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Hello,

I signed up for MF after being impressed with the quality and intelligence of the postings on the Real Estate board – what sealed the deal for me was a decision chart that Gamemaker suggested and Sailrmac contributed to (see “What do you guys think” thread from earlier this year).

I would be very happy if any members would provide some constructive criticism.

I'm thinking of buying a condo in need of TLC next November/December, renovating it over the slow winter months, and flipping it in the spring/summer. Unfortunately I have no savings so I would need to use my credit cards to come up with the down payment (25%) and finance the rest with an investment mortgage. This would be my first real estate purchase, though I've been helping family members renovate their investment properties for years, and I would do the vast majority of the renovations myself.

I suspect many people would automatically reject the idea of financing a real estate venture with their credit cards. Indeed, I may decide not to go ahead with the plan myself – but only after I've thoroughly investigated the idea and decided for myself that it's a bad idea. What I'm looking for is guidance on HOW to make that decision, i.e., process-oriented suggestions that will give me the tools needed to make a reasoned decision.

For the purposes of this exercise, I am assuming that prices in my area will, at worst, level out and not contract. The following are some of the issues I will need to address.

WORST CASE SCENARIO:
If I default on the loan and the bank forecloses, will the property necessarily be sold below market value? If not, what factors would cause the property to be sold below FMV? If the property will be sold at a discount to FMV, how could I determine the size of the discount? Obviously, this is a vital consideration because I can't determine my WCS without estimating the risk and size of a discount. The discount, in turn, is a major factor in determining how much money I could lose.

Also, does anyone know whether I might be able to move into the unit if things go wrong, and thereby avail myself of the extra legal protections afforded the owner of his principal residence?

As far as the credit card companies go, it seems the worst they could do is start a civil action to recover the debt, but considering their ridiculously low “minimum payment” amounts it seems to me that I could delay this for a very long time (but get killed on the exorbitant interest, I realize).

FINANCING
I would like to create a detailed financial schedule which breaks down all of the costs and revenues of the venture, so I know exactly what I'm getting into. However, I've never done this before so perhaps someone could suggest software that would allow me to crunch the numbers on the two loans (credit card and mortgage) and different scenarios (purchase price, cost of renovations, time between purchase and sale, interest rates, etc).

When applying for an investment mortgage, does the bank only care about demonstrating that you have the required down payment in cash? Do they consider the applicant's income like they do for a personal mortgage?

Since I would need to cash out several of my credit cards to finance the deal, is it possible that one or more might realize that I'm maxing out all of my available credit and refuse to forward me the funds? If so, how might I minimize the risk of this happening?


Any guidance is greatly appreciated.

Thank you,
Nemo
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