Flipping houses is by no means an easy business, but it can be a lucrative one if done correctly. Statistics show that an average house flip can make $67,000, with 80,000 US flips taking place in 2021. But working out how to flip houses with no money is challenging, as it means that the aspiring flipper will need to bring renovation skills, contacts, or previous real estate experience to the table.
This comprehensive beginner’s guide on how to buy and flip houses with no money will cover the best ways to get started in the buy-and-flip sector.
Buying and flipping a house refers to the process of purchasing a house at a lower price and selling it at a profit. The original purchase price might be low because the house needs repair, or because the investor is taking a risk on a lower price for a house in an up-and-coming area. Typically, the house will need renovations, and the purchaser will try to minimize the costs of the restoration to make a profit from the final house sale. There can be one, two, or many investors involved in one property buy-and-flip.
A big part of purchasing the original property is that you will need money upfront. This will cover the original down payment, as well as the renovation costs you need to cover the price of materials and labor. Fortunately, there are ways to purchase a property even without any start-up capital.
Working with a business partner has a number of benefits. House flipping is a risky business, so spreading risk between one or more parties can be beneficial. However, in exchange for minimizing risk, you will be expected to share the profits with one or more individuals, which will detract from your final profits. You’ll also need to pay back the original cash injection, which will likely come out of your final sum after the house sale.
When securing a private investor, you should write up a contract outlining the exact expectations from all parties. This should include details on who is managing the renovations, the project, and who is paying what upfront. The final division of profits must be outlined on the original documentation and signed by everyone involved.
When you have no money to put into an investment, you will need to bring skills to the table. This might be your own direct renovation skills, project management expertise, or knowledge of local contractors that you can pay, and still turn over a profit. The business partner will be the person putting up the cash, so you will need to be able to bring your own expertise to the table to be worth investing in.
A real estate investment group (REIC), is a group of individuals who focus their efforts on the acquisition of real estate. Finding a local investment group can help you secure private investors to get involved in your buy-and-flip project with you. They may also have real estate contacts or advice on hard money lenders who can help you with a loan.
House flipping investors may be present in your own personal network. Do you know anyone who might be able to help with the start-up fees and renovation costs? You could also consider talking to anyone you know who works in real estate. They may not be interested themselves, but they might have connections to local investors you could approach. You can also use various real estate services to find appropriate houses to buy.
Hard money loans are short-term loans with potential high interest used to fund a buy-and-flip project. The lender takes into account the potential value of the project and the current financial security of the flipper. When negotiating a hard money loan, if you don’t have an initial down payment, you might need to use other property as security and ask for the final costs to be rolled into the closing costs of the property sale. House flipping loans are a viable option, although you’ll have to make sure you can afford the repayments.
A home equity loan is when you release cash from a home that you have equity in. You can then use the money for another purpose - like setting up a house flipping enterprise. You can borrow money against the equity and pay it back over time like a traditional loan. This will help you obtain some of the funds you need on your own, without necessarily needing a private investor.
If a business partner or a loan isn’t enough for you to start house flipping, then you can pool the resources of multiple individuals. Crowdfunding or syndicates allow you to invest in real estate with multiple investors so you can start your house flipping business with no money. Read on to find out how to leverage the power of multiple individuals when flipping real estate.
Real estate crowdfunding sites help multiple individuals with a small amount of money get invested in real estate. Each individual contributes a small amount, like $500, and the fund uses that as a pool to purchase property. Sites like DiversyFund are a good example of these platforms. As an investor, you co-own these properties along with the group of individuals who also contributed to the original investment.
The syndication process is similar to crowdfunding, and is often managed by a real estate syndication company. They will curate a portfolio and show this to the investor that is looking to invest in real estate. The syndication will be made up of multifamily investments, which means like crowdfunding, the initial investment comes from different individuals, and the final costs are pooled into the purchase of property. Unlike crowdfunding, however, the company will approach the investor with a particular portfolio. Crowdfunding platforms traditionally have one set portfolio that investors can buy into.
Wholesale flipping is when you secure a contract with the seller of a house and then have a contact with an end buyer to purchase the property. You are essentially facilitating the end buyer’s flip-and-buy transaction and helping the seller find a buyer. It helps if you have some real estate investors in your network, as you’ll need to find a buyer interested in flipping homes. You obtain a transaction fee for the process and do not purchase the property directly.
