One of the questions that I continually get asked is: “how do I flip houses with no money?”
People see all the TV shows that show people flipping houses with no money and they really want to know if it actually can be done! The problem is that many of those shows just make it all seem so easy.
Truth be told, “the gurus” have it half right. You can learn how to flip houses with no money down. In fact, I do it all the time. On just about every house flip I do, I have minimal, if any cash of my own in the deal.
Is it easier to flip houses if you have money of your own? It definitely is – especially when you’re just starting out. But there are many ways to flip houses with no money using some funding sources you might not have thought about.
How to Invest in Real Estate While Working a Full-Time Job
Many investors think that they need to quit their job to get started in real estate. Not true! Many investors successfully build large portfolios over the years while enjoying the stability of their full-time job. If that’s something you are interested in, then this investor’s story of how he built a real estate business while keeping his 9-5 might be helpful.
Which Comes First, The Deal or the Money?
In many cases, new investors just don’t know whether to get the money first or get the deals first. This is another question that seems to come up a lot.
The short answer is that there is really no right or wrong one on this. If you get the money first and have no deals then you need to find a deal real quick. Likewise, if you find a good deal, but don’t have the money for it, you’ll need to get the money fast so you wont lose the deal. Realistically, you need to be working both sides of the house flipping equation, virtually all the time.
Dont let any of that get in your way. If you say you can’t do a deal without the money, then you’ll never do the deal. If you say you can’t get money without a deal, you’ll never get the money. It’s a catch-22 and a big trap for you. The bottom line is this:
Money is everywhere – you just need to go get it!
So go out and get the deals and the money at the same time. In this guide, we’ll teach you how to get the money.
The First Steps
Before we get into the how-to’s of flipping houses with no money, lets take a step back on what you should do before you start looking for money to fund your house flips.
Of course, it would be ideal if money just “came to you”. It doesn’t. I’ve tried to raise money sitting on my couch watching TV and trust me, this approach doesn’t work. A few hundred thousand dollars doesn’t just “walk in the door”…although that would be nice if it did!
So, before you go out there and start on your quest for house flipping cash, here are a few things you should do before you get started:
- Read: Start reading books and learn everything you can about house flipping. Get your education. The fact that you are reading this right now is a very good first step. You are on one of the best platforms for learning how to invest in real estate on the planet. So good job there! Do a Google search for “how to flip houses with no money” – you’ll find plenty of information there as well.
- Surround: Immerse yourself with people who are doing the business and are more successful than you. Who you associate with speaks volumes about who you are. Hang out with super successful people. This success mindset will rub off on you…and they also may be great sources of capital to fund your house flips as well.
- Study: Study your market. Get to know it as well as you possibly can. Understand the trends, the kinds of houses, the neighborhoods, the streets. Get in your car and start driving around. If you’re close, just walk it. You’ll be amazed at how much you’ll learn. Call some real estate agents on listings you see. Ask questions. Make inquiries. Get dirty. The more you know and feel your market, the better prepared you’ll be when you talk to your money people.
- Expose: This does not mean rip off all your clothes and streak the neighborhood. What it does mean is that house flipping is a contact sport, so go out and make some contacts. In the process, you’ll need to start formulating your own all-star house flipping team. It means getting out and meeting people.
- Think Abundance: Always be open to creative ways to come up with the money to finance your deals. Thinking abundance is the primary way to do this. To be successful in real estate investing, you can’t have a closed mind. Creativity rules the day. Yes, there are rules, but there is a tremendous amount of creativity that goes along with successful real state investing. If you shut your mind off from any new ideas, you are not thinking abundance. Always think in terms of “how can I get this deal funded?” Ask this question to yourself and you’ll find that creative ideas will all of a sudden start appearing in front of you.
Although the list below is by no means all-inclusive, they may even spark ideas of your own that allow you to realize your house flipping goals without the use of your own cash. Be open to new ideas – look for other ways to expand on this list below. Although this list covers the majority of the ways to flip houses with no money, any combination of these factors can also be used to create new, creative ways to fund your flips.
Your Own “Money”
Most new investors don’t realize that there are money resources that they already have. What’s lesser known is how to flip houses with no money with resources you actually may already have at your disposal already!
I thought this was an article on how to flip houses with no money? It is. Even though the resources are your own, there is no outlay of cash on your part, which is the best part. The key is finding the money to use then to flip. If you look carefully there, there are a number of ways to do this:
- Home Equity Loan: Using the equity in your primary residence is a very popular way to flip houses with no money. If you can leverage that money into a few deals with a private moneylender, there’s no cash outlay for you as your closing costs can also be rolled into the loan as well. You can also use this method in combination with any other strategy flipping houses with no money.
- Credit Cards: You want to use these wisely and responsibly but it is an option and one that is very popular with new house flippers. As one of the most common ways to start a business, credit cards have been used in this way for years to finance all kinds of business ventures. Be careful not to over extend yourself, but credit cards can be used very effectively as a short-term source of funding.
- Credit Lines: In addition to the methods above, when you are funding your rehab, you can use your good credit to get a line of credit with your suppliers for building materials, kitchen cabinets, flooring or any other building materials that may be needed in the house flip renovation. You may even be able to get your contractor to be paid after you sell.
