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Two years ago this might have been only a very risky plan. Now it sounds very dangerous to me. Assuming you decide to ignore this advice and go ahead anyway, read on.

What you have left out is "where are you living now?"

I have been there & done that with renovations, and one cost you may be overlooking is simply the mortgage (and credit card) payments on the condo.

If you move in yourself while doing the renovations, you can at least eliminate your current cost of housing.

Essentially there is no way for a bank to get FMV on a foreclosure, the rules are stacked against it. I don't follow foreclosures closely, but I have seen a few go for ~50% of FMV here in CA, and that does not seem out of line with reality. The buyer of a foreclosed property usually can not get many of the types of financing available to "normal" buyers. This means they have to come up with a hefty payment, sometimes 100%. Plus, there is always the chance that they may have to defend their title. Sometimes, the bank is desperate enough to sell the house that they will lend on it, but this is a distress sale, not the extreme distress sale done by auction on the courthouse steps.

Depending on your state, you are FAR better off to look for a "no down" mortgage than to tap your credit cards. The reason is that many states have what are called "no recourse" mortgages. The bottom line in these states is: if you buy a home for use as your own residence, and there is a foreclosure, the lender can not come after you for any deficiency between the selling price of the home and the amount of the loan. (I suspect this hoses your credit for 7 years, but you knew that anyway.) This is a second reason to move in to the unit.

As you will readily see, in a no recourse state you will be off the hook entirely if disaster strikes and you have a 100% loan. If you have used your credit cards, you will still owe the credit card balance.

A third reason to move in is that the commute to do the renovations is very short if you are living there.

I seriously doubt your plan will work because taking a substantial cash advance on one credit card will raise red flags which may very well cause your other cards to shut off cash advances.

A much better, although still unsafe, plan would be to save up enough to get into the condo on your own, move in, and then use the credit cards to pay for materials for renovations. Keep records of every nickel you spend on renovations, because when you sell the IRS will claim that the increase in price is all profit and is taxable @ short term rates.

As I said, I have been there and done that with self-renovation of older houses. A far better plan than flipping the property in a short time is to move in, renovate, take money out through a refinance (non-taxable event) and put the money back to work in another property. If you do this right, both the initial purchase and the re-fi can be at owner-occupied rates, and at a minimum, you can increase your holding period to get into the long-term capital gain brackets.

I suspect we are entering a period of much lower real estate appreciation rates, and another cost you may not realize is the transaction cost of selling a home. Real estate commission, costs of moving out, cleaning, new carpet, etc. If you have just done renovations, count on 8% of appraised value, if you are selling even a year after finishing renovations, think 10%.

I personally would start saving, keep my powder dry, and think about doing a much more financially sound deal in ~ 5 years.

In the mean time, I would talk to the relatives you have been helping with renovations about a quick course on financing. The concept of a newby getting an "investment mortgage" is not a good one. DW and I work with one mortgage broker for most of our loans, and one of the things which gets us good rates is the fact that we have a track record of buying and managing rental properties, which he can point to. I doubt you could get financing to buy and flip a property without some history of success. You MIGHT get financing for a "buy a rental and hold" strategy. Easier still would be to get financing for an owner-occupied unit.




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