Ask a new investor about their deal and they'll quote the repair budget confidently. Ask them about holding costs and you'll often get a vague "I built in some buffer for that."
Holding costs are what you pay every month a property sits in your portfolio — from the day you close the purchase to the day you close the sale. They're not glamorous. They don't come up at meetups. But on a typical 6-month flip, they quietly eat $10,000-$20,000 that investors forgot to plan for.
Every line item, explained
Hard money interest
This is the big one. Most residential fix-and-flip investors use hard money loans because conventional financing moves too slowly and has too many restrictions on property condition. Hard money lenders typically charge 10-14% annually, plus 2-4 origination points at closing.
On a $140,000 loan at 12% annual interest, you're paying $1,400 a month in interest alone. That doesn't include principal — hard money loans are usually interest-only.
The origination points are a one-time cost, but you should amortize them across your expected hold period for a true monthly cost. Three points on a $140,000 loan is $4,200. On a 6-month flip, that's $700 a month in amortized points cost.
Property taxes
The county doesn't care that you're renovating. Taxes continue to accrue. In most U.S. markets, property taxes run 1-2% of assessed value annually. On a property assessed at $120,000, that's $1,200-$2,400 per year, or $100-$200 per month.
Some investors are surprised to find that properties are reassessed after major renovations — which can increase your tax basis before you even sell. Know your local rules.
Insurance
Your standard homeowner's policy does not cover a vacant property under renovation. You need either a builder's risk policy or a vacant property policy. These typically run $1,200-$3,000 per year ($100-$250 per month) depending on coverage and location.
If the property is vacant for more than 30-60 days without an appropriate policy, your insurer may deny claims. A fire during renovation without proper coverage has destroyed more than a few deals.
Utilities
You need electricity, water, and gas running during renovation. Contractors need light, power tools, and running water. After renovation, the property needs to stay conditioned for showings — a house that baked in summer heat or froze in winter comes with a musty smell that buyers notice immediately.
Budget $100-$200 per month for utilities. This fluctuates seasonally: January in the Midwest and August in the South will cost more to condition than spring and fall.
Lawn and exterior maintenance
A neglected yard is a code violation in many cities and an automatic price reduction in every buyer's head. Budget $100-$200 per month for basic lawn maintenance, leaf removal, and exterior upkeep during the hold period.
After renovation, if the house sits on market for 2-3 months, you're paying a lawn service on a property that isn't generating income. Price that in.
HOA fees
If the property is in a homeowner's association, dues don't pause. Some HOAs also fine for unapproved exterior work, missing required permits, or rental/vacant property violations. Before you buy in an HOA community, get the fee schedule and understand the rules around renovation and vacancy.
Interest on your own capital (opportunity cost)
This one never shows up on a closing statement, but it's real. If you deployed $40,000 of your own cash into this deal and it takes 10 months instead of 6, you've tied up that $40,000 for an extra 4 months. In a market where you can get 8-10% returns on other deals, that's a meaningful cost.
Many experienced investors use a hurdle rate — a minimum acceptable return — and count the opportunity cost of their capital explicitly in their analysis.
How holding costs should change your MAO
The 70% rule is designed to cover holding costs within its margin. The math works like this:
On a $200,000 ARV deal using the 70% rule:
- Maximum offer: $200,000 × 70% = $140,000
- That 30% gap ($60,000) needs to cover:
- Buying closing costs: ~$3,000
- Selling closing costs (agent + transfer): ~$14,000
- Holding costs (6 months): ~$12,000
- Repairs: whatever's left
- Profit: target $20,000-$30,000
Run those numbers and you'll see the 30% margin is tight. A heavy rehab that takes 10 months instead of 6 adds roughly $8,000-$10,000 in extra holding costs — at 70%, that comes straight out of your profit.
This is why experienced investors drop their percentage for deals with longer expected timelines:
- Light cosmetic flip (3-4 months): 70-75% may work
- Medium rehab (5-7 months): 65-70% is safer
- Heavy rehab or structural work (8-12 months): 60-65% is the range where the math still works
Build your timeline before you build your offer
Most investors spend 20 minutes thinking about repairs and 2 minutes thinking about timeline. It should be closer to equal.
A realistic renovation and sales timeline:
- Close to start of work: 1-2 weeks
- Cosmetic rehab: 4-8 weeks
- Medium rehab (kitchen, baths, HVAC): 8-14 weeks
- Heavy rehab (structural, full gut): 16-30 weeks
- Listing prep and photography: 1 week
- Days on market: 2-8 weeks (market-dependent)
- Under contract to close: 30-45 days
Add up the realistiic range for your specific deal. If it's a heavy rehab in a market where things sit, you might be looking at 9-12 months. Model that explicitly: monthly holding cost × expected months = real holding cost for your MAO.
A simple holding cost worksheet
Before making any offer, fill in these numbers:
| Line item | Monthly cost | |---|---| | Hard money interest | $____ | | Property taxes | $____ | | Insurance | $____ | | Utilities | $____ | | Lawn/maintenance | $____ | | HOA (if applicable) | $____ | | Total per month | $____ |
Then: Total per month × expected months = holding cost estimate
Put that number in your MAO calculation alongside repairs. The formula becomes:
MAO = (ARV × target %) − repairs − estimated holding costs − closing costs + target profit
Or simplified: work from 70% (or lower for longer timelines) and ensure the remaining margin covers all those costs.
In Underwritey's Finalize step, you can enter your loan amount, interest rate, and expected hold period, and the holding cost estimate is factored into your deal model. Adjust the timeline and watch the profit number change in real time. Try it free →