- IRAs: Did you know that you can use your own IRA money to invest in real estate? It’s called a self-directed IRA and many of the investors we use to flip houses use this method to finance many of our flips. Make sure you consult your accountant, lawyer and your financial planner before you jump in. They will be able to tell you if there are any kinds of early withdrawal penalties that need to be avoided – so make sure you check with them before you do anything. A self-directed IRA is the lesser known of IRA options in which the account owner can make active investments on behalf of the plan. To open one, an owner must hire a trustee or custodian to hold the IRA assets. That person is then responsible for administering the account and filing required documents with the IRS. Do your homework and beware that a misstep can disqualify your IRA’s tax-deferred status, forcing you to pay tax on its full value plus penalties if you’re under age 59½.
I know what you’re saying…“Banks? Mike, have you lost your house flipping mind?”
Yes it’s true, lending is tight right now, but it is worth a shot for you – especially if you’ve been good at formulating your team and getting out and meeting people. This “meeting people” also includes bankers as well.
If you have a good relationship with your bank, this is another way to flip houses with no money. Traditional bank loans are more challenging at times, but if you have a solid business plan and fully explain to them what you are doing, many new house flippers have found great success here. Although this house flipping finance method may not happen right away, it may eventually and could be another source for getting money to fund your deals.
In certain businesses you may be able to “just fake it till you make it”. Real estate is not such a business. And when you are looking for investors, you have to approach them in a certain way. And that all begins with honesty and integrity. If you don’t, word will get around and you will be labeled as someone people don’t want to do business with.
So here are a few tips when approaching outside investors:
- Be Honest: When approaching outside investors, be honest and transparent at all times. There’s nothing wrong with telling an investor that this is your first house flip deal.
- Be Transparent: If you do tell them that this is your first deal (which I highly recommend) then you should be prepared to convey how serious you are about the deal. Consider putting together an investor presentation highlighting topics such as the ARV (after repair value), soft costs and projections. Explain the 70% Rule and show them how you expect the deal to work.
- Get Your Facts Straight: Have all your facts and details laid out in an orderly, logical format so you can best present the opportunity.
- Seek a Mentor/Coach: In many cases when you are just starting out, it’s a wise decision to seek out the guidance of a more experienced real estate mentor or real estate coach. This person could be a friend that you meet through a REIA meeting or even a paid coach. Although personal coaches don’t come cheaply, the right one can shorten your learning curve and the tuition you may pay can be recouped in your first deal in many cases. Most importantly, having an experienced and successful real estate investor by your side makes your opportunity pitches to investors much easier as well. You can tell the investor that you are working side by side with someone who knows how to flip a house and has successful experience doing it. This fact alone may help you in convincing some outside investors who otherwise may not be open to lending you money.
The three main kinds of outside investors and they are as follows:
Hard Money Lenders
Hard money lenders are people with money that lend to others at a very high interest rate and typically charge points on top of that.
These kinds of loans can be especially useful if the flip can be done in a short period of time. This is because you can typically expect to pay anywhere between 14 and 20 % with four to even six points on top of that. Some house flippers use them all the time, but in my opinion, there are better place to get your money and at better rates.
The cost of hard money lenders may be a bit restrictive for the starting house flipper, but depending on the situation, they may be useful – but there are risks to be aware of.
As an example on a $100,000 loan at 18%, if it took you 6 months to repay, your interest would be $9,000 and $5,000 for 5 points. All in, that’s over $14,000 in costs. But if you factor those costs into your house flipping formulas, you shouldn’t have a problem still making a good profit. In one of my more successful house flips, I funded that deal almost entirely with hard money. But because the margins were so good, the soft costs in interest were more than covered by the profit.
Chances are very good that if you hold onto the money for longer than 6 months, then you may just kiss your profits good-bye.
Private Money Lenders
Private money lenders are just regular people with disposable money looking to invest it. 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 if they are asked. These individuals could have money in the bank, IRAs, 401Ks, mutual funds or even an abundance of equity in their home. This is money that can easily be used for real estate investing. They don’t have to be wealthy; they just have to be interested in getting a better return on their money.
In mos cases, private money lenders are much preferable to hard money lenders, largely due to the fact that you, the house flipper maintains control. You set the rules and rates…not the lender.
The real key to success is to offer them a high enough interest rate on their money to entice them to do it with you in the first place. if you can find out what they are getting for a return on some of their other investments, then you can offer something more lucrative that both ensures you stay profitable but is high enough to entice them to invest.
If you can’t think of anyone off the top of your head, then start thinking about the people you deal with every day.
- Your doctor or dentist
- Your attorney
- Anyone in your neighborhood who has a successful business
- Anyone who invests in the stock market
People are always looking to get a better deal on their investments and making money flipping houses is an extremely lucrative way to do that. When you learn how to do it, you’ll never have the need to invest your own money in the future because as soon as you turn your first successful house flip, you’ll find people coming out of the woodwork to start lending you money to get their own piece of the house flipping pie.
