Holding the Key to a Profitable Investment

The two best times for investment property is when you buy a property and when you sell a property. The time in between is where the holding costs add up with time. In my market, investment properties are taking longer and longer to flip. The times on the market are increasing and the eventual contract price that you will get is also decreasing.

You must be fully aware of your holding costs and how time will affect your bottom line in this time.Many experienced investors ignore holding costs, or not understand all the costs associated with holding property. It usually works out for them because there was usually enough profit to cover these holding costs. Not to mention the fact that properties sold faster. Sometimes when a investor is initially estimates the rehab costs they focus on things like the roof, furnace, carpet, etc.

Holding costs are the expenses that are not associated with the expenses that are directly incurred in the rehab of a investment property. Holding costs are costs that are incurred even if the property just sat idle. Some examples of these costs are as follows.

Interest

Mortgage interest and credit card interest associated with the property. There may be times where you don't have enough cash to cover all fix-up materials and you may have to finance them with a credit card.

Taxes

Property taxes broken down into a monthly amount to track the expenses.

Utilities

Gas and electric bill. In a colder climate the cost of utilities in the winter increase dramatically.

Maintenance Property

Landscaping and outdoor maintenance. Factors such as bed work and size of lawn etc... can increase costs dramatically.

Neighborhood fees or dues.

Some neighborhoods or condos have fees associated with the property.

There could be many other expenses associated with holding real estate that may be specific to your area and the list could go on and on. Knowing your holding costs are a great way to be profitable in this business. Especially in a time where it takes longer to sell a property than normal. A lot of times a contract on a property does not necessarily mean that you are going to be able to get your money in a reasonable amount of time. Without a good understanding of the costs behind the scenes you may never actually know how profitable a property is going to be. Knowing these costs may be the deciding factor on whether or not you are going to take a lower offer on the property because it may in fact be a better deal in the long run. Or it could be the difference between hiring a job done or taking longer to do the job your self.