Basics Of Leverage For Fixer Upper Homes

by : Clay Davis

As with any business, planning and research are imperative, especially when it comes to buying homes. The more you know about how to buy a home and whose money to use, the better off you will be. Many people choose to buy and sell homes because it can be very profitable when done correctly. This is definitely the case when buying a home that is in need of repair and that you plan to rent out or sell to someone who can renovate it themselves. For maximum profitability, what is almost more important than the home you buy is how you actually purchase it.

Purchasing a home doesn't need to include spending a lot of your own money. In fact, it can be much more beneficial to you to spend other people's money. This is called "leverage" and has become an increasingly popular means of buying homes. If you are looking to buy a home to resell immediately or first renovate and then sell, it is important to learn all you can about how to use this method. Leverage can come from a bank - which is how most people choose to acquire their purchase money - or from a partner who is willing to invest in your entrepreneurial endeavor. Of course, the greater your success, the more the investor stands to gain.

Leverage is often used when buying an investment property that you can rent after completing its remodeling. For example, if you buy an investment home with only a small amount of your savings and use the bank to finance the rest, you stand to make a nice profit and will consequently have some savings left over to invest in more homes. This is because after making your monthly payments on the house to the lending institution, you will have the remainder of the rental agreement price as a profit to you (minus taxes and other expenses, of course). Basically, the property itself is paying for the loan, and you do not have to use any more of your own money to fund it.

It is the same basic approach when you are buying a home that needs remodeling or repair. There are many homes on the market that have been left in bad shape due to mistreatment from previous owners or just general wear and tear. Foreclosures, for example, are extremely plentiful because of the combination of high home prices and consumer indebtedness, and it is fairly easy to find one at much below market value. You simply buy one of these homes and then resell it to another individual who is also in the business of renovating homes for profit. This could be a business partner, or simply someone you know from among real estate agents. That way, you make a profit while they fix up the home, avoiding the direct labor yourself.

Buying and selling homes as part of a business takes not only knowledge of the general work involved, but how to do so without risking your financial security. By using leverage, you avoid risking your own financial well-being and can make a tidy profit at the same time.