House flipping involves buying a relatively low-cost property, rehabbing it, and then selling it at a profit. Although this real estate business carries with it a number of risks, it could also have lucrative rewards. Popular TV shows tend to depict it as something easy to do. However, the truth is that it isn’t as easy as it looks. To be successful in the house flipping business, having the right knowledge, a solid plan, and hard work is crucial. Nevertheless, the greatest roadblock for beginner house flipping investors is usually funding.
As you have probably heard before, it takes money to make money. However, you should not let having little or no money stop you from achieving your house flipping goals. There are other options you can explore. If you are interested in learning how to flip houses with no money, this blog is for you.
Here are 8 ways to flip houses with no money:
1. Private Money Lenders
Getting a private money loan can be a great strategy for investing in real estate with no money. There are many people out there with financial muscle that can invest with you. Private money lenders typically don’t require as much paperwork and time to offer funding as traditional banks. However, they will evaluate the investment property and your capacity to complete the project successfully. If you can present a solid plan for your house flipping project, you will be able to find a private money lender to work with.
2. Hard Money Loans
Another common way to obtain the cash you need for house flipping is from hard money lenders. These are companies that offer short-term real estate loans. Each lending company will have their own policies. They typically look at the borrower’s experience and their equity in a home to use as collateral. However, hard money lenders often have high interest rates and points. Therefore, you should make sure that you can flip the investment property quickly and pay it back as soon as possible.
Most hard money lenders require a bigger down payment than private lenders. However, if you have no money, you should find one that will allow you to flip houses with no money down. You may need to contact a number of lenders in your location before finding one that agrees to collateralize your equity for a down payment.
Related: A Real Estate Investor’s Guide to Hard Money Loans
3. Real Estate Partnerships
One of the best ways to finance your house flipping business using other people’s money is by seeking out real estate partnerships. You may have the technical know-how needed to start flipping houses but lack the finances. In this case, if you have a business associate, family member, friend, or another real estate investor who has the financial means but lacks the knowledge or time, the two of you could work out an arrangement where they finance the deal in exchange for your knowledge. Therefore, you do all the work to get the job done.
To get a real estate partner, you will need to network with other real estate professionals and investors. For instance, you could join a real estate investment club. However, before looking for a partner, make sure you have a solid business plan in place to show them that your idea is lucrative.
Related: 5 Things to Make a Real Estate Partnership Work
4. Real Estate Wholesaling
Real estate wholesaling is one of the best ways to get started in house flipping since it can be done with virtually no money. Wholesaling involves finding a distressed property that is being sold at below market value, getting it under contract, marketing it, and assigning the contract to a new buyer at a profit. You don’t have to purchase the house first. You also won’t be involved in rehabbing the house since you are just a middleman.
Although wholesaling is one of the best real estate investing strategies for those with no money, it isn’t easy. To be successful as a real estate wholesaler, you will need to take an active role. This includes networking with potential buyers, keeping an eye on the housing market, and learning how to negotiate contracts. One major drawback of wholesaling is that if you are unable to find a property buyer to assign the contract to, you will be responsible for buying the investment property.
5. Real Estate Crowdfunding
Another option to consider when thinking of how to flip houses with no money is real estate crowdfunding. In crowdfunding, social media and other websites are used to draw investors into house flipping projects. The crowdfund investors collectively finance the borrower’s loan and earn interest in return. As a borrower, individual investors won’t have access to your credit report but will assess the potential for profit in your real estate deal. Therefore, bad credit won’t affect your investment. However, one major drawback of real estate crowdfunding is that your financing is likely to be expensive. Moreover, some sites won’t work with house flippers that are inexperienced due to high risk.
6. Seller Financing
Seller financing is also a great option for financing a real estate investment with no money. Due to the tight mortgage market, more property owners are realizing the need to offer owner financing. You will be working directly with the former property owners rather than going through a traditional lender. If you can do the hard work of rehabbing the investment property using modern materials and tools, it won’t be a problem for you. What makes this option attractive for house flipping is that owners are more flexible when negotiating loan terms. You can still get a loan from a seller even if you have bad credit. You are also likely to get simpler approval terms, a smaller down payment, and a favorable payment schedule.
So, how do you find a seller that can offer you financing? First, after finding a home to flip, you can pitch the idea to interested sellers. You can also search for listings that already offer seller financing, so long as they are right for flipping. However, to finance your house flipping endeavors using seller financing, you will need to instill a sense of confidence in potential sellers. You should have a business plan and demonstrate why they should finance the deal.
7. Option to Buy (Lease Option)
The lease option is also a great strategy for those wondering how to flip houses with no money. No upfront payments are required. The real estate investor rents out the house and agrees to buy it at the end of a specified rental period. The rent payments will typically act as credits towards the final price. However, you will need to negotiate potential repairs and renovations during contract signing so that both parties are aware of the work being done on the property. Depending on the circumstance, the terms of an option to buy contract may vary.
8. Home Equity Loan
A home equity loan is also a viable financing option for flipping houses with no money. If you have built a substantial amount of equity in a property you already own (at least 20%), you can take advantage of it in a number of ways. First, homeowners can take advantage of cash through cash-out refinances to access funds for a down payment on rehab properties. With this option, you redo your current mortgage and get the difference between the two loans.
You could also buy a house to flip through a home equity line of credit (HELOC). A HELOC allows you to borrow against your equity and make monthly payments, just like how a credit card operates. One advantage of a HELOC is that it can be tax-deductible. However, you need to consider the risk of this option. If you can’t keep up with the new loan payments, you may lose the property to foreclosure.
The Bottom Line
Flipping houses is one of the best ways of making money in real estate. However, the greatest challenge for people interested in this business is usually how to flip houses with no money. Fortunately, it’s possible to start with nothing and gradually build your real estate empire. If you are looking to try your hand in real estate investing by flipping houses but have no money, you should consider the above options. Compare them and choose one that is best for your specific situation.
Ready to begin your house flipping business? Find and analyze off-market properties to flip in the Mashvisor Property Marketplace. You should also consider getting started in one of The Best Cities to Flip Houses and Make a Profit in 2019.
