House flipping is a money-making business for full-time flippers. Even a part-time house sleeper can earn a considerable side income. Converting dilapidated or eyesore houses into elegant and jaw-dropping abodes is a venture for real estate investors. They also manage to make a huge profit just by doing some major renovations. As with other real estate ventures, house flipping also requires a hefty sum of money. However, you can do house flipping without investing your own money. The entire community of lenders and investors is ready to fill your pocket with money so that you can complete your first deal. They will lend you only when you prove your project deserves it and is worth funding.
Before we move ahead to see ways to start flipping houses with no money, let’s learn more about house flipping.
What is house flipping?
House flipping is a real estate venture where investors purchase a property, do renovations and upgrades, and then sell it to earn a higher profit. This is entirely an investment venture, and investors need to sell the property as soon as possible instead of residing in it. The main goal behind sleeping property is to purchase low and sell high.
House flippers generally use old homes or property in foreclosure. This is because most investors can buy undervalued properties below market price, thus increasing their potential profit. Although house flipping requires an initial cost such as a down payment and other additional fees, you can successfully flip a house with no money by using several different strategies.
Cost of flipping a house
The major costs of house flipping include initial costs, renovation expenses, insurance, utilities, and marketing expenses. The condition of the purchased house determines whether you need to do a significant renovation or require full construction. You will have to cover your homeowners’ insurance costs until you flip and sell the property. For carrying out the rehab process, water, electricity, and other utility costs need to be accounted for. Once the rehab process is done, you will have to spend your time and money on marketing to draw potential buyers to your rehabbed property. It may be worth working with real estate professionals such as brokers, who have an extensive network of professionals in the market. They may help you sell your property faster just by charging a little commission.
If you do not have enough money to kick off your house flipping venture, here are some ways to access the capital you need for flipping houses:
1. Hard money lenders – Simply put, hard money lenders are either lending companies or individuals who offer short-term loans secured by real estate assets. Unlike conventional banks, which offer long-term loans for 15 or 30 years, hard money loans need to be paid back within a maximum of two years. Hard money lenders charge relatively high-interest rates and often charge points too. The interest rate may range from 8% to 15% and the points may range from 1 to 5. However, you can borrow relatively more money than you can with a traditional bank. Hard money lenders are flexible in terms of their lending criteria. You can negotiate with them on the interest rate, repayment schedule, down payment, and other lending criteria.
Hard money lenders are one of the best options for getting a fix and flip loans in California, specially designed for a house flipping venture. A hard money loan is the best viable option for those individuals who have experience with at least one or more properties. It has nothing to do with borrowers’ credit scores as it is asset-based lending. So, for hard money lenders, the equity in the property matters, not the credit history of the borrower.
You should evaluate several hard money lenders based on their interest rates, fees, and loan terms. Keep in mind that most hard money lenders lend you only a certain percentage of the house purchasing price, typically around 70%. If you don’t have money to spend out of your pocket, you may look elsewhere, perhaps at a private money lender.
2. Private money lenders – Private lenders are the greatest source for financing your real estate venture. They operate more like hard money lenders, with slightly different lending criteria. In their simplest form, private lenders are individuals who have the extra money in their pocket and want to lend that money to earn more on it by charging interest.
Unlike hard money lenders, private lenders may lack expertise and experience working with realtors, preferring to spend their time on the golf course or at the beach. Private money lenders have an extra few dollars in their pockets to spare, and they want to lend them at predetermined rates. Perhaps the most suitable source of funding for those investors with no money is a private money lender.
Private lenders are not associated with government bed agencies or any financial institution. They have their own lending criteria and parameters. While the interest rate charged by them is slightly higher than that of a typical bank, they can transfer you the funds within as little as a few days or even hours. This is the biggest benefit of borrowing from private money lenders.
Private money lenders lend you the money, and sit back and relax, while the other partner manages the process of rehabbing and house flipping. These lenders lend you the whole purchase amount and other expenses if you manage to find a good lender. The amount of funds that the lender will provide depends upon the comfort level between you and your lender, their experience, and the real estate project that you present to them.
3. Wholesaling – Investors with no money can flip a house by using real estate wholesaling. It enables investors to gain a huge profit in less time by flipping houses. The wholesaling process involves looking for a fix-and-flip deal, getting the property under contract, and then transferring that contract to a new buyer. It means you don’t need to purchase a property and can hope for the best. This offers a great opportunity to get started in real estate without investing your own money. Through this entire process, you act as an intermediary and earn a commission. Wholesalers make money by charging fees of 5 to 10% of the final sale price.
Remember that wholesale properties and buyers do not fall from the sky. Property wholesaling works best when you have an extensive and reliable network in the real estate sector where you can easily find investors looking for fix and flip deals. You need to keep tabs on the market and learn to negotiate contracts. But wholesaling properties offers a great opportunity for new investors to secure their first rehab property. This adds skills and experience to the portfolio of investors who are new to the market.
4. Partner with house flipping investors – Hard money lenders and private lenders are great sources of funding for the house flipping business. One more way that investors with no money can be in the house flipping business is by partnering with house flipping investors. You can work with someone who is already dealing with house flipping. That said, skilled and experienced investors with no money need a partner with money.
If you don’t have the money to take on your next deal alone, you can consider partnering up with other flipping investors. Your partner won’t deny you funding as long as you bring a valuable project in front of them. However, if you are not able to draw funds from a partnership, it would be better to add value to the project. Maybe you know of an undervalued property that can be fixed and flipped, or you know of a great deal, or perhaps you may have good contacts. Whatever the situation may be, as a partner, you will have to bring a lot of value to the project. Partnering with house flippers is a great opportunity to learn everything about house flipping and start your venture as a house flipper with no money.
5. Home Equity – Do you know equity built up in one property can be used to purchase another? Yes, forum owners can utilize the equity built-up in their current home to get access to the fund. The one way to do this is by cash-out refinance. This involves refinancing your existing loan, and utilization of this capital has no restrictions on what a homeowner will use it for. It means it can be used as a down payment or as an investment in a house flipping business or anything.
Investors can also consider a Home Equity Line of Credit (HELOC) that helps them purchase a flipped property. A HELOC works similar to a credit card where investors can borrow against the equity built in their property and make a monthly payment. This loan offers a great opportunity for investors to start their house flipping business. The best thing about HELOCs is that they may be tax-deductible by following certain conditions.
Remember, to use this option, there must be a certain amount of equity in the property. The more equity built-up in the property, the more likely the loan application will be approved. Also, consider the equity left in your home after borrowing against your property. Generally, homeowners opt to maintain at least 20% equity.
6. Crowdfunding – This is another way to access the fund for a house flipping venture. Crowdfunding is a financial strategy where multiple investors each contribute a part of your total loan. An online search will help you find various sites specifically designed to connect house flippers and crowd funders. Crowdfunding is a great way to finance your real estate project when you can not secure a mortgage from other lending institutions.
You should try to connect with experienced real estate investors. Leave your comfort zone and put yourself out there in the market. Attend the local real estate community meeting and expand your network in the market. Not only will you be able to build a good relationship with leading real estate investors who can potentially mentor you, but they may also help you fund your next project.
Many new investors with no money are ignorant of the funding opportunities that are up for grabs. They either give up their dream of starting a house-flipping business or turn to become another professional in the same market. As a matter of fact, you can become a successful house flipper without using your own money. Hard money lenders, private lenders, and partnering with other investors are the most viable options available to you from the day you get into the house flipping business.