Fix and Flip Holding Costs: The Line That Kills Deals

The flip budget most people write has four line items and needs seven. One deal modeled at 4, 7 and 10 months, the 70% rule tested, every number shown.

Fix and flip holding costs are every dollar the property charges you for existing while you own it — interest, property tax, insurance, utilities and HOA — and they are the only line in a flip budget that grows while you sleep. The budget most people write has four line items: purchase, rehab, sale price, profit. It needs seven, and the missing three are the three that scale with time.

The equation CasaWise runs, published on how we calculate:

Flip Profit = ARV - Purchase Price - Rehab - Selling Costs
              - Holding Costs - Points - Closing Costs

Each subtraction exists for a reason:

Collapse holding, points and closing into a mental "call it five percent" and the deal will look fine right up until the month it does not.

The deal, and the assumptions it runs on

One house, carried through the whole article.

The 85% advance, the two points and the interest-only structure are assumptions chosen for this example, not a quote and not a market average. The 6.67% is the 30-year fixed average for the week of 13 August 2026 (FRED, MORTGAGE30US). Short-term rehab financing prices above conventional owner-occupied money — how far above depends on your lender and your track record, and no honest article can tell you the spread. Use 6.67% as a floor and re-run it at your real rate. On a $221,000 balance, every additional percentage point adds $184.17 a month, or $6.05 a day.

Cash invested follows the same definition CasaWise uses for every model — down payment plus rehab plus closing costs plus points:

$39,000 + $65,000 + $5,200 + $4,420 = $113,620

Your burn rate is $60.47 a day, and the daily number is the one that changes behaviour

The holding-cost formula is straightforward:

Holding Costs = (Monthly Mortgage + Prorated Tax + Prorated Insurance) x Hold Months

Prorated means monthly — annual tax and annual premium each divided by twelve, charged for every month you hold, including the month the drywall crew never showed. Then add the two lines the formula leaves to you: utilities, which you pay in full because nobody lives there to pay them, and HOA if the property has one.

The 1.1% tax and 0.45% insurance are CasaWise's no-local-data fallbacks; the model estimates both city-by-city from the address. Get a real quote before you rely on the insurance fallback — a vacant property under renovation is not the same underwriting risk as an occupied one, and the policy that covers it is a different product.

Now convert:

$1,839.22 x 12 = $22,070.64 per year
$22,070.64 / 365 = $60.47 per day

$60.47 a day. Monthly numbers get filed. Daily numbers get acted on. An inspection that slips from Tuesday to the following Monday is six days, or $362.82 — more than most people will argue about on a change order. A three-week wait for a countertop template costs $1,269.87. Once the burn is a daily figure, "we'll get to it next week" has a price tag, and you start paying overtime to compress a schedule instead of interest to extend one.

The same house at four, seven and ten months

Everything above the holding line is fixed. Profit before holding costs:

$410,000 ARV
-$260,000 purchase
- $65,000 rehab
- $24,600 selling costs (6% of ARV)
-  $4,420 points
-  $5,200 purchase closing costs
--------------------------------------
= $50,780 before a single day of carry

Then the calendar does its work:

Two readings, and both matter.

Raw profit only falls 25% across six extra months, because this deal started with a $50,780 cushion. At $1,839.22 a month it takes 27.6 months for the calendar alone to zero it out — a margin that exists only because the purchase price was good.

The annualized column is the honest one. The same house, same crew, same finishes, returns 114.66% annualized on a four-month cycle and 34.21% on a ten-month cycle. You did not earn a worse deal — you earned the same deal at a third of the velocity, with $113,620 and your personal guarantee locked up two and a half times as long. Flippers do not go out of business on one deal. They go out of business doing one deal a year with capital priced for three.

The version of this deal you will actually be bidding on

Now buy the same house in a market where two other operators saw the same spread. Purchase $290,000, everything else unchanged.

Same house. Same rehab. Same ARV. Good at four months, barely worth the risk at seven, a loss at ten — and the only variable that moved was the calendar. Break-even lands at 9.7 months. The burn also rose to $66.40 a day, because a higher price means a bigger loan, higher points, higher closing costs and a higher tax bill. Paying more does not just cost you the difference. It raises the meter. That is the whole argument for underwriting hold length before you underwrite profit.

The 70% Rule says the maximum price on this house is $222,000

CasaWise states the rule the standard way: purchase price should be at or below 70% of ARV minus rehab.

Maximum purchase = (0.70 x $410,000) - $65,000
                 = $287,000 - $65,000
                 = $222,000

The $260,000 purchase fails by $38,000. Purchase plus rehab is $325,000, or 79.27% of ARV against a 70% ceiling. And yet the deal made $43,423 in four months. Both statements are true, which tells you what the rule is: a screen, not a verdict.

