Fix n Flip for Profits

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How to Start Flipping Houses with No Money

For some, the ability to make a career out of renovating old properties and selling them on is simply a dream. Sadly, many are put off because they don’t have the capital to get the ball rolling. But, on the bright side, there are many types of investors out there that have the cash—but not your enthusiasm for the work. So if you don’t have equity in your home, or you can’t get a traditional loan, here are seven ways to start flipping houses with no money. 

7 Ways to Start Flipping Houses with No Money 

1.      Private Investors 

Private investors have cash to buy houses fast and are looking for projects that will return a good investment. They are not associated with financial institutes and so don’t have to abide by the same rules—they won’t have a list of requirements as strict as the bank. You may have to provide an insurance policy or a guarantee for the loan. Interest rates are higher than traditional loans, between 6-12%. But without the red tape, you could have the loan within a matter of days. 

2.      Hard Money Lenders 

Although linked to lending companies, hard money lenders offer short-term loans for real estate, typically six months to two years. Like private investors, they set their guidelines on lending requirements but still far more accessible than applying for a traditional loan. Be prepared to pay 11-15% interest and possibly upfront percentage fees. The majority of hard money lenders will only lend up to 70% of the purchase price, so you may need to seek other funding for repairs. 

3.      Wholesale Properties 

Wholesaling is an excellent way to start flipping houses without any money. When wholesaling, you find an ideal investment property and take on the contract. You then sell the contract to buyers. You make money by adding a (typically) 5-10% fee, and all the while, you don’t actually buy any property. Contacts and a potential buyers list are vital for wholesaling. 

4.      Rent with the Option to Buy  

This is a great idea for certain situations, for example, if you have the funds to pay rent or live in the property while renovating. You can sign a contract for a period of time to rent with the option to buy at the end. Then, you and the property owner can agree on the terms of the deal and the details of selling. 

5.      Create Flipping Partnerships 

If you are starting out, a wise move is to partner with house flipping investors as you have the opportunity to learn from their experience and benefit from their funding. Nevertheless, if they have the cash, you need to contribute in other ways, whether knowledge or contacts. 

6.      Sellers Provide Financing 

Some homes are advertised as seller-financed, or you can put forward the idea. The current owner of the property invests in the flipping. There is more flexibility with private investors than with traditional loans. Still, sellers may ask for proof of your income to confirm you can repay the loan. Again, the details will have to be clearly stated for both parties. 

7.      Crowdfunding 

If you do a quick online search, you will find crowdfunding sites for property investment. Here, you will have a more significant number of people ready to invest smaller amounts towards the total amount needed.

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How to Buy Your First Fix and Flip Investment Property

Fixing and flipping houses is highly rewarding and not just financially. Taking something old and rundown and turning it into someone’s home is a considerable achievement. While the fix and flip TV shows make it look easy, there are a few things you should know about how to buy your first fix and flip investment property. 

1.      Choosing the right property 

Sadly, the first mistake we see many people making is choosing the wrong property. Emotions get in the way, and investors start looking at properties they like rather than properties that will make a profit. When looking at your first property, it is strongly advisable to seek professional advice. This would include a real estate agent to determine what needs fixing and the property’s value when renovated. You should also have inspections and get quotes from contractors so you can crunch the numbers.

The best fix and flip properties are ones where the homeowner needs to sell a home fast. 

2.      Crunch the numbers 

The sale price and renovation costs are only two numbers that need calculating. Don’t forget to add the holding costs (utility bills until you sell the property), homeowner’s insurance, property tax, capital gains tax, and closing costs. Two rules of thumb to live by, add 10-15% on your renovations as a cushion if things crop up, and always apply the 70% rule. This means you should only pay 70% of the after-repair value (ARV) for your investment property. 

3.      Get the funding 

Things can start to get tricky here. Some lenders are dubious of first-time fix and flip investors due to the lack of experience. The good news is there are multiple sources of funding depending on your situation. Traditional mortgages are an excellent place to start. Still, they often require down payments and only lend up to a percentage of the sale price, leaving you no room for repairs. 

Fix and flip mortgages are short-term loans, usually up to one year. The interest rates are higher than those of a long-term mortgage, but you can borrow up to 75% of the ARV, which ties in nicely with your 70% rule. You may find you need a high credit score for this type of loan. Hard money lenders are another excellent option with loan periods of 12 to 36 months and higher interest rates. Costs of these loans are often reduced as you gain experience. Some hard money lenders will loan you up to 90% of the ARV. 

4.      Create your team 

If you are thinking of doing the renovations yourself, that’s great. Just remember that specific tasks such as electrics and plumbing will require a licensed professional. A successful fix and flip will significantly depend on the team behind you. It’s worth taking the time to find contractors who have a reputation for sticking to the budget and the timeline. 

5.      Market and sell your property 

Marketing and selling take a lot of time and knowledge. Real estate agents have the connections to sell a property faster and often for more. Having a real estate agent as part of your team will help to increase your profits— don’t forget, the longer your property is on the market, the more holding costs incurred.