Friends and Family
Another choice is to find lenders through friends and family. Many real estate investors including “The Donald” got their start this way, so you should seriously consider it. This kind of money lending is tricky, however. Whenever family is involved with money lending, things can get complicated fast. If you don’t do your homework and the deal goes south, Thanksgiving dinner could be awfully uncomfortable.
I personally recommend going outside family for funding. Making good contacts is far less complicated and emotional. But if the opportunity is there, go this route but make sure you structure it formally and legally and don’t make the mistake of treating it casually. You’ll find that as soon as you turn your first successful house flipping deal, investors (including family) will suddenly appear. Nobody wants to miss out on an opportunity to make money.
When you are first starting flipping houses, an easy way to get some “house flip momentum” going is to partner up with someone. This partner could be any number of the following sources:
- A business partner
- A friend
- A co-worker
- A business owner
- Another real estate investor
- A neighbor
- A family member
Although it may be tempting to form a formalized partnership with someone when first starting to flip houses, I strongly discourage this. It’s far better to do it on a deal-by-deal basis and not as a formalized partner in the business. When you are first starting house flipping, you’ll soon find that although there are a lot of great house flipping partnerships, there are also a lot of bad ones as well – and you don’t want to be tied to any one in particular.
You can simply ask the partner for the money to finance the house flip. Explain to your partner how you’ll do everything else but the two of you will split the profits 50-50. In this way, your partner reaps the rewards while only contributing the cash and not the effort. This kind of house flipping arrangement ends up being a good deal for the both of you.
Some would say that this kind of no money arrangement really only benefits the partner because all he has at stake is the cash itself. I disagree. When you are first starting, getting 50% of something in a flip is far better than getting 100% of nothing. If you don’t partner, you may never do the deal.
If you follow the formulas for structuring house flips here on BiggerPockets, you’ll have good-sized profits usually in excess of $20,000 depending on your market. And when you’re first flipping houses, a 50% split on that kind of money, though not enormous, can certainly set you on a course to even greater profits in the future.
Another great kind of partnership is to form one with your general contractor. With this kind of structure, I have done some of my best house flips. The idea is that you raise the money to purchase the flip and assemble the entire project while the general contractor does the work at cost. The money you would have to raise for the rehab is now not needed as the contractor foots that bill. The contractor in essence becomes a source of cash for the rehab part of the flip.
There are hundreds of potential variations on that basic agreement as well. When you partner with an established contractor, talk to him about funding the whole flip as well. Perhaps he has a bank credit line or maybe access to funds of his own – or even good relationships with banks. Perhaps he has credit lines with his suppliers so he doesn’t need to invest much cash as well. Maybe he knows other investors or money guys.
The possibilities are endless – and it’s worth it to explore all angles here. When your structure a flip like this, it makes for an extremely motivated general contractor who is eager to get the job done and get it done right.
As stated before, getting out there and enlarging your social networks with face to face networking is very helpful when finding investors. But some of these investors and money people could also be partners for you as well.
If you meet an investor at one of your networking meetings, keep your mind open to the possibility that not only could they lend you money, but they also could lend you expertise as well as a partner for that particular house flip. Before you do anything with them, you’ll then need to work out a solid contract for the deal.
If the investor buys in cash, this is ideal. That way you won’t have to go through a bank or a lender for a loan. If they need to qualify for a loan, then this may slow down the whole house flip.
In these kinds of arrangements, you can even weave in his real estate investing connections to get the house renovated using his contacts. In many cases, his contacts can even help you to find potential buyers as well. Because the investor is so vested in the deal, he may be able to lend additional money to reap even greater profits. These additional monies, if use wisely, may be able to improve the property even more and earn you and him an even greater profit. So instead of selling the house for just $220,000 you might end up selling it for $240,000 instead.
If the investor is fairly experienced, you may need to give up more of your profit percentage. But if it helps you get your first flip under your belt, gains you some momentum and makes you a chunk of cash, it’s all worth it. Just be careful not to give up too much control and profit percent, as you do want to get paid fairly for the work you do.
These methods will help you to jump-start your thought process on how to flip houses with no money. Even so, there are many other ways you can squeeze out cash or defer payment until the house is sold. Deferring payment of debts sometimes is just as good as borrowing.
Think creatively, be open to suggestion and use these ideas as launching pads for other ways to find money so you can start your real estate investing career flipping houses, while doing it with very little if any of your own working capital.
Raising money is certainly one of the biggest sticking points people experience when first starting to flip houses. But the good thing is that the ways to structure a deal in real estate are literally infinite. So be open at all time to new ideas, no matter how crazy they may seem initially.
There’s really no such thing as a bad idea when brainstorming new and creative ways to fund your flips. Talk to people, bounce ideas off people, and when you do this, you’ll be amazed at how many new creative ways you can come up with to flip houses with no money on your own. Use this guide as a starting point and then let your creativity come through.
Remember: money is everywhere…you just have to go out and get it!
If you’ve made it this far, please leave a comment below and let me know what you think! I would love to hear any other strategies you’ve used to flip houses or invest in real estate with no money…leave a comment and give up the goods! 🙂