In most cases, it takes a lot of money to flip houses. First, you need to buy one, then pay for the repairs, carrying costs, and then you need to sell it to get your cash back and invest again. When you look at it this way, it seems there’s not a chance to get started flipping houses without at least some money of your own.
If you’re looking to flip houses with no money down you have to be prepared to bring value in some other way – it requires a bit of creativity, but also the ability to take some risks. The fact is that it can be a pretty involved process – you need to locate an attractive investment and then convince lenders or investors to put down the money. It is basically using other people’s money (OPM) to fully finance the deal. They lend you the money to purchase, fund, and refurb the property and you pay the interest on the money they’ve lent.
As you can see, there’s no secret to it – it takes courage to leave your comfort zone and an understanding of where to look and how to start. So let’s see which paths you can take.
There is always an option to get a home loan, but if you’re going to ask for it from a bank, you need to have some money in advance. Of course, you can borrow that money from family members or friends, and return it after you sell the house. This may be the perfect solution, but precisely because your family members or friends are involved, it sometimes isn’t. It’s important to research and choose your bank wisely, paying special attention to interest rates which could ruin your whole operation. For example, data collected by Lendi shows that loans from the Commonwealth Bank have been considered 84,252 times in the last 12 months with the lowest interest rate of 3,79% and an average term of 25 years. With such black-on-white information, it’s easy to pick the right deal so make sure you check these lender comparison sites regularly.
Another funding option is hard money loans which are not issued by banks and could be approved with no money at all. But, of course, there’s a trick to it – hard money lenders are individuals who made their game on very high-interest rates and they usually charge points on top of that. But the game is still similar to any other kind of loan – the shorter you hold it, the less you’ll pay in interest. This is why these loans can be the best solution if the house you’re flipping can be completed and sold in a very short period.
One of the most popular sources of funding for no money is through private money lenders since they’re just regular people with disposable money looking to invest. Maybe they’re not even actively looking to invest, but they have funds sitting around and could be open to relinquishing the same if you propose the right deal. And the right deal lies in a high enough interest rate – lucrative for them to invest but fair enough for you to lock in profits. They’re definitely preferable to hard money lenders since you’re typically able to negotiate better interest rates and obtain a higher level of control over terms.
You can get an even better deal if you can persuade them into a partnership – they finance the deal and you take care of all the legwork to make it happen. It’ s a pretty simple arrangement where you’ll do everything needed for the flip, but the profits will be split 50-50. Nonetheless, you need to have some experience in project management, restoration, or contracting to make this work, since you’ll need to add value which matches their money. It’s all about the balance of needs and skills.
In the end, you can try your luck as a wholesaler – you make a contract with the seller to buy a house at a discount, and then remarket it at a higher price. The trick is to assign the contract to a new buyer prior to closing and never actually take the title. Basically, you make the spread from the original price and the amount paid by the new buyer, or you can take a fixed fee as an intermediary. This may sound pretty easy, but keep in mind that you need to understand the desires of investors, construction costs, real estate contracts, and your local market. Wholesaling is the best option if you have an existing network of investors who are looking for fix-and-flip deals.
As you can see, there are ways to flip houses with no money down, but each one requires something in return. Loans require careful research and speed, private investors require an offer which they can’t refuse (or a partnership) and wholesaling requires a lot of knowledge. Be sure to make the right pick based on your skills and non-monetary resources.