Starting out with no money

17 Replies

How realistic is it starting without buying homes in cash and obtaining a hard money loan? I’m researching and looking to start rehabbing homes, but want advice from someone who has started with using lenders vs straight cash.

Hi Tiffani, we have never (and probably will never) used our own money to rehab houses. Even if hard money lenders seem to be expensive, they are worth it because they help you to jump-start your business. 

However, here are some considerations:

1. Never (and I mean NEVER) mortgage your own house to start your business. You and your family need a roof over your head and the last thing you want to do is to put that in jeopardy.

2. Make sure that you analyze your deal with someone local who is willing to help you honestly. A good money lender though would be able to help you out with that! Your numbers must be rock solid so that you do not lose your shirt.

3. I would recommend that you have some money saved just in case you discover "skeletons" during your rehab. 

4. Start to network with high networth individuals who can become your private lenders later on. Now, careful there: learn, go to seminars, don't break SEC rules, read about private lending before you jumpin there. (a whole other conversation altogether...) . But in the long run, private lenders will be a cheaper way to fund your deals. 

5. Believe in yourself. YOU CAN DO IT. 

Good luck and success!

Thank you! I will keep all of your great advice in mind.

@Tiffani Guy . In addition to what @Nadia White suggested, make sure you continue to educate yourself. If one strategy doesn't work for you at this time, there are many others that could work. So, make sure you get the bigger picture in as many strategies as you possibly can. Also, working with more experienced partners/mentor can help speed up your learning curve.

Good Luck !!

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@Tiffani Guy I'm looking to the same here with little to no money of my own, I did however have the funds and credit score last year to do, and there are 100% 100% HML lenders however I made a huge mistake on a renovation for a friend in florida, that being said if you truly want to succeed in flipping unless you do have friends and family who will actually pull thru on l ending you funds, you really need your own funds and excellent credit to get started, the idea of zero of your own money is a myth, even if you obtain a 100% 100% HML you still need to prove you have funds to cover your expenses and their interest payments. plus you need to bring something strong to the table, I'm a contractor and have more experience renovating homes then alot of people who flip, I'm still finding it very tough to find lenders who will actually pull through on a deal and for a decent compensation. So my suggestion is build as much funds as you can other wise you will be pulling your hair out trying to get deals started. best of luck

@Tiffani Guy sell car and get an older one. Use proceeds to invest

You can start with low money down sometimes but typically you’ll need some money. The amount would vary on the project.

Most HML are going to require some type of money down - even if as little as 10%. While there are lenders who will do 100%/100% they are often the ones charging higher interest rates and points and sometimes have pre payment penalties. They may also be more conservative with total LTV only going up to 55 or 60% of ARV. If you are able to save up a little but of money for a down payment, you will likely get much better terms from a HML.

If you are using a hard money lender, at the bare minimum you'll need 10% of the purchase price and 25% of the rehab budget, in cash, up front. If you can borrow that money or bring in a parter to fund that portion, you can do it with none of your money, but that is the cash you'll need, at a minimum to do your first flip.

@Tiffani Guy What I have to say is probably not very popular on an investing site but the answer for you may be to wait for a while before you invest. Let me explain.

I’m not sure how old you are or your life experiences so I hope you don’t take offense to this comment as I wish to apply it in general to many new investors. If you have no money and you have a 2016 car then your problem may be larger than not currently having any money. Your problem may be a spending problem and if you have a spending problem then you should not invest until you first handle that problem. 

I would encourage you to start with reading the book The Richest Man in Babylon. Then when you are finished with that, I would encourage you to read Dave Ramsey’s The Total Money Makeover. Then when you have finished and you have a couple of thousand in an emergency fund and you have maybe 10k saved up, then I would encourage you to start investing.

You need to take care of the first problem with is a cash flow problem first before you can be successful at investing. That’s my opinion. Of course there is nothing wrong with getting out there and learning as much as you can about real estate investing in the mean time but I really encourage you to get your own finances in order first and then turn you focus to investing.

Having a reliable has nothing to do with me investing. That’s my personal business that shouldn’t even matter. Maybe I should’ve been a little more clear with my title. I prefer not to pay cash to get started but would like to get a loan until I’m comfortable with cash investments.

@Tiffani Guy So are you saying you do or do not have money to invest? And yes, your spending habits and what you do or do not do with your money is absolutely related to investing. Being a successful investor has everything to do with your mindset and your habits. You can not separate who you are personally from who you are as an investor.

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@Tiffani Guy Very likely. Hard money lenders base their decisions mostly on the property and the area. Usually, they'll tell you what areas they like and how much their willing to pay. They want equity in the home so you'll have to buy below market value (at least 50% in most cases). They charge above normal rates and get their return in a short period of time. (Usually, you'll have to refinance and/or pay them back quickly.) If you default, then they get the property: one with equity. Hope that helps! 

To answer your original question it’s not realistic.  You have to bring something to the table.  This may change once you’ve built a good reputation.  Then hard money maybe a little easier to qualify for in terms of down payment.

It’s sounds a little ridiculous if you say I’m new to flipping will you give me money so I can learn.

If I were you I’d probably save up a down payment and try a live in flip. Then you could gain experience working with contractors and managing projects.  That’s  probably the way to do it with little money down.

@Tiffani Guy HML's are great for when there are no other options. You will still need cash for down payment and getting the rehab started typically.

Instead of starting by buying homes, build up some cash with bird dogging, getting your license and selling homes and most importantly learn your market/learn to market.

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