What are Holding Costs?
Holding Costs (also known as carrying costs) are the monthly holding costs that you will incur while you are holding the property, such as property taxes, insurance, utilities and maintenance costs.
What are Typical Holding Costs?
Here's a list of typical Holding Costs and average amounts that you will likely have on your rehab projects.
Property Taxes - Property taxes will vary depending on your local property tax rates. To find the property tax amount for a property you can search your local county assessor's website.
Property Insurance ($100 to $150/month) - You will need to get a Vacant Property Insurance which will cover loss of the property and provide liability insurance for a few hundred $ per month.
Utilities ($200 to $350/month) - For utilities, think about how much you pay for your own personal residence in utilities. Generally, in the Kansas City area you will have around $200 to $350/month in utilities depending on the season.
Maintenance ($50 to $100/month) - Maintenance costs include any kind of on-going property maintenance such as lawn mowing or snow removal.
HOA Dues - If your property has a Home Owner's Association, you will likely have Annual HOA dues for the property. Generally, you can find HOA information on the property listing or the neighborhood's website.
How Long Does It Typically Take To Rehab A Property?
Holding Period
In order to calculate your Total Holding Costs you also need to consider the length of time you will be holding the property. The Holding Period is the amount of time you plan on holding the property.
A typical rehab project timeline is as follows:
Purchase Closing (take possession)
Planning, Permits, Bidding (1 week to 1 month+) - If possible, you will try to start the planning before the closing to gain a head start. The planning process can take as little as 1 week or as long as 2 months if you have large project that requires plans, plan review, & permitting.
Rehab/Construction (2 weeks to 4 months) - For a cosmetic rehab, the project may only take a few weeks, but for a larger 'gut job' it could take up to 4 months.
Listing for Sale (1 week to 2 months) - In a hot seller's market in a desirable area, you may have an offer the 1st day you put the property on the market. In a buyer's market, your property could sit for 1 to 2 months before you get an offer.
Closing (1 to 2 months) - Once you get an offer under contract, it generally takes around 30 to 60 days to process the closing.
In a best case scenario, with a cosmetic rehab that sells quickly, you are looking at a holding period of 2 to 3 months.
Overall, the average rehab will likely take around 4 to 5 months.
Holding Costs Example
Let's run through a quick example of how to calculate your Holding Costs for an average rehab that takes about 5 months to complete from taking possession to final sales closing.
In the table below, the monthly holding cost amount is being multiplied by the holding period to calculate the Total Holding Costs.
Holding Costs (5 Months) | $/Month | Amount |
Property Taxes | $125 | $1,250 |
Property Insurance | $125 | $625 |
Utilities | $275 | $1,375 |
Maintenance | $80 | $400 |
Total Holding Costs |
| $3,650 |