Carrying costs as "Renovation" OR "1st Year Expenses"

[Larry K.]

Bought in Sept 2011 for about 130k, Rehabbed by end of Dec 2011.
Rehab costs were about 45k
Holding costs from Sept-Dec were about 7k (monthly loan payments, utilities, taxes, insurance)
182k rehabbed. The place is done and ready for tenants by Jan 1.

Takes a few months to get leased up. So my question is where do you put those carrying costs from Jan 1 to lease-up? The carrying costs from Jan 1 to lease up were about 8k. I had realtor fees involved here as well.

So would you use 182k all in to determine cap rate and categorize the 8k as 1st year expenses having started in January?

Or would you tack-on the 8k to the 182k and say its 190k all-in and start calculating income and expenses since lease-up?

As an add-on to this, where would you categorize lender fees to refi?

[Bill Gulley]

Carrying costs go to the project cost initially, if you get stuck with vacancies after the first year it's simply lost income.

Loan fees are amortized with the loan and expensed.

Other closing costs can be expensed, like inspections for services.

Rehab costs and broken down into expenses, saw blades consumed during the project and improvements, new counter tops are added to the basis and depreciated. I assume you won't break down improvements for one property but there is the option.

See your accountant for qualified expenses from settlements and what constitute improvements vs. maintenance as it affects the life of the property. Good luck