If you have bad credit, then the focus should be on either working with a business partner or private investor. Hard money lenders are also less strict with credit scores than traditional lenders, but will very rarely loan 100% of the house value, so you may have some extra upfront costs to get the loan. You could also consider the wholesale option above, where you act as an intermediary, or consider a home equity loan to release some initial funds upfront.
If you’re working with other people who are invested in the project, there is even more emphasis on making a quick profit. Before purchasing a property, have a building survey or assess the building yourself to see how much needs to be done. Does the property need a few upgrades to take it to the present day, or will the upgrades be more extensive? If you’re splitting profits with more than one individual, a house with minimum renovations required is less risky. Get quotes for the restoration work upfront, before you decide to purchase a property that needs lots of work.
The 70% rule can help you make a decision on whether or not to invest in a property. The rule is that the flipper should invest no more than seven-tenths of the final value of a property, minus the overall cost of repairs.
Flipping houses for a living can be a lucrative business, but it comes with its risks. When house flipping with no money, you’re also taking on additional pressure. as you’ll need to consider that your private investor is also looking to make a profit. When flipping a house, consider some of these additional points to weigh up the risks of investing in a buy-and-flip property.
It’s not just the property’s resale value you need to consider. Is the location desirable, or at least up-and-coming? Are there lots of properties that need renovation, and is there a demand for renovated properties in the area? You need a pool of suitable houses and willing buyers who are prepared to pay a premium to live in them.
Look at similarity renovated homes in the area and work out how much the home could realistically sell for. Then review the renovation costs and see what the potential profit is. Is the original purchase price going to give you enough room to make a profit? The bigger the potential profit window, the smaller the risk in investment.
The amount of work that needs to be done isn’t just a cost factor, but a time factor. How long is it going to take you to complete the works on the property? Your private investors or business partner will need to know how long it’s going to take them to get their original investment back and make a final profit on the property. You want to make sure everything is nice and neat when you show the house to potential buyers.
The ultimate conclusion is that if you have no money or bad credit, you’re going to need to bring renovation skills or a significant network of real estate investors to the table. If you don’t have the start-up capital, you can consider exploring your personal network for a potential private investor or business partner. Don’t know one? Network through local real estate investment groups to find potential partners in your local area.
If you want to flip houses on your own, then a hard money lender or a home equity loan might help you with financing. If this is too risky or you need even more support, then syndication companies or crowdfunding sites might be a viable option. If you do have an active network of real estate investors, then wholesale might help you start a viable flipping business with you as the intermediary.
Ultimately, the best way to flip houses depends on the area you’re looking at, the purchase price of the property, and the expenses and time it will take before flipping. The less work and the quicker the turnaround time, the faster you’ll start making money from your buy-and-flip projects. We hope this guide has given you a comprehensive overview on how to flip houses with no money or credit.
Before you start flipping houses with no money, you need to become an expert on your local real estate market. Find out what the standard price for a fixer-upper is and compare it with the final costs of a brand-new house. You’ll need some expertise in home renovation, so look at the costs of a home-renovation project in the area and get a rough idea of how much it will cost. Finally, network with local buyers to see what their price range is and what they will pay for a renovated property.
The 70% rule is that the flipper should invest no more than seven-tenths of the final value of a property minus the overall cost of repairs. As an example, if the final value of a house is $200,000, and the repairs will cost $30,000 then the investor should only invest $110,000. That’s 70% of the after-value costs ($140,000) minus the estimated repair costs ($30,000).
Flipping houses is still profitable in 2022, although the profit margins are the tightest they have been in over a decade. This is largely due to the increasing popularity of house-flipping alongside the increased cost of repairs. However, as long as you follow the 70% rule and carefully weigh up the risks of flipping homes, you’re still likely to make a profit. If you don’t feel confident in house flipping but want to invest in real estate, you should consider joining a syndicate or crowdfunding real estate platform.
Sourcing a private investor is the best way to flip a house and obtain money quickly. If you have some funds or want to fund a house flip alone, then a home equity loan or a hard money lender is a good way to raise the funds. Finally, if you need a lot of support, then investing in a syndicate or crowdfunding can take the pressure off until you have the funds you need to start house flipping on your own.
Julia A. is a writer at SmallBizGenius.net. With experience in both finance and marketing industries, she enjoys staying up to date with the current economic affairs and writing opinion pieces on the state of small businesses in America. As an avid reader, she spends most of her time poring over history books, fantasy novels, and old classics. Tech, finance, and marketing are her passions, and she’s a frequent contributor at various small business blogs.
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