Ok, I need some opinions on a possible investment, and I know they'll either be "go for it", or "you're insanse". Here's the situation:

There's an opportunity for me to buy a house for $8k (call it 10k). Its a good house, needs some sewer work, ~$5k, possibly a furnace, other than that, paint and cosmetic work. So I'd purchase for 10k, put in (on the high side) 22k. $32k total. I'td sell relatively quickly in the $50k range.

Situation is this. I've got about 15k in cash, and somewhat limited income at this time. I'd purchase the house in cash, but would have to use credit cards to pay for many of the renovations. So about 20-22k in various credit cards.

Do people do this? How wise would it be for me to do this?

People do this. I do this.

I once listened to a speaker who said there are three ways to use credit cards.

1) For disposable items that are consumed by the time you get the bill.

2) For purchases that have a long life expectancy.

3) To earn more money than it costs you in interest.

I purchased my current home with a mix of cash, and credit cards, with about $10k on a card. That money was repaid in about 3 yrs, so reduction in principal was more rapid than with a real mortgage. I wouldn't do it, however, if I were paying more than 10% interest.

I feel that you're working too hard for an $8,000 profit margin, which is too tight in a declining market.

Why not wholesale it?

With rehab you get bigger paychecks but also get longer sale times and unexpected costs that could eat into margins. You also could owner finance the property and become the lender or rent out and become the landlord.

All those ways tie up your cash.

In wholesale you sell for maybe a 3k profit and move on to your next deal. It's quick,easy,and fast as long as you buy fast.

One huge item not talked about is what are the rents for the property you are buying and the yearly taxes.

Here in Atlanta I can buy crapholes all day long for 5k that used to be 100k. The problem is the properties need more work than the value of the home or lot will ever be.The taxes are based off of ridiculous flipping evaluations of years ago say 210,000.

So taxes are at between 3,500 and 4,500 a year for a property that you buy for 5,000. I would have to rent out for say 450 a month.After paying taxes if I had a renter that stayed all year and paid on time I would almost be in the red. The only upside is an increase in property values over a few years.

What I find in Atlanta is to buy the cheap houses outside of Atlanta city limits.You get the benefit of REO bpo values bringing surrounding areas down but that 5k house only has 1,100 a year in taxes compared to 4,500.

So when you wholesale you have to think about these things when selling to a long term hold retail investor.

After you have done so many wholesale deals you can build up cash and then you can keep the best ones for yourself and start a nice long term portfolio.

I once had some Customers who had an idea to put a Gas Station/Convenience Store on the main route leading from an Interstate Exit into a small village.

They couldn't get an SBA loan or any kind of mortgage. Commercial loans may have been an option on a "going concern", not s pipe dream. They had "not so hot" credit but they were workaholics. They bought a creepy old house with a few hundred feet of road frontage from me, located on a numbered highway leading into the Village.

They used Owner Financing for the Real Estate; used their family's pooled credit cards for the site improvements to make the house a store; used Associated Grocers to finance inventory for the Convenience Store; and Gulf Oil financed the Fuel Tanks and Pumps for them.

The enterprise supported many family members for several years and about 8 years later they sold the place for over $800,000, owning it free and clear. Not a big killing; but enough for them to feel an element of success.

Yes If I can buy a dump where the land can be changed for a higher resale value down the road the exit strategy is much different.

Lot houses on a street for rent is a different animal and you have one use unless you could buy up the whole street and change into commercial.

The one or 2 homes that don't want to sell always makes it difficult for assemblage and drives up costs.

In my area there are 2 types of sellers.Those that have to sell now and those that want 2007 prices and will end up keeping their properties through the next 4 to 5 years.

Land development will come back it's all about waiting out the cycle.

Our team would not encourage a buyer to use credit cards to finance a rehab project.

In this real estate market, there are too many things that can go awry.

Don't get me wrong, we are big on buying and flipping, but I do think an investor should be a bit more liquid and able to deal with the "ups and downs" that will come about (longer market time, lower price offered, etc.)

Regardless, good luck with your real estate investing ambitions! It sounds like you have a lot of "zip" and that is a great thing. Cheers!!!

IMHO. Before you think about doing anything like this you should watch the movie "The Money Pit" with Tom Hanks.

Best Wishes and the best of luck to you. BTW congratulations on your first full year in Real Estate. I hope it has been everything you wanted and more.

It can work if you're careful and the property lends itself to the situation (desirable location, etc). Using cc's was popular when interest rates were 15-25%. In this credit recession though, credit lines have been slashed, revoked, or interest has increased on very short notice.
I think using the cc for renovations is a good idea, because it just appears as normal purchases. I wouldn't use it for a cash advance though.

To answer your question.. Yes, people do that. When I first started building houses, I put all my liquid money into the house and then finished it with my credit cards. It was cheaper than going to the bank, and I just paid off the credit cards when I sold the house. The times that the house didn't sell, I got a permanent loan to pay myself back..

BUT, times have changed tremendously, and money is harder to get from the banks these days..

Plus, as someone else said, your deal sounds like a whole lot of work, especially for a beginner.

My number one piece of advise is for you to read John Schaub's book "Making it Big on Little Deals". He's a conservative investor who makes a ton of money on real estate (not seminars) AND.. and this is the most important part.. he's NEVER gone broke. Why? Because he practices what he teaches, and that's conservative investing.

Good luck!

Sounds goofy, but take on a partner. Entire thing is split 50/50, risk and reward. You have 2 minds making better decisions. Access to credit is important if you do not have deep pockets. BE AN HONEST ACCOUNTANT TO YOURSELF or it will not end well. I'd rather see you do it via credit card vs. HELOC, which is more risky. I use my HELOC.

There is much skill and knowledge that you should posses when you want to invest in real estate nowadays. You will have to follow some standard steps and have intuitive skills when investing in real estate.
http://www.bayut.com

I would not use credit cards especially if your "income is limited". Picture a worst case scenario - you find black mold or roof caves in or something else. Would you be able to afford the payments or would you hit bankruptcy? Is that worth it? I would get a partner. The returns you're talking about should entice someone to help out.

As a Real Estate Investor myself, I have to agree with Super Realtor and Kristi. There is much to be said about using credit cards on a deal.

Though I know investors who do it on a regular basis, I myself will not do it unless I already have contract with an end buyer at which point it'd be used to complete renovations agreed upon in the contract.

A wholesale is a good alternative. You can do it without any cash out of pocket! You simply get the homeowner to sign a contract agreeing to sell you the property at $8000. Then you advertise to potential investors and sell the contract for "x" amount. Let's say $3000. You do a simultaneous close at escrow and the investor pays the $8000 to the homeowner and pays you the $3000. This type of deal is pretty common and I have friends and mentors doing upwards of 50 of these every month.

I have a free ebook you can download at
www.kealakanae.com/freeebook

It will give you more helpful tips to get started!

Wish you the best!

[quote=Doin' bpose]Sounds goofy, but take on a partner.[/quote]

Why would this sound goofy? It's a great idea. Get a partner to put up the cash and you put your name or both names on the agreements. Less profits but less risks. That's how I got started.