It’s a risky investment, but the payoff can be outstanding—buying a cheap fixer-upper and selling it for a lot more could make you tens of thousands…
If you do it right.
But flipping a house is never as easy as going straight from point A (buying the house) to point B (selling the house for profit).
Chances are, it’ll take a whole lot of elbow grease. Depending on how much money you want to spend, you’ll probably need to be handy—a jack-of-all-trades for home repair.
Even if you’ve got some home renovation experience, your fixer-upper is probably going to throw you for a loop more than once.
But before you worry about finding and flipping a home, you’ll need to understand your options for financing that home.
So, if you want to flip houses (and potentially make some serious cash) but you’re not sure where to start, keep reading! We’ll explain how you can make the most bang for your buck on your first house flip.
Before you even think about buying a home to flip, you’ll need to know what makes buying a fixer-upper so different from your first home.
To begin with, we can probably assume you’re not going to be living in your fixer-upper. What this means is you won’t get the benefits of a second home mortgage—these are easy to qualify for, and your interest rate will probably be closer to the market rate.
Instead, you’ll probably have to take out an investment property mortgage. Your interest rate will probably be higher (anywhere from 3.5 - 5%) and you’ll need to have a strong credit background.
Plus, your closing costs will be higher—anywhere from 1 - 5%, as opposed to 0.5 - 1% on a typical home loan.
And don’t forget about short-term capital gains tax! Depending on the federal tax bracket you’re placed in, you should expect to pay anywhere from 10% - 37% for the profits you earn if you flip the house in less than a year. But it’s not all bad. There are quite a few taxes and fees you can deduct, including…
Just be aware that as a first-time home flipper, lenders won’t be eager to take a risk on you. If you don’t have a background in successfully flipping houses, it’ll probably cost you a higher interest rate and monthly mortgage payment.
Chances are, you don’t want to finance your short-term fixer-upper with a traditional, 15 or 30-year loan.
You’d practically be giving your hard-earned profits to your lender!
Fortunately, there are some alternatives to help you finance your investment. But they do come with some risks of their own…
This is one of the riskiest options you can go with, but many experienced home flippers still use it.
Essentially, when you take out a hard money loan, a company or individual is lending you money in exchange for physical collateral—typically, the home you’re flipping.
The advantage of this strategy is how quickly you can get a loan. Because the hard loan investor only cares about collateral, you won’t have to wait to get approved for a loan. Plus, run-down fixer-uppers might not meet the standards that your bank needs to approve a loan…
That usually won’t matter for a hard money loan either.
Still, using your investment itself as collateral is a huge risk! For the added risk you and your lender are taking, your interest rate will be ultra-high (often between 7 - 15%) and you’ll typically need a much higher down payment.
You can think of a HELOC as a credit card (without the ultra-high interest rate, in most cases).
When you utilize a HELOC you’re borrowing against the equity in your home. You take out up to 85% of your home’s equity and use it to finance your fixer-upper.
Unlike a credit card, your home will typically be used as collateral.
So, it’s a risk, but the advantage is you’ll typically have a much lower interest rate, and plenty of time to pay it off.
Just don’t go overboard with your HELOC! Using up your equity on a fixer-upper could mean losing the home you live in.
This method is exactly what it sounds like: you’ll refinance your home, providing you access to the equity you’ve earned.
In other words, you replace your old loan with a new, larger loan, and you get to keep the difference.
A cash-out refinance has some key advantages over the HELOC we talked about earlier.
Generally, the interest rate will be lower, and (unlike a HELOC) any interest you pay will likely be tax-deductible.
Using this method could even raise your credit score if you use some of your cash to pay off your credit cards and other debts.
For more on the pros and cons of HELOCs and Cash-out Refinancing, CLICK HERE
Before you get started on your first fixer-upper, we have one more tip for you.
The truth is, you’ll be losing some of your profit no matter what loan option you choose.
And why is that?
Well, it’s because you’ll be spending a whole lot of TIME paying a whole lot of INTEREST.
Those two factors are chipping away at your savings account…
And depositing the reward into your lender’s pocket!
So, what can you do about it? You’re probably thinking that you’re doing well financially. That’s why you can afford to flip a house in the first place right?
Well, you’re right. But between the home you live in and the fixer-upper you’re planning on buying, you’ll be wasting hundreds of thousands of dollars on unnecessary interest payments.
So, if extra time paying off your debt means more unnecessary interest, the solution is simple…
Instead of paying off your first home and fixer-upper decades from now, how about you pay both loans off in as little as 7 - 10 years.
Better yet, how about you pay off every single one of your debts in 7 - 10 years, leaving you with decades of payments saved, profit from your fixer-upper, and a debt-free future.
Sounds too good to be true, right?
Well, not with The Money Max Account. The scenario we just described is now a reality for thousands of homeowners just like you.
And it can work for you too, here’s how…
Money Max keeps track of your expenses, debts, and payments, 24/7, 365 days a year.
By tracking these numbers, Money Max calculates and constantly updates your path out of debt.
It gives you a strategic payoff plan, you make the payments, and in as little as 7 - 10 years, you’re living life on your terms—not your lender’s.
And of course, you’ll always decide when and how you make the payments—it’s your money after all!
That’s the brilliance of Money Max. It’s designed to work for you and your family, not the bank or your lender.
Your debt-free future is right around the corner…
With the Money Max Account.
So, what are you waiting for? If you’re ready to build your financial future exactly how you want it, give us a call or visit our website to learn more about the Money Max Account!