Calculating Your Holding Costs: Crunching Numbers in Prairie Village

Time is money and as professional home buyers, we know on every house exactly how much every house costs us every day we hold it. For every day we drag our feet figuring out what we are going to do with a property, getting bids to get the work done, hiring the right contractor, then waiting the weeks or now it seems months for those contractors to just get started costs us money. Then waiting for the contractors to find all the materials and get the work done. Then we have time to sell and get the transaction closed, every day racking up more in cost.

Many homeowners may find themselves with a home and think they will make more money getting the home all fixed up before they sell. They go through the exact same process we do, however, unless they are in the business, it quite often takes them twice as long for every step in the process and quite often the contractors charge them considerably more.

So before you decide you want to fix up a home before selling it, you might want to consider two things: what exactly are your holding costs per day, and roughly what kind of return on investment will you get for each project completed. We found a great resource that outlines what repairs cost here in the Mid-West and what kind of return on investment you might get on the website: Remodeling.HW.net (click on Cost vs Value). And for your Holding Costs, we are going to help you figure those out here to day.

To help you understand these costs ahead of time, we’ve created a guide for homeowners selling property in Prairie Village for calculating your holding costs.

Utilities

To figure this general holding costs on a house is fairly straightforward. What are your monthly costs for water, gas, and electricity each month? Add those up to get a yearly cost and start your holding costs calculation. Yes if you lived somewhere else you would probably have similar holding costs.

But what if you are talking about a vacant house? Paying this holding cost month after month on a house no one lives in. The numbers are racking up.

Your first thought might be to turn off the utilities. But before you do, keep in mind that in winter if you turn off the heating utilities that things might freeze. We have seen homes where the owner had turned off the heat but failed to shut off and winterize the water systems or the steam heat heating systems. The temperatures dropped well below freezing and all those water lines ended up frozen solid. When water freezes, it expands, cracking all those water lines and then the next week when the house heats back up with warmer weather, well the house is destroyed. (See the story of the incredible ice palace.)

For the sake of this example, we are going to estimate that you pay $100 in gas, $100 in electric,ity and about $25 in water for a grand total of $225 a month or $2,700 a year.

Mortgage, Taxes, and Insurance

Your Mortgage

If you don’t have a mortgage, this number will not apply to you, but if you do have a mortgage, look at the little payment receipt and see how much you are paying each month in interest. Add up the last 12 to get a rough idea of your annual mortgage interest expenses and add it to the list.

For the sake of this example, we are going to assume you have a free and clear house and have no mortgage interest to worry about.

Real Estate Taxes

Real Estate Taxes are also fairly easy to figure out, you can probably find out on a county website what you pay each year. And coming up in December just about every county sends out their tax bills. So go find this annual number and add it to the list.

For the sake of this example, we are going to estimate that your annual real estate taxes are about $1500.

Insurance

And Insurance is going to be a bit tricky as it costs a lot more for insurance on a vacant house, than it would for an occupied house. If you have a house that has the original insurance on it that covered the home for many years, and then you or the owner moved out, upgrade your insurance. Please keep in mind that 30 days after the house becomes vacant, that almost always the old insurance becomes null and void. They will continue to let you pay for it, but should there be a claim, well you are out of luck.

On average, insurance on a vacant home costs about $100 per $100,000 of value. For our example we are going to estimate your costs is $150 a month or $1800 a year.

HOA

If located in a development with a homeowners association, don’t forget to add your monthly HOA fees when calculating your holding costs when selling your property in Prairie Village.

Many older homes don’t have an HOA or have something minimal. For the sake of our example we are going to estimate $100 a year.

Recap of Definable Fees

Let’s recap what we have so far:

• Utilities: $2,700
• Interest: 0
• Taxes: $1,500
• Insurance: $1,800
• HOA Fees: $100

Total definable expenses are $6,100 annual for our example house or $508 a month.

Maintenance and Repairs

Maintaining and repairs are holding costs that do not end until closing. Now, more than ever, you’ll want to keep the landscaping sharp and perform any minor maintenance that is required. When selling your property in Prairie Village, the last thing you want is for your home to appear abandoned. Not only could it affect the first impression of potential buyers, but it could also send a signal out to those with less than the best intentions that no one is watching the property. Complete any necessary repairs immediately; as you know, minor problems can quickly grow into significant issues. 

Mowing the Yard & Clearing Snow

So lets’ put some monetary value to this, although you might own your own mower to mow, your own trimmers to trim and your own shovel to deal with snow. But if the house is vacant, which we are assuming for our example, you would need to do all of these chores after you have done them at the home you live in, or you have to pay to have them done.

It costs us about $50 a week to have a lawn mowed and here in the KC Metro it needs to be mowed weekly from about Mid April till the end of October about 27 weeks for a total of $1,350. You will probably ignore any leaves that fall and let them kill the lawn and ignore trimming trees and bushes, which is not a big deal to ignore for a year, but ignore it for several years, and then it will be very costly to resolve. You will probably also ignore the snow if it falls, although if you have a public sidewalk in your yard, the city says it is your responsibility to clear the snow or get a fine.

