A lot of deals look great on paper when everything goes according to plan.
But what happens if the rehab takes longer than expected, permits get delayed, a contractor falls behind, or the property sits on the market for another 60–90 days?
Those extra months can mean additional:
• Loan payments • Property taxes • Insurance • Utilities • Maintenance • Interest and other carrying costs
That’s why I think it’s important to run the numbers based on more than just the best-case scenario.
Before buying, I’d want to know: Does the deal still make sense if I have to hold it a few months longer than expected?
Having access to additional business capital can also give an investor some breathing room when unexpected costs come up, but I still believe you should do your own due diligence and only leverage what you can comfortably afford.
For the experienced flippers here — how many extra months of holding costs do you normally build into your numbers?
Investor · Collierville, TN 38017 · Member since 2017 · 678 posts · 488 votes
5d
I underwrite every rehab assuming 6 months of holding costs even when the plan says 3, and I add a 3-month contingency on top for anything involving permits. Here's the math on a typical deal for me: $80K purchase plus $40K rehab, financed at 12% interest-only, runs about $1,200/month in interest, plus roughly $300 taxes, $200 insurance, and $150 utilities. That's around $1,850/month of pure holding cost. Three extra months wipes out about $5,500 — on a deal with a $25K projected margin, that's over 20% of your profit gone before you sell a thing. My rule is simple: if the deal doesn't still work with 9 months of holding costs baked in, I don't buy it. Contingency isn't pessimism, it's what keeps you in business when a contractor ghosts mid-rehab.
That’s a solid way to underwrite it, James. I like the idea of building the extra holding time into the deal before you ever close instead of hoping everything goes perfectly. That $5,500 example really shows how fast delays can eat into the margin. Having reserves or additional capital available can help when something unexpected comes up, but like you said, the deal still has to make sense with the contingency already baked in. Great insight.