Carrying Costs

In real estate terms, a carrying cost is the cost associated with the expenses that you invest in a property after purchasing it, and before it can be resold.

These expenses may include property taxes, mortgage insurance, hazard insurance, utility, supply, and upkeep expenses, like grass cutting, window washing, and picking up the crap from the dog whose owner lives next door. You get the picture.

Here’s an example: After dropping thousands and attending a two-hour, I’m-suckering-you-out-of-your-money motivational seminar, your buddy approaches you about flipping houses. He believes you could make millions, and you too become a believer after drinking the Tony Robbins Kool-aid. You think, "well, it’s worth a shot," and decide to quit your job at Uber hoping that this “get rich quick” scheme will work.

You purchase your first little gem for an amazing $90,000 and quickly put it up for sale for $120,000, believing that this house was waay undervalued, and you and your buddy could make a quick $30,000. Split between the two of you, that’s a profit of $15,000 each. Not too shabby for your first flip.

But after further inspection, you realize that you must continue to pay for utilities, hazard insurance, mortgage insurance, and an exterminator to come out and take care of the hidden rat infestation lurking in the walls. You realize that you must continue to carry all of these expenses (and more) until the house is sold.

You’re realizing that this becoming a money pit and is a lot tougher than that fast talkin' guy wearing the sharp suit and cheap headset at that stupid seminar made it out to be.

You finally get someone to buy the house for $120,000. But after deducting a year’s worth of carrying costs totalling $40,000, you shed a tear knowing you and your buddy are in the hole for $10,000. Nice…and back to Uber you go.