What are holding costs in real estate? Guide for investors

When it comes to real estate, most people focus on the big-ticket items — down payments, mortgage rates, and the overall purchase price. 

But successful investors know ownership means looking beyond the initial transaction. Holding costs, often called carrying costs, are the ongoing expenses of owning an investment property, and they can add up quickly over time. 

In this guide, you’ll learn what holding costs are in real estate, covering the most common types, ways to estimate costs, and strategies to bring prices down.

What are holding costs in real estate?

Holding costs are the recurring expenses you pay to maintain ownership of a property. Unlike one-time fees such as down payments or closing costs, they show up month after month as expenses, including mortgage payments, insurance, and utilities. 

Because they continue for as long as you own the property, they represent the true, sustained cost of ownership.

Investors need a strong handle on how carrying costs work for accurate budgeting and profitability. Otherwise, they risk sitting on properties that require more to maintain than they can generate in returns. These expenses also vary widely depending on factors like property size, condition, and location. For example, an apartment building in a pricey city will carry a lot more ongoing costs than a three-bedroom in the suburbs.

What are the types of holding costs?

Accounting for every possible type of holding cost keeps your budget and business plan tight. Because you incur these expenses every month, small oversights can add up fast. Here are the main types to think about when considering a new real estate investment.

Mortgage payments

Unless you purchased the property in cash, you’ll make monthly mortgage payments toward principal and interest. For most investors, this is the largest component of holding costs, and it continues until the loan is fully paid off or the property is sold. The typical U.S. mortgage payment reached about $2,329 per month in 2025, up roughly 21% from $1,924 just two years earlier.

You can also use Better’s free online tools, such as the mortgage calculator, to test different loan terms and down payments. This way, you can see how they affect your carrying costs before you commit. 

Property taxes

Governments levy these taxes based on the assessed value of the property. The amount varies significantly by state, from as low as 0.18% up to 1.89%, and it’s often influenced by local budgets for schools, public safety, and infrastructure. For investors, this means two things: Property taxes lower net operating income, which directly impacts cash flow and long-term returns.

It’s also worth noting that tax assessments may increase if property values rise or if you make improvements, so build room in your budget for potential changes.

Insurance

There are several types of insurance policies to consider when investing in real estate. Standard homeowner’s insurance is meant for owner-occupied homes, so it won’t offer the right protection for investment properties. 

If you're renovating, builder's risk insurance covers losses like theft, vandalism, and other damage while the property is under construction. For rental properties, landlord insurance provides liability coverage if a tenant is injured and property protection against damage from events like natural disasters and electrical issues. Many providers also offer optional add-ons, such as guaranteed coverage for missed rent and property damage protection.

Vacant properties bring their own set of risks, including undetected water damage and higher chances of theft and vandalism. So, if a property will sit empty for an extended period — whether because of renovations, tenant turnover, or market conditions — you’ll need vacant home insurance. 

The typical window before vacancy clauses kick in is 30 to 60 days. Once that window passes, insurers may either cancel the policy or limit coverage, often excluding risks like theft, vandalism, and water damage.

Utilities

Unless tenants pay every utility bill, these expenses will steadily accumulate for as long as you hold the property. If you’re still renovating, you’ll need to keep the lights on, the water running, and the electricity flowing to maintain a safe, workable environment for contractors. Even when the house is vacant, keep basic utilities active to prevent costly issues like frozen pipes and mold growth. 

Property management fees

Property management companies handle day-to-day tasks, such as screening tenants and collecting rent. They’re especially helpful if you live far from the property or own multiple rentals, since they spare you from travel and handling tenant requests yourself. Management firms typically charge about 5 to 10% of the monthly rental income. Some may also add extra expenses, such as vacancy fees or markups on repair costs. 

How to estimate your holding costs

The basic procedure for calculating holding costs is simple: Itemize recurring expenses tied to the home, and add them all up. The challenge is managing fluctuating expenses, like repairs and utilities, that vary from month to month.

To create a reliable estimate, review the property’s financial records and compare them to similar properties in the area. If you’re buying from another investor, use operating statements that detail past income and expenses. 

If you’re purchasing from a homeowner, look at utility bills, tax records, and comparable rental properties to project costs. This information helps you understand what’s realistic (and what isn’t).

