Need Advice on cash flow

3 Replies

I have a property I’m in interested purchasing for an investment property. The price is 68K.

It will likely require improvements of $20,000. My hope is pay for with a HELOC line of credit. The improvements I would put on a credit card - then my goal after I completed the improvements have it refinanced for the new market value. After the refinancing pay back my HELOC and the credit card. Does this seem like a smart idea or is there a smarter way?

@Martin Nowak sounds like a reasonable plan as long as you have enough wiggle room. Remember:

* renovations will ALWAYS cost more than you think.

* you’ll likely have an unexpected repair cost thrown in. (Furnace dies, roof leaks, etc)

* it will probably take longer to reno and refi. Make sure your credit card rates can handle a few extra months of payments.

* most cash out refinances require a 6-month seasoning period. Make sure that fits into your cash flow.

*ensure your ARV is conservative. What happens if your appraisal comes in $20K lower than expected.

I say all this not to be alarmist, but realistic that renovations always cost more and take longer than expected. Many flippers have gone under because they didn’t account for this fact!

Why use the credit card instead of the HELOC?

HELOC rates are low right now and probably will be for a few years. Determine your short, medium and long range plans regarding funding the property and have viable contingencies in mind. @Mike McCarthy provided good info. Nail down your repair costs.

A mistake a lot of flippers make is to try to get too high of a price out of a property. Holding costs eat their lunch and when they finally sell it for a lower price, the damage has already been done. So don't be overly optimistic. ie, hit a single, don't swing for the fence.

I'm assuming you're planning on holding the property. If you do that, it actually has less risk as the timeliness of getting in and getting out isn't so critical (don't over improve it).

If you plan is long term buy and hold, make sure you don't go overboard on the renos.  Fix what needs to be fixed and make sure it is in good shape.

I agree with John, I would not put the renos on a credit card. Use your HELOC as the interest rates will be lower....charge them to your credit card if you get dividends/cash back, but pay it off in full before you are charged any interest.