To many, it seems like there’s no way you can get started flipping houses without at least a little money of your own.
True, whether it’s buy and hold real estate investing, flipping houses or any other kind of real estate investing, it is a lot easier to do it with money than without…no doubt.
However, flipping houses with no money is not only possible to do, but it’s not as hard as you might think. In fact, there’s no “hidden secret” to investing in real estate with no money of your own. All it takes is a little bit of hutzpah, some courage to get out of your comfort zone and a simple understanding of how to start and where to look.
How to Analyze a Real Estate Deal
Deal analysis is one of the best ways to learn real estate investing and it comes down to fundamental comfort in estimating expenses, rents, and cash flow. This guide will give you the knowledge you need to begin analyzing properties with confidence.
How to Flip Houses With No Money Down: The True Story
If you’re not familiar with how it works, flipping houses with no money involves using other people’s money (called “OPM”) to fully finance your deals. The investor lends you money to purchase and fund the rehab of the property and you pay them interest on the money they lend.
So where do you find “OPM”?
There are lots of places to look when you want to invest with no money down, but here’s a starter list to get you going:
One of the simplest ways to get started investing with no money is to get a partner who has money to invest. This partner could be a close friend, a business associate, a co-worker, a relative, a business owner or even another real estate investor.
If you can’t think of anyone off the top of your head, then start thinking about the people you see on a regular basis. This may include:
- Anyone in your neighborhood who has a successful business
- Your doctor or your dentist
- Your attorney
- Anyone who invests in the stock market
The simplest arrangement in a partnership is for you to ask the partner for the money to finance the deal and for you to do all the legwork to make it happen. In this simple arrangement, you’ll do everything related to the flip but the two of you will split the profits 50-50.
In essence, your partner reaps the financial rewards of the deal by chipping in the money, but not the time.
When you first get into flipping houses it may be tempting to create a formal partnership with someone to start. Although this may seem like a good idea, you should probably hold off for now.
What you’ll soon find is that although there are a lot of great real estate investment partnerships that have succeeded wildly, there are just as many bad ones that end up in pure misery. When you’re first starting out, it’s best to stay independent and do your partnerships one deal at a time.
2. Hard Money Lenders
Another great source of funding for a deal is the hard money lender. Hard money lenders are individuals who lend to others at a very high interest rate and usually charge points on top of that.
This source of OPM can be especially useful if the house you are flipping can be completed in a very short period of time. Like any other kind of loan, the shorter you hold the loan; the less you’ll pay in interest. The longer you hold the property, the more you pay in interest.
And when interest is typically between 14 and 20% and often with 4 to 6 points on top of that, hard money loans are especially important to pay off quickly. Although hard money lenders are a great place to start in your real estate career, there are better sources of funding with better rates.
For example, if you borrow $100,000 from a hard money lender at 16% and it takes you 6 months from start to finish to pay it back, your interest charges would be $8,000. And if you had to pay points at say 4 points, that’s a further $4,000, adding up to grand total in $12,000 in interest charges!
If you held the flipped the property in half that time, your interest charges would be $6,000, which is why hard money is far more preferable for properties you know you can flip quickly.
3. Private Money Lenders
Perhaps the best source of funding for no money deals are private money lenders. Private money lenders are just regular people with disposable money looking to invest. In many cases, they may not be actively looking to invest, they just have it sitting around and may be open to investing with you…but only if you ask them.
Private money lenders might have money in the bank, IRAs, 401(k)s, mutual funds or even an abundance of equity in their home. This money can then be leveraged for real estate investing.
Because you can typically negotiate better interest rates in my experience, private money lenders are preferable to hard money lenders. With private money lenders, you get a much higher level of control over terms and interest rates; you set the rules and rates…not the lender.
The real key to success with private money lenders is in offering them a high enough interest rate to entice them to invest with you in the first place. The rate has to be lucrative enough for them to be interested, but at the same time fair enough for you to lock in profits – even in a worst case scenario. Even better, if you can find out what they are getting for a return on some of their other investments, this is a great way to get them to invest with you. And with stock market on a roller coaster like it has been in the past few years, I’ve found this to be a very effective strategy.
A list of potential private money lenders could be the same list we used above for seeking partners.
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Where to Find Investors to Finance Your House Flips
The first thing you’ll need to do is get off the couch and get out there!
Order some business cards from Vista Print and start networking. Surround yourself with people who are actually doing what you want to be doing. Immerse yourself in the local real estate market. If you are going to places where people like this hang out, then you’re in the right place.
The people you meet at networking events are usually the best places to find potential partners as well as funding for your no money house flips. And as long as you stay open to it, you’ll absorb tons of information from these people; more than you could ever learn by doing a Google search.
Here are a few suggestions to get you started networking:
- Your local REIA (Real Estate Investors Association); chances are you’ll find a meeting being held right in your local area
- Real estate investor meetings at Meetup.com
- Your local Chamber of Commerce
- Your local Business Networking International chapter
- Your local community organizations like Little League Baseball and other town organizations
- Volunteer at a local charity
- Form your own local real estate investors association
If you want to flip houses with no money, don’t wait for them to come to you. Instead go find your investors on your own. So go out there and make it happen.
Thanks for reading! If you made it this far, please leave me a comment below! I’d love to hear about your no money down real estate investing strategies or questions about anything at all relating to real estate!