It reserves 30% of ARV — here, $123,000 — to cover selling costs, points, closing costs, holding costs and profit in one number. At the $222,000 maximum, the same house returns $78,912 on a seven-month hold, a 74.09% Flip ROI, and would need 56 months of carry to break even. That is not a target. That is a rule sized so that mistakes are survivable.

What it silently assumes. A normal hold length, because holding costs are the one input it cannot see — the rule does not know whether you are holding for four months or fourteen. Normal selling costs, because 6% of ARV is baked into the reserve at a fixed proportion. And a rehab estimate that holds, which is the least reliable number in the model.

Where it breaks, in both directions. The rule reserves one flat percentage against four costs that scale differently: selling costs scale with ARV, points and closing costs scale with purchase price, holding costs scale with time and loan size, and much of the rehab risk does not scale with price at all.

• High-price markets: too strict. On a $1,200,000 ARV with $150,000 of rehab, the rule caps purchase at $690,000 and reserves $360,000. Selling costs, points, closing and a seven-month carry consume about $127,848 of that, leaving roughly $232,152 — an 83% Flip ROI on $279,030 invested. No seller in that market is handing you an 83% return. The rule rejects deals that clear any sane profit target.
• Low-price markets: too loose. On a $140,000 ARV with $40,000 of rehab, the cap is $58,000 and the reserve is $42,000, of which selling costs alone take $8,400. A seven-month hold nets about $27,751. The percentage looks excellent, but permits, title, utility minimums, mobilization and trip charges do not shrink with the purchase price — and one foundation surprise is the same $15,000 on a $140,000 house as on a $400,000 one. The cushion is thin against risks that are absolute, not proportional.

Use the rule to sort a list. Use the full equation to price an offer.

Selling costs are 6% of a number you have not proven yet

CasaWise's standing default is 6% selling costs — agent commission plus seller-side closing costs — applied to the sale price. On this deal that is $24,600: 29% of the entire $85,000 spread between all-in cost and ARV, and more than points and closing costs combined.

The base matters more than the rate. ARV is doing double duty here — your revenue line and the base of your second-largest expense. Miss it by $10,000 and you do not lose $10,000, you lose $9,400, because you also save $600 of commission on money you failed to earn. That is the only good news.

The bad news is what the miss does to the calendar. An overstated ARV becomes an overstated list price, and an overstated list price does not fail quickly — it sits, draws showings without offers, and takes three months to tell you what it was worth. On the $290,000 basis, a $10,000 ARV miss plus three extra months of discovering it costs $9,400 + $6,059.13 = $15,459.13, or 78.59% of the entire budgeted profit. That is why a dollar of ARV optimism costs more than a dollar. It is not the dollar — it is the burn you pay while the market explains the mistake.

Pull ARV from closed sales in the last 90 days, same submarket, same finish level as what you are actually going to build.

Three things cause long holds, and none of them are bad luck

Scope discovery after demo. You bid the rehab on what you could see. Demo shows you the rest: the failed sub-panel, the notched joist, the water damage behind the tub surround. That is not paying more for the same work — it is new work, requiring new pricing, sometimes a new trade, and always new time. Budget a contingency you actually intend to spend.

Permit and inspection timing. Permits are a queue, and you do not control the queue. A scope that triggers plan review adds calendar you cannot compress with money, and a failed inspection does not cost you the re-inspection fee — it costs you the gap until the next slot, plus every trade behind it sitting idle. Learn what your jurisdiction requires before you write the offer, not after demo.

Contractor sequencing. Trades run in order and each waits for the last. One subcontractor sliding a week does not cost a week; it costs a week plus whatever gap opens before the next trade can be re-scheduled into your job instead of somebody else's. Sequence the schedule before closing, confirm availability in writing, and pay to hold slots on the critical path.

None of these need a statistic to be persuasive. They need a daily burn attached to them, which is the point of computing $60.47.

Where this runs in CasaWise

Fix & Flip modeling and the 70% Rule check in Deal Insights are part of the Ultimate AI Investors tier — the full profit equation, the monthly holding-cost build, Flip ROI on cash invested, and the rule tested against your inputs rather than in your head. BRRRR modeling sits in the same tier, which matters when you are choosing between selling and refinancing the same property; BRRRR math and the five places it breaks covers that path, and tier details are on pricing. Every formula above is published on how we calculate. If the exit is a rental instead, start with how to analyze a rental property and size reserves using CapEx reserves.

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