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What Are Holding Costs?

If you’re about to become a real estate investor and you’re thinking about taking out a hard money loan to buy a property, you need to first account for all possible expenses – because flipping houses isn’t free. If you don’t plan properly, you could end up wasting money you don’t need to waste.

And that means you need to consider holding costs.

What Are Holding Costs?

The term holding costs refers to the amount of money it’s going to cost you to hang on to a property that hasn’t sold yet.

Holding costs include:

Property taxes
Insurance
Utilities
Maintenance (lawn and HOA dues)

You’ll have to be as mindful of these costs as you will of closing and financing costs, because unlike those two types of costs, these keep building up each month. For every month your property doesn’t sell, you’re forking over more and more cash.
Are You Looking for a Hard Money Loan to Buy a Property?
Call us at 404-814-1644 or contact us online to find out whether you might qualify for this type of funding in Tennessee, Georgia or Florida. In the meantime, check to ensure that you meet our loan criteria. Our loan amounts can be up to 65 percent of the after-repaired value of the collateral—and if you use the loan for renovation or construction, the loan amount can be based on the collateral’s improved value.

Read our frequently asked questions and take a few minutes to learn about the hard money loan process.

 

How to Estimate the Cost of Repairs

If you’re thinking about rehabbing properties for a living, you need to know how to accurately estimate repair costs – otherwise, you could end up spending a bunch of money and not getting it back at the closing table. This is particularly important if you’re getting a hard money loan to buy a property.
How to Estimate the Cost of Repairs
You’ll want to estimate the possible cost of repairs on a house before you actually make an offer to protect yourself from a bad deal.

Some investors have a $20 per square foot” rule that says most – but not all – houses will cost the new owner (you) about $20 per square foot to bring them up to a profitable value. That includes:

All-new flooring
Fresh paint
New baseboards
New electrical fixtures
New kitchen and bathrooms (cabinets, countertops and appliances)
New window treatments
New doors
Landscaping

That doesn’t work in every situation, though, so it’s important that you’re especially careful estimating repair costs until you’re extremely experienced. Make sure you go through the property, room by room, to estimate repair costs manually instead of relying on a $20 per square foot formula.
Are You Looking for a Hard Money Loan to Buy a Property?
Call us at 404-814-1644 or contact us online to find out whether you might qualify for this type of funding. In the meantime, check to ensure that you meet our loan criteria. Our loan amounts can be up to 65 percent of the after-repaired value of the collateral—and if you use the loan for renovation or construction, the loan amount can be based on the collateral’s improved value.

Read our frequently asked questions and take a few minutes to learn about the hard money loan process.

 

How to Determine ARV

When you borrow money from a hard money lender, your lender will come out and look at the property to determine its after-repair value, or ARV.

But you shouldn’t even go that far unless you’ve evaluated the property’s ARV yourself – otherwise, you could be about to sink your money into a losing deal.
How to Determine ARV
Your preliminary research on a house should include looking at other, similar houses that are in better condition and determining what they’re selling for.

These are called comparables (comps for short). They’re recently sold and for-sale properties similar to the subject property, and you’ll use them to determine what the property you want is going to sell for once it’s all fixed up.

You can use major websites like Zillow, Trulia or Redfin, but you’ll get better data from the Multiple Listing Service, or MLS.

The catch: You’ll need to work with a real estate agent or be an agent yourself. (That’s fine, too, because you need a talented agent on your team if you want to be successful in this business.)

Your first goal is to look for other rehabbed properties, houses that have been recently sold as short sales or bank-owned properties (provided that they’ve been renovated or are in good condition).

Look only at homes that have sold within the past 3 to 6 months, and that are within no more than three-quarters of a mile from the property you’re interested in rehabbing. Make sure they’re close in size, number of bedrooms and bathrooms, age, and square footage, and that they’re in a similar neighborhood, too.

It’s also a good idea to check local tax records to see what other investors are paying for properties in the area.

Once you know what the […]