Q: I would like to purchase a home that is in need of renovation, repair the home, and resell it for profit. The only problem with this plan is that my financial resources are limited. The good news is I am skilled in construction and willing to work hard.
What would be the most appropriate way to fund these home improvement projects? I’m looking for a way to make the biggest profit with the least amount of risk. Thanks for your help.
A: It sounds to me like you need a partner who can front the money you need to purchase the home. If you don’t want to take on a partner, you might be able to get started by purchasing a HUD home, which doesn’t cost that much cash, or using an FHA 203(k) rehab loan.
The 203(k) rehab loan might be an interesting choice. It allows you to borrow enough money to purchase the house and then allows you to borrow more cash to finance the rehab and renovation of the property. For more information on 203(k) loans, go to the Department of Housing and Urban Development’s website, www.HUD.gov.
If you already own a home, and you’ve built up the equity by paying down the mortgage or doing some renovation projects, you could take out a home equity loan. That would likely be the least costly way to start your real estate investment career.
If you don’t own a home, look for a property that you can live in while you fix it up. If you live there for at least two years, when you sell the home you can keep up to $250,000 (up to $500,000 if you’re married) in profits tax-free. That will give you an excellent base of cash for purchasing your next property.
Dec. 31, 2004.