You have been pre-approved for a mortgage and you have determined all your monthly expenses for your first real estate purchase. You want to make this purchase a long term flip, two to five years and you are new at this.
You can, and should, determine your budget even before you view your first property to avoid over extending yourself financially.
This is how to determine what your budget will be. Let’s say, as an example, after you have added up all of your monthly expenses, you are able to put away one hundred and fifty dollars per month into your renovation account. Multiply that amount by the number of months you plan on living in that house until you sell it. If that is four years, then you will have a seventy two hundred dollar budget. One hundred and fifty dollars X times 12 months X times four years. This is going to be your renovation budget guideline when looking for a property. You should not alter this unless you are able to put more money into it without taking away from your other expenses.
Now you know exactly what your monthly household expenses are and you know what your renovation budget will be. If you are using an agent to find you a property you can clearly give them the criteria they need to find you the right property for you. Do not exceed this. In time you will find a property that fits your budget.
Never leave yourself house poor. What ever you save on your monthly household expenses should automatically be put into a renovation savings account that you will use to make purchases. You can set up automatic payments into this account from your main bank account where your weekly paycheck is deposited. The main objective is to pay cash for everything and buy everything on sale! If you don’t have the money, don’t buy it.
Never rely on credit to do your renovations. You can get a credit card at your local building supply, but only use it if you have the money in your renovation account to pay it off. I have a credit card at one of the big box stores, and If I use it I pay it off at the end of the month. I earn points, because I have a business account, and I have even received gift cards in the mail from that store because I don’t carry a balance I then turn around and use those gift cards to make more purchases.
In conclusion when purchasing your first home as a renovation purchase below your per-approved mortgage, put money away each pay for renovations, never use credit to buy materials and if you can buy everything on sale. Do not over extend yourself, and you will have smooth stress free renovation.
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