| Real Estate Connection
Flipping a house is easy if you have plenty of cash on hand. But what if you’re long on skills and short on greenbacks? The answer is to use what’s known in real estate industry jargon as OPM, or Other People’s Money. Using OPM to finance a flip can take many forms, a few of which will be detailed later in this piece. One method that was used by a Las Cruces resident, who we’ll refer to as Mike, was to generate cash utilizing an asset he already owned.
Mike is a government employee who was exploring ways to supplement his income by flipping houses. The asset he owned was a 2.5-acre lot behind “A” Mountain in the Soledad Canyon area. After conferring with his tax professional and Realtor, Mike put a plan in place to attempt his first flip. His plan included utilizing the equity in his lot to generate the cash needed for the 20 percent down payment and closing costs required to complete the purchase portion of the flip.
After shopping for a property he could purchase below market value, Mike chose a 3-bedroom, 2 bath HUD repossession in the Loma Heights area and made an offer on the fixer-upper. He then went to a local community bank and took out a line of credit on his 2.5-acre lot to generate the 20 percent down payment and closing costs needed to swing the deal.
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At the same time, Mike made arrangements with the community bank to take out a construction loan to pay the remainder of the purchase price and cover the cost of repairs. By utilizing the two loans, Mike financed 100% of the purchase price, his closing costs and the costs of his repairs and carrying costs, without using any of his own cash.
After painting the interior and exterior of the house, installing new flooring throughout, and upgrading the lighting fixtures, countertops and window coverings, Mike listed the property for sale. After 15-days on the market, a first-time buyer purchased the home for the full asking price. After paying off his line of credit and construction loan, Mike’s net profit …….