How We Financed Our First Flip

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After sharing our last post on how much we made on our first flip, several people asked us how we actually financed the project. We don’t have wealthy families backing us, and neither of us makes a ton of money in our day jobs—I’m a part-time editor and freelance writer, and Todd is a small business owner who pays himself a modest salary. So how did we come up with the cash to get into real estate investing?

The short answer is, we used money from the sale of our first house to pay for the renovation, and we were able to get a second mortgage because our own home in Richmond was so affordable. The long answer is, a fair amount of research and strategy has gone into every house we’ve bought (going on four now), and luck has been a big factor, too. [Disclaimer: We are not financial advisers and we don’t pretend to be experts on real estate or investing. These are just some things we’ve picked up over the years.]

We bought our first house in Charleston, S.C. in 2011. At the time, I was making $30K a year as an editor at a local paper, and Todd’s business was so young that the bank wouldn’t count his salary toward our mortgage application—so we didn’t have a lot to work with. Our budget was maxed out at $150K, and our options were limited, but we felt like we were throwing our money away on rent.

Our friends encouraged us to buy in the suburbs, where our money would stretch further. But we didn’t see much investment potential there, so we focused our search on one small area on the outskirts of Charleston that might generously be described as “up-and-coming.” Drugs, shootings, hookers, you name it—North Central had it all.

But there were also a few reasons we felt confident it was on the upswing: It was close to downtown (which was rapidly moving northward), it was adjacent to two much nicer neighborhoods, and it was filled with charming historic homes, a growing number of which were being renovated. After looking for about a year, we bought a 700-square-foot cottage at the high end of our budget (pictured above). We got more than a few raised eyebrows from concerned friends at our housewarming party.

Less than four years later, we sold the house for nearly double what we paid for it, and walked away with close to $150,000.

Of course, this isn’t typical. Charleston’s real estate market is insane, and we got really lucky with our timing. We couldn’t even afford to buy on the peninsula if we lived there now. But after doing so well with that house, we knew that there was only one way we wanted to invest the money we made: with more real estate. And that’s when we decided to try our hands at flipping a house.

A few months before selling the Charleston house, we’d decided to move to Richmond from Boston, where we had been renting an apartment. We realized we could never afford to buy anywhere close to Boston, so we started casually Trulia-stalking different cities, and Richmond stood out because of the number of big, beautiful, historic homes that were surprisingly affordable. Most of the houses we found were located in an area, Barton Heights, that seemed a lot like North Central in Charleston—close to the city, close to more expensive neighborhoods, and with a fair amount of renovated houses on the market alongside cheap fixer-uppers. We flew down for a visit, fell in love with the area, and made an offer on our house.

We paid $175,000 for the house, which was about $125,000 less than we were approved for. This gave us the wiggle room to get a second mortgage for our first investment property several months later. As a side note, our own house now appraises for closer to $300K, which means we have enough equity in the property to give us another borrowing option if we need it.

Again, we’ve lucked out a bit with our house purchases so far, but I don’t think you need a windfall to get started in real estate investments. Here are our key takeaways:

  • Buy as soon as you can afford to. If you can scrape together enough for a down payment, you’ll often find the mortgage payment is cheaper than (or at least comparable to) rent (depending on where you live, of course).
  • By placing a home’s investment potential at the top of your list—right alongside a master bath and open floor plan, or whatever else you want out of a home—you’re more likely to walk away with a profit when you move on to your next home.
  • Don’t be afraid to live in an “up-and-coming” area—they usually aren’t as bad as they seem at first glance.
  • Be ready to get out while the gettin’s good. In other words, if you can sell your house and make some money—which you can use to repeat the process again—it’s often worth the hassle of moving.
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