My carry sheet says 19.5k a month, an operator says budget 30k

Six months of building models, no deals yet, and I want to stop being wrong about this line before I write offers.

Here's my monthly carry sheet on a hypothetical 2.6M purchase in a high-end suburb, 1.85M borrowed:

interest at 10 percent on 1.85M, 15,417 taxes, 2,400 insurance, 900 utilities, 400 landscape, 350

That's 19,467. I ran it past someone who does two of these a year and he said budget 30k a month and don't argue. He didn't explain, he just laughed at the insurance line.

The other thing I can't settle is how many months to run it for. My spreadsheet uses 8. If I use 14 the deal stops working at any purchase price I'd be able to get accepted, which makes me think either my ARV is too low or 14 months is not a real number.

So two questions. What is missing from the five lines above, and is 8 months a defensible assumption for something at 2.6M going out at around 3.4M? I'd rather find out my model is broken now than after I've committed a deposit.

Answer

1chriswalton8CC1CPRO8

He laughed at the insurance line because a vacant, under-renovation policy on a 2.6M house is nowhere near 900 a month. I've seen those quoted at three and four times a normal homeowner premium, and the builder's risk piece is separate. Get an actual quote, it takes a phone call and it will move your sheet more than anything else here.

What else is missing:

Staging. At this price it's not optional and it's a monthly rental, often 3k to 6k a month plus a setup fee, running the whole time you're listed.

Security. Vacant high-end house with finished materials inside gets a monitored system, sometimes a patrol. Add cameras during construction.

HOA dues if there are any, and in luxury pockets they can be serious.

Pool and grounds service, which is separate from the 350 you have for mowing.

Loan points and any extension fee, amortized across your hold. A point on 1.85M is 18,500, and an extension is another one.

Interest on the interest, if you're using an interest reserve funded by the loan.

And then selling costs, which aren't carry but people leave them out of the same sheet. Commission, transfer taxes where your state has them, and a title or attorney fee depending on the state you're in.

Add those and 30k stops being a joke. On the months question, I'd model 8 as the good case and check whether the deal survives 14, because the deal you can only do at 8 is a bet on a buyer showing up on schedule.

3 replies

2joe_delgado5AP4CPRO6

Shorter version. If it dies at 14 months, that's the model working, not the model being wrong. I do fast thin-margin stuff and the reason I stay out of this price band is exactly that. My exits are 45 to 90 days because there are hundreds of buyers. At 3.4M there might be nine all year.

1Rena Expert

The insurance and staging gaps @sable listed are the mechanical fixes. The months question is the one that decides whether you ever buy anything at this price.

Eight months is not a defensible default. It's a defensible output. Pull the sold data for your target submarket above 3M for the last 18 to 24 months and look at the days on market for each sale, plus how many of those sales happened at all. In a lot of high-end pockets the answer is a handful per year, and about a dozen states do not make sale prices public, so depending on where you are you may have to get this from an agent's MLS data rather than the county. Whatever that data says about elapsed time, that's your number, and then add the time your listing sits before the first offer that isn't insulting.

The broader context is worth having. ATTOM's flip data has gross returns for the whole market down near 25 percent, the low end of a multi-decade range, so there's no cushion coming from the general market. Luxury runs on its own logic, driven by high-end buyer demand and wealth effects rather than the mainstream housing trend, which makes it less predictable in both directions.

The structural point for you as a first-timer: this strategy assumes you can absorb a long hold without being forced to sell. If a 14 month carry would put you in default or force a price cut you can't afford, the capital base is the constraint, and no purchase price fixes that. Confirm your actual rate, points, and extension terms in writing with a lender before you keep modeling 10 percent, because that assumption is carrying a lot of the sheet.

My carry sheet says 19.5k a month, an operator says budget 30k

3 replies