Wondering how to flip a house…with no money? You’ve come to the right place! In this article, we will walk you through everything that you need to know about getting started in real estate investing and flipping a house on an extreme (and we mean extreme) budget.
Consider this your house-flipping school.
What Is Flipping a House?
Flipping a house means purchasing and renovating an inexpensive home and selling it for profit.
When you want to flip a house, you essentially purchase a “fixer-upper” and then invest the majority of your budget into upgrading the home. Once you complete all the necessary repairs, the goal is to sell the home well above its initial purchase price and pocket the difference. Those in the industry often call this practice a “fix and flip.”
You can use the surplus simply as income or as seed money for your next flip.
However, there are no guaranteed profits when you flip houses. This is because repairs can sometimes go over schedule and cost and the housing market can fluctuate greatly. Because of these reasons, flipping houses is not for the faint of heart.
However, it can be for those without start-up money.
Here is everything you need to know about how to flip a house with no money:
How to Flip a House With No Money
How much money do you need to flip houses? This is an extremely common question people ask when they’re interested in flipping houses as a career. They think that, if they can just secure financing for their first flip, that will start a snowball effect.
They can then take the profit from their first home and build it into the second. And take the money from their second flip and invest it in their third. And on and on it goes. This plan can sometimes work.
Even if you have no money to flip your first house, here is how to get started:
1. Secure funding.
You need to secure a short-term loan in order to begin flipping houses. As always, we recommend that you save as much of your personal money as you can before beginning this process.
However, even if you have tens of thousands of dollars saved, it can sometimes still not be enough. So, to avoid prolonging the process, simply apply for a loan.
There are three main types of loans that you can apply for when flipping a home with no money.
This is the best option for people who have the technical skills to flip a house but not the funds.
In this instance, two people partner together to purchase a property and flip it. However, only one of them actually invests any money into the project. In the industry, we call this person the money partner. The money partner bankrolls the project but lets the other person, the one who did not invest any money, invest all of his time.
The money partner can sit back, relax, and pay, while the other partner manages the actual logistics of the project and ensures they complete the flip quickly and professionally. At the end of the project, when they sell the flip, the partners can decide between the two of them how to split up the profits.
Because this is a private business arrangement, the partners can pick whatever split they are comfortable with, like 50/50 or 60/40.
You can find private money lenders through a local real estate investors group or your existing network of friends and colleagues.
The most important thing to remember is to have a partnership agreement in place before you exchange any money. This way, there are no disagreements about finances or project roles later on down the line.
Hard Money Loan with No Money Down
This is the best option for people who are experienced investors with one or more existing properties or owner occupants with significant equity in their home and a good credit score.
Usually you need to pay a 20% down payment to take out a loan. On top of this, many traditional lenders will also charge between two and 10 points to actually fund the deal. But if you are trying to flip a house with no money, this isn’t going to work for you.
What you need is a lender who is willing to do cross-collateralization. This means that the hard money lender will allow you to use your equity in another property (usually your primary residence) as collateral for the loan on your new investment. You need at least 40% equity in your collateral property for this to work.
Although numbers vary from lender to lender, generally, these loans are very short term. This means that they have interest-only monthly payments. Because of this, you will need to be able to flip the property within the first month or find an investment partner who is able to cover monthly holding costs. These holding costs using include monthly interest payments, rehab costs, utilities, property taxes, and more.
Wholesaling the Flip
Wholesaling houses is a great idea for people who already have a flip business. For wholesaling to work, you need to have an existing network of investors looking for fix-and-flip deals. You can’t just buy a house and home for the best. You need to have a plan.
With this way of “financing” your property, you are essentially selling the purchase contract to a third party without needing to pay for the property first. To do this, you can reach out to your network and make them an offer that contains an assignment contingency. An assignment contingency lets you assign the property to anyone before the settlement date. This way, you are able to locate a buyer in the interim and sell them the property for a profit.
The only caveat: If you are unable to find a buyer to assign the contract to, you are responsible for purchasing the property.
2. Gather your supplies.
You will need good credit, a good Realtor, patience, and a solid team of contractors before you attempt to flip a house with no money.
If you do not plan on hiring any contractors, make sure you have a solid plan and suppliers for any of the improvements you want to make to the home before attempting to resell it.
3. Purchase the flip.
As mentioned, flipping a house with no money usually requires the help of others through using wholesaling, private money, or a hard money lender. Since the people involved in this help also have to agree to the deal, you need to know how to identify the types of properties that can convince them to get on board.
These people all want a deal that can make them money! They tend to focus on the neighborhood, school ratings, and local amenities. This is because these things impact what buyers will be willing to pay.
Before joining a deal, they will also consider if an investor has prior real estate experience and what their plan is if something goes wrong.
So, when you approach a property, always have a plan! Make sure that there is actually a profit to be made by flipping the house you are interested in purchasing.
4. Renovate the flip.
This step is where all the magic happens. It’s time to turn the fixer-upper into someone’s dream home.
This step is also where most things can wrong. This is because property renovations are often long and expensive. Parts break or do not arrive in time, and problems you didn’t even notice will crop up out of nowhere.
Because of this, it’s always best to allocate more time and money to this stage of the process than you think you might actually need to. The best way to operate is to under-promise and over-deliver.
5. Sell the flip.
The last step in flipping a house with no money is to try and make some money off of it. Because of this, it’s best to list your home with a flat-fee agent. This way, you are not losing thousands of dollars that you really need to agent commission. You only pay one flat-fee. (That’s pretty Clever if you ask us.)
Benefits and Risks of Flipping a House with No Money
There’s a possibility you can make hundreds of thousands of dollars each year flipping houses. There is also a possibility of losing hundreds of thousands of dollars each year flipping houses.
The main risk in flipping a house with no money that isn’t there for typical investors is that if you do a bad deal and lose money, it’s not just your cash. You’re on the hook for your investor’s money as well.
How to Flip Houses as a Career
When you start your house-flipping business, you might feel like you’re drowning in money loans while looking for great deals. But keep the faith! Keep your head down, work hard, and build your network.
A good place to find a network is the Biggerpockets website or through local meet-ups in your area. By taking the time to grow your network, you’ll have mentors to turn to with the questions that arise (because they will!).
Real estate investing is a tough business, but those who have tenacity and patience tend to succeed. If you’re looking to get started in real estate investing, talk to a Clever Partner Agent today!
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Do you need an agent that won’t cut into your house flipping profits? No worries! The team at Clever will sell your properties for you—all for just one flat fee. Call us today at 1-833-2-CLEVER or fill out our online form to get started.