Finding the Money To Start Flipping Houses and Investing

by Alanna
(Denver)

Hi Luis,


Love all your articles, and a great learning tool for me. Let me give you a small synopsis on me....

I have been waiting and planning and saving for the past 6 years to get into the real estate game.

Ever since I was little I would look at a house and dissect it on how to make it better. I know I was born for this!:)

Now that my credit is finally in order, everything is paid off, and I have about $5,000 in savings, (not a lot for this I know) I'm starting to panic a little bit.

I would like to purchase a house using a loan. I am almost approved for about $220,000. I don't want anywhere near that much house to start!

I want to start with about a $60,000 condo or small house. :) I'm hoping since I am a first time home buyer, I can get a lot of incentives that you hear about but I still would like to have it done and back on the market in 30 days.

My goal is to fix it up and resell. I want to do that with the first few houses, and then eventually start investing in some rentals.

I know I will need a good amount of cash to keep some houses as rentals, so that's why I feel I need to start with a few flips. Eventually down the road, I just want a good amount of monthly income coming in from rentals, so that I can keep fixing and flipping houses.

A lot of people are telling me that only people with a bucket load of money can do this, and I will never make my money back in this economy, especially in a very aggressive investor city (Denver).

I'm just curious how you afforded your first flip with the foreclosure. Were most of the repairs done on credit? Or did you get a personal loan?

At times I feel so prepared for this, and then other times I feel like I'm jumping into an alligator pit!:) any advice you could give me would be greatly appreciated!!


luis@wealth-stepsLUIS COMMENTS...

Alanna, thanks so much for taking the time to ask me this question. You have a lot going on here, so one answer is not going to do it. However, if I understand you right I think you might be looking at this the wrong way.

First off, you say you have been dreaming of this (real estate investing I assume) since you were little. That is FANTASTIC and I want you to always remember that and don't let ANYONE or ANYTHING take that ambition away. It will drive you through it all.

You will always meets naysayers, downers or people that just will not share your same dream. Don't give any energy to them. As long as your goal is not some delusional dream press on with what you want and don't let anyone tell you you can't do it.

Now, you say you have been planning for the last 6 years. Do you have a written plan? Do you have a business plan?

Those would be first steps. Make sure you take what's in your head and heart and put it down on paper with facts, figures and ACTIONS.

Do you want to buy, fix and resell?

Do you want to wholesale?

Do you want to buy and rent, lease purchase, or owner finance?

Do you want to find properties for other investors and get paid a fee?

All these are possible ways of making money in real estate.

If you are going to flip...how many houses in your first year?

What price range?

How much in repairs?

What contractors are you going to use?

How are you going to purchase the property?

And so it goes...

Make sure you first write what you want to achieve and then break it down into major goals and then take each goal and break it down into small manageable tasks that you can do and knock out one by one in order to accomplish your goals. That is how you get over the feeling of being overwhelmed.

If you are thinking about money that you need before you have a plan then you are "jumping the gun". Have a plan and goals first THEN you'll tackle the money question.

Next up is EDUCATION . Educate yourself about the many ways to make money in real estate and how to do it. This is done through a combination of books, blogs, podcasts and most importantly from those that have "been there, done that".

Learning from other investors is invaluable. Your first step is to join and start participating in one of the investment clubs in your area.

Joining the local investors club is what helped me the most to get started. I still do a lot of networking with other investors.

Second, I highly reccomend you join Biggerpockets.com and start reading and participating in the forums. That site is an incredible resource and the site is based out of Denver so you are sure to meet local investors there.

As for me, you ask how I afforded my first flip. That is one of the great things about real estate investing...you can use other peoples money!!

I have a line of credit that I can use to invest. This line of credit is the result of years of saving, staying out of debt and building wealth. The bank is willing to give me money because of my financial status.

So you are right $5,000 is not a lot to invest in real estate but the beauty is that you don't have to use your $5,000 to invest, you can use someone else money, whether it be a bank, a hard money lender, another investor, your uncle Joe, etc.

Also, not all forms of real estate investing require big piles of cash. You say you are approved for a $220k loan. You can use a fraction of that to buy a nice little house that can rent for 1-2% of the purchase price. You can use the $5k you have for down payment. If the house needs repairs they can be funded by the loan depending on what type of loan you get.

If like you say you use that loan to buy a house to fix and flip understand that first, the bank will loan you money to buy the house but not to make the repairs. Where is the repair money coming from?

Second, in order to make money fixing and flipping you need to buy at a deep discount and for those houses you might be competing against other investors making cash offers. So if your offer is with a loan that might make it harder for your offer to get accepted.

Or, you can find a house for yourself, live it for a few years while you make upgrades and repairs to it and then resell. Just make sure that you are buying at a good discount.

Be aware that many first time home buyer incentives that you mention are for properties that you are going to occupy not investment properties.

One of the best ways to get started in real estate investing is wholesaling real estate and bird dogging. You are basically out there finding properties for other investors. This allows you to make cash now while needing very little cash investment on your part.

I just had a conversation with Danny Johnson over at Flippingjunkie.com and he was telling me about how that was how he got started and still does it today. You can also check out Steph Davis blog since she wholesaled successfully for years.

You can do all of these without loosing sight of your goal of fixing and flipping houses. They can be stepping stones.

To recap, make sure you educate yourself so you learn of the different opportunities available. Then start networking and meeting other investors in your area and see what they are doing and how they are making (or loosing) money. Then put together a plan of action and set goals to put that plan into motion.

Phew!...is this long winded answer making sense to you?

Feel free to ask anything else if this was not clear.




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