how do you get the money to flip a house?

Question

I am very interested in flipping houses but the only thing I know about it is what I see on TV. My husband and I have no money, he works full time and I am a full time student with a part time job. We own our home but we would really like to buy a house that needs some cosmetic repairs and flip it but we are clueless on how to get the money to achieve this goal. Do we just get a loan? If we get a mortgage on the house then we will have two house notes and still need money for the work on the house so I am confused. Can someone please explain how people go about doing this?

Answer 1

This can be a very risky venture and is not for the weak of heart. CHOOSE the LOCATION wisely!

Pick something that is in a neighborhood that is "gentrifing"... has older houses that are being remodeled and updated. These areas are usually fast resale: to someone who wants the neighborhood but doesn't want the hassle of the re-do.

Pick something that ONLY needs superficial work that you all can do on weekends: exterior and interior painting, flooring, adding of decorative shutters, etc.

MAKE SURE THE ROOF IS GOOD!

LIST IT WITH A REALTOR the minute you start on the exterior work and have a list of planned renovation to show potential purchasers. KEEP THE NAMES and contact info of all that show an interest so that your realtor can call them as you make progress.

DON'T BE GREEDY! Price it to SELL! A good rule of thumb is the original $cost, +cost of repair materials, +cost of financing, then + 26% profit on the total. (The realtor cost will be 6%...) IF THE MARKET WON'T STAND FOR THIS $AMOUNT AS A RE-SALE, then the risk isn't worth it.

It CAN be done, but it is not as easy as the late night "info-mercials" make it sound. Ask yourself the question: If it is as easy as it sounds on TV... why doesn't that guy have a crew that works for him 24/7 and purchasing/flipping them himself?

Hope this helps frame a thought pattern for you.

You can usually purchase the repair/upgrade items at Home Depot, etc. on a "no payment or interest for 1 year". Make sure that this option is available BEFORE you purchase the house.

MOVE IN and LIVE THERE WHILE YOU RENOVATE! Then it is "owner-occupied" and qualifies for an owner-occupied loan. You can rent your current home for 6 months for extra income to cover the two notes.

Purchase the house on a 30-year FIXED loan % with INTEREST ONLY payments for the first 10 years. FINANCE ALL OF THE CLOSING COSTS, including the pre-paid insurance, in the loan. This way, if the house doesn't sell... the world doesn't end. Just rent it until the market improves: with the WRITTEN agreement that it can be sold at any time, with 90 days written notice to vacate.

Remember, if you should have to rent it, there will be NON-owner occupied real estate taxes. Check with the tax appraiser for a "best guess" $per year.

One source of "down payment" $money is in your life insurance policy. Another is a cash advance on a credit card. You will probably need at least 5% down IF YOU PURCHASE IT AS "OWNER-OCCUPIED". You can always change your mind about living there long-term.

Answer 2

Because of the popularity of the flipping shows, there are a ton of people that have entered the flipping market, driving up prices of prospect houses.

Unless you have the money to pay cash, you will have two house notes, and need money for repairs.

If you are confused at this stage, this isn't the business for you. Many are enchanted by the TV shows where they resolve all the issues in short order and sell the house, but rarely do you here about house flippers that overpaid, the house had a more than cosmetic problems and the flippers got behind on everything because they were in over their head.

Answer 3

The best way to do this is to find a house that needs repairs. Then you use something called an "assignable purchase option contract" to control the property. Once you have the contract signed, you make repairs and enhance the appearance of the property. Once complete, you assign the contract to a retail buyer. You only risk your time and you do not need credit or money (except what you spend in supplies) to make this happen.

If you own the property, then you have holding cost and higher risk.

Regards...

Answer 4

when you buy the house it needs to be a huge bargain.... the things you do to repair the house all need to be done in about 3-6 weeks in allowing for prompt turnaround.... look for a place needing minor repairs but done with in the ability of elbow grease and sweat......examples....painting, new flooring landscaping... new fixtures, and new appliances....a lot of the costs can be floated in a credit term look for terms like no interest for 6 months or no payments and no interest for a year....home improvement places often have these offers ....
price the home lower than market value to sell quickly....otherwise all your profit is swollowed up in payments...
if you can turn the property in 2 monthes you will only see 1-2 payments selling that quick you will be able to repay the credit items you needed to repair the home as well....
keep in mind your credit will only carry you so far... be prepared to not get as much credit as you need.....
flipping houses is 75% research to find the perfect house and 25% doing the flip......meaning buy the right house.....i would learn as much as you can, about the ins and outs....go to the library and start reading any book you can find on the subject.... doing your homework...also start making a list of contacts that can do repairs that you cannot do....listing their rates and terms....30days, 60 days, etc.....figure out all this stuff while you are coming up with the property.... professional house flippers can take up to 6 monthes of research to find the perfect house.... good luck.......

Answer 5

Not sure just what it is that you're confused about - yes, if you buy a second house to flip, you'll have two house notes and need money for the work on the house. What did you expect?

People do it by having savings, or sometimes by borrowing from friends or relatives (not the best idea). Once they've done a couple successfully, they use that money for later flips.

Answer 6

Hard money loans, but it is very risky plus they are a rip off. My suggestion is that you partner with a RE investor.

Answer 7

Have you tried a construction loan? Talk to your lender about it.

Answer 8

You answered your own question