Читать книгу Flipping Houses For Dummies - Ralph R. Roberts - Страница 73

Many people have an aversion to borrowing money, and for good reason — it costs money to spend money you don’t have, and when you spend money you don’t have, you don’t have money to pay back the money you borrowed. It certainly does cause a lot of problems for some people.

However, very lucrative businesses and individuals have made their fortunes on borrowed money. The not-so-secret secret is to use that borrowed money to earn far more money than you’re paying to borrow that money. That’s called leverage. You use a little of the money you have and a lot of other people’s money (OPM) to make a much bigger investment than you could otherwise afford on your own. Do it right, and you can pay off the loan and pocket a handsome profit.

With house flipping, your goal is to move as much house as you can with as little of your own money as possible. If you invest $100,000 of your own money in a property, for example, and you flip it for a profit of $20,000, you make a 20 percent profit on your $100,000 investment. On the other hand, if you invest $20,000 of your own money, borrow $80,000, and sell the property for $120,000, you earn closer to a 100 percent profit, because you’re seeing a $20,000 profit on $20,000 of your money. (I say closer to 100 percent, because these numbers don’t account for interest on the $80,000 borrowed, holding costs, and other factors.)

To look at it another way, suppose you have $100,000 to invest. Many people assume that using that $100,000 to finance a single flip is the smart thing to do, because you avoid paying interest on borrowed money. However, by leveraging that $100,000 with borrowed money, you stand to earn a bigger profit. For example, you can combine that $100,000 with borrowed money to flip a higher-priced property — perhaps a $500,000 house that you know you can sell in the $575,000 to $600,000 range.

Borrowing money is always risky, but you need to take some risk to earn the big bucks. Throughout this book, I show you ways to reduce risk, but unforeseen events can undermine the best-laid plans. As a flipper, you need to decide for yourself whether the potential benefits outweigh the risks.

The following sections show you how to gain leverage by using other people’s money to finance your flips. And if you don’t have money, I show you how to persuade private lenders to put up some initial investment capital to get you started.