How to estimate holding costs on a house flip

Holding cost is what you pay because the house is yours and it is not sold yet. It is not the rehab invoice and it is not the purchase price. Two different percents show up in the deal report, and they are easy to add together by mistake. One is a reserve inside the maximum allowable offer. The other is a monthly estimate inside the flip projection. This page says what each one is a stand-in for, and how to check a flat percent against a list of bills.

The bills a hold actually creates

While you own a vacant or half-finished house you still owe property taxes for those months. You still owe insurance, and a vacant house is often written on a builder’s-risk or vacant-dwelling policy rather than a homeowner policy, so the premium is not the figure from the seller’s declaration page. You still owe the utilities you need for the crew: electric, gas, water, and sometimes a trash pull. An HOA does not pause because the kitchen is missing. Grass, snow, and a lockbox or alarm are small until a six-month hold stacks them. None of these are optional just because the rehab budget felt complete.

Debt is a separate stack. If you borrowed the purchase or the rehab, the lender’s interest and any monthly servicing fee are holding costs too, but they are not inside the percent the report uses. Points paid at the loan closing are a closing cost, not a monthly bill. Keep them on their own line so you can see which number moved when the rate changes. The hard money interest guide places that interest line next to the cash flip profit.

The two percents in the report

The offer formula subtracts 3 percent of the after-repair value as a holding reserve, along with 25 percent for profit and 5 percent for closing. On a $200,000 ARV that holding reserve is $6,000. It lowers the maximum allowable offer from what it would have been without the reserve. You do not mail the county a $6,000 holding payment. The dollars never leave your account as a bill. They are a reason the offer is lower, so some of the carry is already protected before you buy.

The flip projection then estimates carry as 0.5 percent of the purchase price per month, for a default of 6 months, rounded once on the whole product. Take the worked purchase price of $94,000 from the $200,000 ARV and $40,000 rehab example. One month is $94,000 × 0.005 = $470. Six months is $94,000 × 0.005 × 6 = $2,820. That $2,820 is added into total investment when profit is computed. It is not the same $6,000, and it should not be added to the $6,000. The fix and flip profit guide shows the full profit arithmetic and why subtracting both would double-count the cushion.

Notice the bases are different. The offer reserve is a percent of ARV. The monthly line is a percent of the purchase price. On this example 3 percent of ARV is $6,000 and six months of carry is $2,820. The reserve is larger than the projection, which is what you want from a cushion: it is there so a slow sale does not instantly erase the profit. If your real bills for six months are already over $6,000, the cushion was too small for that house and the offer needs to come down further. The formula will not notice a tax bill you forgot to compare.

Check the flat percent against a list

A flat percent is a budget, not an invoice. Before you trust $470 a month, write the monthly items you can actually look up. Divide the annual tax bill by 12. Divide the insurance premium you were quoted for a vacant or renovation policy by 12, not the seller’s occupied premium. Add the utilities you will keep on. Add HOA dues. Add a lawn or snow line if nobody on the crew is doing it for free. Add loan interest only on this list, and label it as interest so it does not hide inside “holding.”

Sum that list. Compare it with $470, or with whatever 0.5 percent of your purchase price is. If the list is lower, the projection is conservative on carry and you can leave it. If the list is higher, do not average them and feel better. Use the higher number. Replace the holding line in the profit worksheet with list × months, and leave the 3 percent reserve inside the offer alone. The report itself will still use 0.5 percent when it draws the flip card. Your worksheet is allowed to be stricter than the card when you have a real premium in hand.

Days on market change the month count, not the percent. A contract that falls through in month five is another month at the same rate, plus whatever concession you make on price. Price concessions are not holding. Put them on the sale-price line. Each extra month at $94,000 is another $470 before the full-hold rounding. A nine-month hold in the projection is $94,000 × 0.005 × 9 = $4,230, which is $1,410 more than the six-month default. That extra $1,410 comes out of profit if you leave the purchase price at $94,000. It does not change the ARV. The days-on-market guide takes that $1,410 off the purchase price and recomputes the lines.

What makes a hold longer than the rehab

The month count is not the number of weeks the contractor named. It is purchase to resale. Permits, inspections, a utility reconnect, and the time the finished house sits for sale are all inside it. A scope that looks like three weeks of paint can still be a four-month hold if the city takes six weeks to release a permit you did not know you needed. The scope of work checklist is where permit and “inspect before you price” lines belong, so the month count and the rehab number move together.

Insurance and taxes do not shrink because the rehab is cosmetic. A light scope can still sit in a high-tax jurisdiction. That is another reason not to copy a dollar-per-month figure from a different city onto this one. Use the percent as the default, then replace it with the local tax and the quoted premium when you have them. Until you have them, leaving the 0.5 percent line in place is more honest than writing zero.

If you are comparing a flip with a refinance exit, do not reuse this monthly line as the BRRRR expense ratio. The refinance math uses a different rent estimate and a 50 percent expense share of rent. It is not 0.5 percent of the purchase price. Mixing the two will make one of the exits look cheaper to carry than the formula says it is.

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