...in as little as 3 minutes – no credit impact

Holding costs example

Imagine you’ve made a buy-and-hold investment in a single-family home, and your monthly real estate carrying costs look like this:

Mortgage payment: $1,800

— Property taxes: $300

— Insurance premium: $200

— Utility bills: $200

— Remodeling expenses: $2,000

The total here is $4,500 in carrying costs per month until the renovation is complete, and $2,500 once the work is finished. But what if remodeling takes longer than expected? Say you budgeted for three months of remodeling and it ends up taking five, that’s an extra $4,000. That added expense is enough to strain your cash flow and delay your return on investment. 

For this reason, it’s crucial to consider how carrying costs might change over time and build a buffer to protect your bottom line.

How to lower holding costs in real estate

Here are some effective ways to reduce your carrying costs and get the most out of your investment.

Secure a good mortgage rate

How favorable your financing terms are can have a major impact on your carrying costs. Just a small reduction in your interest rate could save you hundreds a month. For example, lowering the rate on a $300,000 loan from 6.5% to 6% cuts the payment by more than $100 each month. Factors such as your credit score, debt-to-income ratio, and down payment size all determine the rate you qualify for, so strengthening them before you apply can pay off significantly. 

Better’s One Day Mortgage gives busy investors the speed and flexibility they need. By securing a commitment letter in just 24 hours, rather than waiting weeks with traditional lenders, qualified borrowers can lock in their rates. While traditional lenders take several weeks to issue a commitment letter, qualified borrowers can get one from Better in a single day. 

Better’s One Day Mortgage gives busy investors the speed and flexibility they need. By securing a commitment letter in just 24 hours — rather than waiting weeks with traditional lenders — qualified borrowers can lock in their rate faster. This helps reduce the risk of losing out if interest rates rise before closing.

...in as little as 3 minutes – no credit impact

Explore refinancing options

Refinancing can make sense if interest rates fall or your credit profile improves, since both can open the door to better terms. Potential benefits include:Lowering your interest rate to reduce monthly payments

— Eliminating private mortgage insurance once you’ve built at least 20% equity

— Accessing your home equity to cover expenses such as renovations or debt consideration

Better offers cash-out refinancing and HELOCs with competitive rates and no hidden fees. You can get pre-approved in as little as three minutes, and every borrower has access to 24/7 support throughout the process.

...in as little as 3 minutes – no credit impact

Regularly review your expenses

Looking over your carrying costs periodically helps you spot unnecessary or inflated charges that might be cutting into your profits. For instance, if property management fees or insurance rates climb too high, shop around for more affordable providers to see if you can negotiate a better deal. If your utilities are through the roof, consider energy-efficient upgrades such as smart thermostats and LED lighting to save money over the long haul.

FAQs

What are the differences in holding costs for residential vs. commercial properties?

Holding costs for residential and commercial properties look notably different because commercial real estate is generally larger, more expensive, and subject to stricter regulations. Here are some of the biggest differences investors should consider:

— Financing costs: Commercial properties often carry higher interest rates and shorter repayment terms. Lenders view them as riskier investments and less predictable sources of income.

— Property taxes: Larger square footage and elevated assessed market values mean commercial properties typically face much steeper tax bills than residential homes.

— Utility expenses: Larger buildings are bigger and often have multiple tenants or longer hours of operation, so they use more energy and water. As a result, utility bills are much higher than those for a typical home.

What happens if I underestimate my holding costs?

Underestimating your holding costs can quickly squeeze your cash flow, leading to project delays and lower profits. It also raises your financial risk since running short on funds may leave you struggling to keep up with mortgage payments and other obligations. In the worst case, consistent shortfalls could force you into an early sale or even into foreclosure. That’s why accurate planning is essential for long-term success.

Invest smarter with Better

Smart real estate investing means understanding ongoing costs and planning for them effectively. With a clear view of your obligations, you can budget confidently, protect your cash flow, and invest strategically for long-term success.

Better makes this process simpler and more accessible. We give you the speed, transparency, and support you need to manage your largest expenses with confidence. With no hidden fees and 24/7 guidance, Better helps you move from planning to execution — so you can focus on growing your investment instead of worrying about the fine print.

...in as little as 3 minutes – no credit impact