Just curious can you start in fix and flips even if you do not have enough capital on hand to purchase a property?
Sure you can. However you need the right connections to do it. Seeing as almost everyone here wants to buy something for nothing...even ME! The barrier to entry is finding someone to trust you enough to foot the repair costs. Banks have been doing this with their own foreclosures for quite some time now. How YOU must do it is come up with Earnest Money at the minimum. Then you have some time to run around finding someone to help you with it. Not the best plan, but this is the outline.
The newest and best mouse trap to keep you from buying is the old "Pre-Qualifying" letter. This is a letterhead note from a bank or private lender who basically states that you have access to the capital financing to buy this property. This is a way to prevent financial contingency foul-ups for the seller. AND if you get into this process, there is a chance the seller will "reserve the right to sell". This moves your offer to an open offer instead of taking the house off the market. The race has begun!
Hi Danny. I think the answer lies somewhere between "Yes and No". Confusing? Let me explain: You do not have to have enough capital on hand to purchase the property, but you will need to have some capital on hand. Most investment lenders out there will lend up to 65 -70% of the after repair value (ARV). So let's take for instance you find a distressed home in a market where similar homes are selling for $250,000. You get the house under contract for $150,000. It needs about $15k in rehab. So now your at $175k. If your lender will lend up to 70% of the ARV then guess what? Your complete purchase price and rehab cost are covered!
You're not done yet though. Your lender will still want to see what most of us like to call "Skin in the Game". That means that usually they want to see you pay some type of money up front to show that you have a vested interest in the deal and won't just walk away from it if things start going south. This could come in the form of paying for inspection fees, closing cost, upfront points on the loan, and things like that.
If you don't have any capital at all and you really want to do flips, you might try wholesaling a few deals. Yes you leave a lot of money on the table, but you build up your cash reserves in the meanwhile and then you will have the capital you need to fund your bigger projects.
Best of wishes! :o)
I'm not going to say that you cannot because I'm quite sure someone out here has done it.. Just don't ask me who- I have no clue but I'm sure they exist- I will say that I would imagine starting without cash would be hard to say the least- Easier if you know or partner with someone who has some cash..
I will say that I wouldn't advise it because you will need money for closing, you will need money for insurance, you will need money for holding costs, you will need money should you go over budget while doing the rehab, you will need money for monthly payments to your lender, you will need money to make repairs after the house is on the market - buyer requested repairs.. Its never just a cut and dry situation no matter how easy a house looks from the outside.
As someone else said earlier build up your cash reserves or find a partner who has cash
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