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Money,
Money, Money, not only does it make the world go around, it is
majorly needed for rehabbing and flipping houses. Whether it
comes in the form of a mortgage, out of a savings account, a
partner's money, or a line of credit, you are going to need a
lot of it.
Mortgages
are expensive and depending on the time of the month of closing
you could be looking at mortgage payments within 30 days. Timed
right you can make it so the first one is due more towards the
60 day mark. If you are going to do the mortgage route in
financing the purchase price of the home, work with a broker or
good banker to get the rates as low as possible. Being an
investment property the interest rate is going to be higher
than your normal home loan. This is also going to make it
imperative that you have your time line for completing your
improvements short and punctual.
There
are banks that have real-estate investment portfolio lending
that is geared towards real-estate flipping. Developing a good
relationship with a banker who specializes in investment
lending is a good idea even if you don't pursue this type of
financing. Keep all your options open.
If
you have enough savings or the working capital to finance the
whole project, your interest cost is merely what it would cost
you from not having that money sitting in a interest bearing
account.
Another
source of money is a partner. There are many investors out
there that would rather have their money invested in
real-estate than in low interest accounts of today's bank
rates. Some of them might even finance the renovations as well.
But remember with their money at stake, they are going to want
more money than you would pay in interest borrowing it,
especially if it over a short period of time. With longer
periods of time a partner might be a better option than a
mortgage. Your carrying costs will be absorbed by the partner
and your cash on hand will not be dwindling away when things
take longer than expected.
The
one thing I can not say enough is time is money. If you carry a
house for a year when you planned on 6 months, your yearly
income just got cut in half. Make sure when you originally
start planning a house flip that you add extra time. I always
added 3 months to what I actually saw it possible being done
in. This way when it flipped sooner I was seeing a bigger
profit in the form of time that could be spent on the next one
even sooner.
Credit
cards are dangerous, and I would save them as a last resort for
living expenses of your own should you run out of operating
capital. Although, I will say that some of the big box home
improvement store credit cards were very handy. Many of them
offer no interest no payments for 6 months or a year on
purchases over $300. If you are short of the $300 add a gift
card that you can use on other stuff later. Half the time you
are at these stores 3 to 5 times a week.
Another
source of income can be the city or municipality you are
actually doing work in. Yes, many government agencies hand out
grants to rehabilitate dilapidated properties. This is free
money that many do not know about and often goes unspent. There
is one program that was around when we were doing it that
offered $25,000 per unit for removal of additional units on old
houses that had previously been separated into multi-unit
dwellings.
It
is obvious to try and use other people's money (OPM) when you
do these projects, but where you get it is up to you. Be
resourceful and make sure you plan for the worst. Do your
research and when you are planning your time line add extra
time and when you are planning your improvements add for extra
money for the unknown.
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