when a project takes longer than expected. I’d rather build in a little extra cushion upfront than have a delay eat into the returns later. For me, I’d generally want to account for at least 3 months of additional holding costs beyond the expected timeline, depending on the project and exit strategy.

Alex Crivelli · Answer

I'd budget your full loan term plus a 2–3 month cushion for interest, taxes, insurance and utilities. As a lender, the thing I see burn people most is extension fees when a flip runs long, so ask any lender what extensions cost before you close. With interest-only payments, holding costs are easy to calculate: loan balance times rate divided by 12.

Bryce Axelrad · Answer

As a lender, I’d also put the loan maturity date right next to that holding-cost budget. An extra two or three months of interest is one thing. Needing an extension during those months is another.

I’d ask what an extension costs, what has to be true to get it, and whether interest is charged on the full rehab allocation or only the funds drawn. Then run the slower-sale scenario using those actual terms. The number of months matters, but so does what happens to your financing during them.

Do You Calculate Your Holding Costs Before You Buy a Flip?

Do You Calculate Your Holding Costs Before You Buy a Flip?

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