Give Me a Flip with a Side of Holding Costs

This side dish is not optional however, with a flip you must account for holding costs to help ensure your flip is a profitable one. Here are the main holding costs:

1.  Insurance – A must have for your flip. You don’t want to leave yourself unprotected should anything happen to your flip such as a fire, or vandalism. Be mindful that flood insurance is a separate insurance. Regular insurance doesn’t protect you from a flood.

2.  Utilities – not a large holding cost compared to other expenses, but some utilities will require a deposit, so don’t be surprised if the utility company asks for one. I’ve paid as much as $230 just to get the electric turned on. When you close the account, they typically take the last bill out of the deposit and send you the balance.

3.  Property Taxes – the silent partner in the gang of holding costs. Many people likely don’t specifically account for it because they never physically have to pay. The taxes are paid at closing and show up on the settlement statement. But it is something you might want to investigate so you know approximately what kind of tax bill you will have if the flip isn’t sold for 6 months or more. Some jurisdictions have high property taxes.

4.  Loan Interest – Depending on how you are funding your flip this may not be applicable to you. If you are funding it with your own money you don’t have to worry about interest costs. If you are using a HELOC, interest rates at this time are low and covering the interest for any period of time may be reasonably easy for you. However, if you are funding with a hard money loan, interest costs can add up quickly. When using a hard money loan, you want to be in and out of the flip as soon as possible to minimize interest costs.

5.  Lawn Mowing – This cost may or may not be applicable to your flip depending on where you are located. If your flip is in Florida you could be mowing year-round, whereas somewhere in the Northeast you won’t need to worry about mowing during the winter months. Typically, a very small expense.

6.  Time – I know. Time is a component of all holding costs. The longer you hold the flip, the greater the holding costs. But if you just focus on shortening the hold time (while not sacrificing quality) all other costs will be held in check.

For this reason alone, it is important to keep time “top of mind” for your flip. Have a game plan before you close on the property for your who you are going to need on your team and how you are going to attack the rehab, and finally how you are going to market the flip once it is complete.

Did I miss anything? Please let me know in the comments. Thanks.