Holding Costs on a House Flip: What They Include and How to Calculate Them

Holding costs on a house flip are what the house costs you every month you own it: property taxes, insurance, utilities, HOA dues, loan interest and small items such as lawn care, multiplied by the months between purchase and sale. How to calculate holding costs: monthly bills plus one twelfth of the yearly bills, times the months. At $1,500 a month for 6 months, that is $9,000.

What holding costs include

Holding costs (also called carrying costs on a house flip) are everything you pay to own the house while nobody lives in it. They start on the day you close the purchase and stop on the day the buyer closes. None of them improve the house; they are the price of time.

The lines, in the order most people price them:

• Property taxes. Billed by the county once or twice a year. Take the yearly amount from the latest tax bill and divide it by 12. In many places the taxes will be reassessed after the sale, but that is the buyer's problem.
• Insurance. A vacant house under construction usually needs a builder's risk or vacant-property policy, not an ordinary homeowner's policy. Ask for a quote for the term of the project and divide by 12 as well.
• Utilities. Electricity for tools and lights, water, gas or oil for heat so the pipes do not freeze, trash service. Summer and winter differ; use a realistic monthly figure.
• HOA dues. Monthly or quarterly dues where the house is in an association. Also check for a transfer fee or a special assessment that the association may charge.
• Loan interest. If you bought with a loan that is not counted anywhere else in your analysis, its monthly interest belongs here. More on this below, because it is the line most often counted twice.
• Other. Lawn care or snow removal, an alarm or a lockbox, a dumpster that stays on site, a temporary fence. Small each, not small together.

The purchase closing costs and the selling costs are not holding costs. They are one-time payments at each end of the project and the house flip profit calculator counts them separately.

How to calculate holding costs

The formula is the same whether you do it on paper or in an app:

Holding per month = Utilities + HOA + Loan interest + Other + (Taxes per year + Insurance per year) ÷ 12
Total holding costs = Holding per month × Months owned

Two details matter. Taxes and insurance are usually quoted per year, so they are divided by 12 before they join the monthly lines. And "months owned" is the whole period from purchase closing to sale closing, not the length of the construction. A rehab that takes 3 months still leaves the house on the market for a month or two, and in escrow for another.

If you do not know a line, leave it blank rather than writing $0. Blank means "not priced yet" and reminds you to go and find out; $0 means "there is no such cost", which is rarely true for taxes or insurance.

Worked example: the example house at 6 months

Take the example house used across this site: ARV $320,000, 1,600 sq ft, bought for $200,000 with a $48,000 rehab. Say it is a cash purchase, part of the cash coming from a line of credit on another property. The holding lines could look like this:

Every line is an example, not market data; your county, your insurer and your lender set the real figures. The point is the shape: six lines, two of them yearly, one multiplication at the end.

That $9,000 is one of the six costs in the cash profit on this house: 320,000 − 200,000 − 52,800 (rehab with 10% contingency) − 4,000 (purchase closing) − 9,000 (holding) − 19,200 (selling at 6% of ARV) = $35,000, or 10.9% of ARV.

What three more months do

Nothing in a flip goes wrong as quietly as time. A permit that takes five weeks instead of two, a subcontractor who starts late, a buyer whose financing falls through in escrow: none of these show up as a line in the budget, yet each one adds a month of holding.

On the example house, three more months means 9 × $1,500 = $13,500 instead of $9,000. The profit falls from $35,000 to $30,500, from 10.9% of ARV to 9.5%, below the app's default target of 10%.

If the same house is bought with hard money instead of cash, three months add more than holding. The loan in the hard money example is $228,000 at 11% a year, which is $2,090 of interest a month. Three months add $6,270 of interest on top of $4,500 of holding, and the financed profit goes from $17,900 to $7,130. Time is more expensive on borrowed money.

Why months are the most underestimated input

Ask a flipper what a project will take and the answer is usually the construction schedule. Ask what it actually took and the answer includes everything around it. The gap is where holding costs grow.

A realistic month count includes:

1. Closing to start of work. Keys, permits, materials ordered, contractors scheduled. Often two to four weeks before the first wall comes down.
2. The rehab itself. The contractor's estimate, plus what the house shows once it is open. A walk-through by zones before you buy shortens the list of surprises but never removes it.
3. Listing to contract. Photos, days on market, showings, an offer. In a slow month this alone can be four to six weeks.
4. Contract to closing. The buyer's inspection, repair requests, the appraisal and their lender's underwriting: typically 30 to 45 days, longer if the first buyer walks.

Add the four and a "three-month flip" is often a six-month flip. That is why the rule in this app is to look at every deal with three more months before deciding what to offer. If the margin survives nine months, six months is comfortable; if it only works at six, the deal depends on nothing going wrong.

Holding costs and loan interest: do not count them twice

The most common error in holding costs is paying the loan interest twice on paper. A full deal analysis has a financing line (points and interest on the purchase loan) and a holding line (taxes, insurance, utilities, HOA, other). If the hard money interest is in the financing line, it must not also be in the holding line.

The rule of thumb: the holding calculator has a "loan interest" line for money that is not counted anywhere else, such as a line of credit, a private loan from a relative or a seller carry-back. A hard money loan that the deal analysis already prices stays out of it.

The second common error is writing $0 for a line nobody has priced yet. Insurance on a vacant house is not $0; it is unknown until an agent quotes it. A number that is really "I have not checked" makes the whole total look more certain than it is.

How Flip Investor OS counts holding costs

In Flip Investor OS every deal carries a holding cost per month and a number of months. The deal analysis multiplies them, adds the result to the rehab with contingency, the purchase costs, the financing and the selling costs, and works out the profit, the margin and the maximum offer at which the profit still meets your target. The same months drive the loan interest, so one change to the schedule moves both.

The free holding calculator takes the six lines above, divides the yearly ones by 12, and shows the per-month figure and the total for the months you enter. A line you leave blank is treated as "none of that cost", and the calculator needs at least one line and the months before it shows a result. Open the free calculator and try your own house.

Once the house becomes a project, the planned months are frozen in the original plan, the forecast moves with the milestones, and the actual months are what the calendar says. If the forecast runs longer than the plan, the "Needs attention" list shows the overdue milestone and the forecast profit shows what the extra months cost. The app does not say whether the deal is good; it shows how much of the margin the calendar has already used.

Every deal also gets a stress test with three more months, next to ARV −5% and rehab +20%. Look at that row before you look at the base case: the reasons house flips lose money are mostly in it.