Costs To Carry When Evaluating Offers | Alena Lehrer Compass | Los Angeles & Orange County Real Estate

The Cost To Carry

If you are selling a property but have full use of it - or income - the urgency to sell is different compared to a vacant property because vacant properties have monthly carrying costs.

Some of my clients have said to me: "Oh, but my real estate taxes are only $400 per month!"......or....."My mortgage rate is 2% so no big deal!"...... without mentioning a few other important monthly costs every property incurs:

1. Real estate taxes.

2. Insurance costs.

3. Maintenance and repairs costs (unknown).

4. Utilities costs: electricity, gas, oil, etc.

5. Home Owner Association fees.

6. Mortgage cost.

7. Cost of Capital.

The cost of capital is often forgotten or ignored: if you own a property that nets $500,000 after all closing costs/capital gains taxes/mortgage repayment, that $500,000 could be earning around 5% right now. That's about $2,083 per month. That capital could have other opportunity uses that produce even more value.

So as a property sits vacant, look at the taxi-cab-meter ticking away as each month passes and calculate the COMPLETE costs to carry when evaluating offers. Sometimes an offer we don't LOVE may be better than the additional costs to carry that property another 3 months?

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