General Maintenance

If it ain’t broke why fix it? But if we are looking at a house that no one lives in, there is probably quite a lot of items that need to be fixed. And the longer items need fixed and the longer the house sits vacant, the more general maintenance it is going to need. Things break over time in a vacant house. And as the house ages, it gets more and more dated. In the 1950s’ those pastel bathrooms were quite stylish, in the 1980’s it was all Oak and Brass, and now it is white everything with Black Metal fixtures. So the longer you wait, the more it’s going to cost to bring the home back to modern.

While we don’t know exactly what it is going to cost to rehab YOUR house, the typical house we buy needs: A New Roof, A New Furnace, A Central Air, the Ducts Need Cleaned Out, A New Hot Water Heater, New Windows, a Complete Brand New Kitchen, 2 Complete Brand New Bathrooms, New Flooring in the Entire House, Painted Inside and Out, All New Light Fixtures, Pop Corn Scraped off the Ceiling, And then a lot of little minor repairs all over. The cost of this in an average 1200 to 1400 sq ft house costs us on average about $70,000, in the past year this has spiked to about $90,000. But if you are not in the business and have to hire all retail contractors for just one job, you can easily pencil in about $150,000 for the same repairs.

For sake of our example let’s go with $120,000, just to be conservative.

Time to Do the Work.

Here you need to know how long will it all take? How long will it take you to figure out what to do? How long will it take to get several bids for everything? Pick out colors and finishes? Confirm with an expert that you are picking the right colors and finishes? And then to get the contractors into the house and complete the work.

As people that do this every day, we figure about a week to figure things out, another week to get with our already selected contractors, and then about 2 months to get the work all done. If the house is in really bad shape and needs a ton of work, then about 4 to 5 months. All in we are looking at about 3 months on average before we can start marketing it for sale, and then another 2 to find a buyer and get it closed. All in from the day we buy a house to the day we sell, it can be 4 to 5 months.

But if you are not in the business, you can easily double the time it takes to figure things out, find the contractors, get the work done, and even double to find a Realtor. I would pencil in about 8 months of hold time to rehab a house for the average homeowner who has a vacant house. If you live in that house while it is rehabbed, add to the time and the cost even more.

For the sake of our example, let’s say your hold time is 8 months.

Improvement Loans

Now if you have the cash available to pay the $508 in basic holding costs, plus $200 a month to keep the yard mowed, and then the $120,000 to pay for the repairs you are sitting pretty. But the average person does not have the $130,000 needed to pay for everything, so would need to get some sort of home improvement loan, which you may or may not be able to get. If you are able to find a lender that will lend $130,000 to you to renovate a home you don’t live in, we are not quite sure of what the interest rate would be as we are not lenders. We did a bit of searching on the internet and came up with something around 3 Percent.

If we plug in $130,000 at 3 percent for your 8 month hold time with straight interest we get $2,600 dollars, but I am pretty sure the interest rate would be considerably higher and you probably should be prepared to pay interest for a full year.

Food for Thought

Repair Costs: $130,000 just in case things go over.
Repair Loan Costs: $2,600 PLUS for the 8 months
Basic Holding Costs: $508 a month x 8 months or $4,064 total
Outdoor Maintenance: $200 a month for at least 3 months or $600 total

All in: $130,000 + $2,600 + $4.064 + $600 = $137,264

Look at these time frames and costs and this is IF you are able to make decisions and get things done in a timely manner. Quite often on an extra house, that you do not live in, so all efforts must be fit in and around your current house, your job, your family, your life, so it could take even longer. And if you look at that website I mentioned to look up what it costs to make a repair and how much return in home price you will receive and quite often you will see that you only get an 80 or 90 % return. That means for that your total $137,264 in costs you will be lucky to add $110,000 ($130k in repairs x 85%) to the value of the home.

Then go list that with a 6% real estate commission and that house that you could have sold as is in about a week to us is might be selling for $110,000 higher price in 8 to 10 months and $137,264 dollars later.

Do you really want to go to all that hassle?

You’ve got to spend money to make money, or so they say. Suppose you’ve gone through the headaches of making repairs and find yourself further in debt in the hope of realizing a higher profit. Regrettably, for homeowners selling property in Prairie Village, planning to pay off the loan quickly after the sale, you may find yourself making payments for much longer than planned. 

Why risk the devastating effects of holding costs when you can sell faster to a direct buyer from kcmoHomeBuyer?

Professional Home Buyers

With the power of cash, holding costs get wiped off of the closing table. There will be no need to make further deductions from our offer as you may find yourself doing with a listing; we charge no commissions or iBuyer fees, there’s no need to prep or make repairs because we buy homes as-is, this means the offer from kcmoHomeBuyer is what you receive at closing. kcmoHomeBuyer can provide you with a guaranteed closing date, often in a matter of days or a few weeks. In addition, if you haven’t relocated yet and need a little more time, kcmoHomeBuyer doesn’t need to move in when you leave, so our direct buyers have the flexibility to close on a date that works for your move to your new home. The direct buyers at kcmoHomeBuyer are straightforward so that you can compare which method of home sales is best for your circumstances and will fully detail what you would earn on the deal through a traditional listing or by selling your property in Prairie Village to kcmoHomeBuyer. Send us a message to learn more.

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