Holding costs, also called carrying costs, are what it costs to own a property while it is not producing income: during a rehab, while you look for a tenant, or while a finished flip waits for a buyer. They commonly include loan interest, property taxes, insurance, utilities, and any HOA dues or lawn care.
Holding costs = monthly holding cost × months held
Say you finance a flip with a $200,000 hard money loan at 12% interest-only. Rates vary by lender. Interest is $200,000 × 12% ÷ 12 = $2,000 a month. Add $300 for property taxes, $150 for insurance and $250 for utilities, and the house costs $2,700 a month to hold. Over a six-month project that is $2,700 × 6 = $16,200.
A common mistake is budgeting only for the rehab itself. The clock keeps running after the last coat of paint, through listing, showings and the weeks between accepting an offer and closing. If the same project takes eight months instead of six, holding costs rise to $2,700 × 8 = $21,600, and the extra $5,400 comes straight out of your pre-tax profit.
That is why the timeline matters on a flip or a BRRRR, not only the purchase price. Build a realistic schedule, then add a cushion before you make an offer.