Posted by Brent_IL on August 25, 2003 at 10:49:07:
Add the monthly lien payments and operating expenses for each month and multiply by the length of time that you expect to own the building. Double that figure and that is an estimate for holding costs.
When most investors refer to the profit being thin, they mean that it isn’t enough given the effort involved and the resources that would have to be committed to the deal. If you can buy a house for $15,000 and you know that you flip it before closing for $20,000, $5,000 is probably enough. If you have to finance a $150,000 house to make $5,000, it probably isn?t worth it given the exposure. If all you have invested is a little time and have no responsibility, e.g., a straight option, it?s all good.
Good Strategy to Figure Holding Costs? - Posted by ePm_IN/IL
Posted by ePm_IN/IL on August 25, 2003 at 09:47:15:
When running the numbers of a potential deal, I understand that one must figure on certain expenses.
Closing Costs: roughly 3% of sales price
Rehab Cost: Varies due to Property Condition
Expected Profit: Varies by Investor/Rehabber
Quick/Flip Profit: Varies by Investor/WatchDog
Holding Cost: ???
My question is, what is a sound strategy to obtain an accurate estimate on Holding Costs? Furthermore, are there any other main areas that I happen to be missing here when running numbers to obtain the most logical offer price?
Finally, I see numerous investors post remarks in regard to deals not having a large enough profit. This is sometimes >$10,000. My second question is, how does one decide when a deal does not have enough profit to take on. Am I mistaken by thinking that any profit is good profit? Or, is this simply a personal preference by these certain individuals in that they only want deals that make > or = $20,000. My fear is that if I should fall into this same way of thinking, I might pass by numerous small deals and never find the larger deals, which would in-turn create less profit for myself should this particular scenario play out over an extended period of time. Any insight is greatly appreciated. Thanks.
One rule of thumb that I use and which is reasonably accurate for calculating holding costs (loan interest, taxes, insurance, regular maintenance such as lawn mowing and snow removal, utilities etc.) but not fix up expenses, is to use 1% of the property value per month as an estimate.