Beware of Holding Costs


If you are looking to preform any real estate flips, you need to be aware of all the associated costs. What may look like a great deal on paper can turn out poorly, especially once you add up all of the holding costs that may coincide with the property. Interest, taxes, insurance, water, sewer and electric are just some of the costs that you are responsible for after you take ownership of the property. As the months go by without selling, these costs add up and will continue to eat away at your profits until the property is sold.

In general, a holding cost is anything that you have to pay to keep the house running as the owner. You need to keep the power on and the water flowing if you are doing repairs or you want to show the property. You need to pay for insurance, taxes and mortgage interest if you want to retain ownership. Without sounding too repetitive, time is literally money in this situation. You need to sell as quickly as possible to secure maximum profit.

It is important not to combine closing costs and holding costs. They are both costs you will incur, but closing costs are one-time costs while holding costs start from the time you take ownership until the time you sell. Seasonal costs, such as lawn maintenance or snow removal, may also be added to your budget depending on where you live. Unfortunately, there is not much you can do to avoid or lower these costs once they start. The best remedy is to get in and get out of the property as fast as you can. This is easier said than done, but once you realize all of the cost involved and know that you are on the clock, you will do everything possible to speed the process along.