A home-equity line of credit against your primary home is a good source of funds for first-time flippers, says Letitia Patterson, a real estate agent who has invested in rental and distressed properties in the Detroit area. Short-term bridge loans from private lenders, known as hard money loans, are a higher-risk way to get the cash. These loans are easier to get than traditional mortgages but typically carry double-digit interest rates—not necessarily a problem if you sell the property quickly and pay off the loan.
See Our Slide Show: How to Strike It Rich: Investing in Real Estate
If your goal is to get started as a landlord and you don’t have the cash for your first rental property, consider buying a duplex, living in one unit and renting out the other. In many cases, your tenant’s rent will cover the mortgage. Once you’ve built up enough equity, you can pull some money out with a cash-out refinancing or home-equity loan and buy another property, gradually growing your portfolio.
Another strategy is to take out a mortgage for a primary residence, move into it and rent out your existing home, says Ross Hamilton, a longtime real estate investor and chief executive of Connected Investors, a social media site for real estate investors. You don’t have to pay off your first home as long as you can demonstrate to lenders that the rental income will cover the mortgage, Hamilton says. A typical owner-occupant loan requires you to live in the home for 12 months. But after that, you can rent it out and keep the low-cost loan. Learn more about real estate financing through BiggerPockets.com, a real estate investor network.
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