Getting into real estate can be a great way to make money, but it does come with some risks. One big risk is keeping a property too long that isn’t making you money. The costs of holding onto a property can pile up fast, cutting into your earnings and possibly leading to losses. In this guide, we will explore what holding costs are and how they can affect your finances. Plus, we’ll share a helpful checklist for investors and property flippers in Baton Rouge to help you dodge some common mistakes.
What are Holding Costs?
Holding costs refer to the money you spend while owning a property that you intend to sell or rent out. This includes mortgage payments, property taxes, insurance, utilities, maintenance, and repairs. Any costs you have while keeping the property are holding costs. These expenses can accumulate fast, especially
Why are Holding Costs Important?
Holding costs are very important because they can significantly affect how much money you make. If you keep a property for too long, these costs can eat into your earnings or even make you lose money. For instance, if your monthly expenses for the mortgage, taxes, and utilities add up to $1,000, and it takes you six months to sell the house, your holding costs will total $6,000. So, if you were hoping to earn $20,000 from the sale, your actual profit would only be $14,000 after those costs are considered.
The costs of keeping a property can affect how much money you make. The longer you own a property, the smaller your return on investment (ROI). For instance, if you intend to flip a property, it’s best to sell it quickly to boost your ROI. But remember, if you hold onto that property for too long, your ROI will drop.
Holding Cost Checklist for Investors and Property Flippers in Baton Rouge
To help you avoid some of the most common holding cost pitfalls, we’ve created a holding cost checklist for investors and property flippers in Baton Rouge. Use this checklist to ensure you’re factoring in all the holding costs associated with your property.
1. Mortgage payments: Invest in the monthly payments if you mortgage the property.
2. Property taxes: Property taxes can vary widely depending on the location and value of the property.
3. Insurance: Property insurance can protect you in case of damage or loss, but it comes at a cost.
4. Utilities: Utilities like electricity, water, and gas can add up quickly, especially if the property is vacant.
5. Maintenance and repairs: Properties require ongoing maintenance and occasional repairs. Be sure to factor in the costs of routine maintenance like lawn care, cleaning, HVAC maintenance, and unexpected repairs.
6. Property management fees: If you’re renting out the property, you may need to pay a property management company to handle tenant issues and collect rent.
7. Homeowner association (HOA) fees: If the property is part of an HOA, you must pay monthly or annual fees.
8. Vacancy costs: If the property sits vacant for any period, you’ll need to factor in keeping it secure, maintaining landscaping, and paying utilities.
9. Opportunity cost: The longer you hold onto a property, the more you miss out on other investment opportunities. Be sure to factor in the opportunity cost of holding onto the property.
Holding costs are a critical factor to consider when investing in real estate. They can quickly eat away at your profits and impact your ROI. Using the holding cost checklist provided in this guide, you can ensure that you’re factoring in all the holding costs associated with your property. This will help you make more informed investment decisions and maximize your profitability. Have you questions about buying or selling real estate in Baton Rouge? Contact our team to find out how we help investors and property flippers! (225) 315-5993