If you want to invest in real estate, consider the lucrative house flipping option that forms the bulk of revenue for full-time flippers and a mouth-watering side hustle for many more. It is common knowledge that you need a lot of money to acquire and sell a property. You can become a flipper with only a down payment, although other options such as wholesaling allow you to become an intermediary for no cost. So, can you really flip houses with no money? A resounding yes! Learn how in the following sections.
1. Private Money Lenders
This is perhaps the best borrowing option when you completely have no money for flipping, because you get the amount you need if you are really good at convincing people. Private lenders are ordinary individuals who have enough money to spare but are not interested in house flipping or real estate altogether. They have liquid cash to offer to someone who will convince them beyond doubt that their cash will not go down the drain but earn some interest while they go about their other businesses.
Private lenders will only give you the cash and watch you do the rest of the dirty work while waiting for the profits. But before you get the money, you have to explain the business's potential to them and that you will house flip professionally within the given timelines to turn in the profit margins.
The level of experience, trust, and comfort between you and the investor will determine whether you get the full amount, a certain percentage, or nothing at all. However, poor communication and sharing of risks can ruin the partnership. Also, some private lenders may expect higher profits which may not be viable at the time.
2.Hard Money Lending
If you have a certain percentage of the down-flipping money and don't have the full amount, or you don't feel comfortable parting with huge sums of money, then you qualify for hard money lending. Hard money lenders are people who offer short-term loans to real estate investors, often at an inflated interest rate complemented by a point system. The only difference between them and other financial institutions and typical banks is that they offer you more cash and don't really mind your credit score.
Additionally, hard money lenders will only finance your house flipping ventures up to a certain percentage, usually 70%, at an interest rate of between 8-15%. This means that money lending will not suit you if you have no cash or collateral to offer. But if you have other investment options or have significantly higher equity in your current house, then you are home and dry. Hard money loan rates might put off some investors because they lower profit margins.
However, the advantages of hard money lending are that they will finance distressed homes, have short approval and funding times and focus on the deal potential, not on your creditworthiness. However, lenders prefer someone with enough experience in the fixing and flip business to newbies.
You might have heard about drug or crime syndicates, but real estate syndication is completely legal. It means a grouping of investors to pool their cash together and invest in buying and selling property. You only need to join or create one. Here is how it works. The syndicate operates similarly to a limited liability company where one of the investors sponsors the rest, thus assuming the role of the project manager. In contrast, the rest of the members become limited partners.
Real estate syndication makes money from rental income and the sale of property when the value appreciates. The advantages of syndication are the division of roles so that some partners search for properties and others fund the acquisition, make money if done correctly, and, of course, you don't need money to join. The cons include the need for special knowledge to handle larger projects, difficulty securing investment, deadline pressures, attracting low investments, and management issues if the partners are too many.
Syndication is much easier in this digital age due to marketing software that advertises property sales and links syndicates with potential investors.
Wholesaling is an excellent idea if you have no complete money but have connections to investors looking to flip and fix the property and other people who want to buy homes. Remember that you have to draw up a fail-proof plan for wholesaling to work in your favor, not just purchasing property and hoping for the best. What you are doing here is acting as an intermediary; that is, you sell your opportunity to have a house without necessarily having one.
The investor will finance purchases and renovations, then you will get the buyer at a higher price than the investments. The contract demands that you earn a commission from the profit, usually 5%-10%. Although you will earn less than the investor, you will have incurred no costs or expenses and evade the huge risk of doing it alone. However, you will have to craft an exit plan for every project or credit requirement.
5. Other Options
Home equity loan-you can borrow a home equity loan to finance the down payment and secure a loan from hard money lenders to purchase and refurbish the property.
Family and friends-share your goals with friends, family members, or those who belong to your inner circle. Chances are they may be willing to help.
401(k)- If you are a civil servant, you can take a property investment loan against your 401(k) account savings.
Credit card advance-Although you will get an advance to finance a down payment, it will negatively affect the debt-to-income ratio.
Even without money, flipping houses is possible with just a little bit more creativity and persuasive power. Just look at the above options and build your network with property agents, lenders, and buyers. Remember, you can use someone's money as long as you can show them the potential of your idea, have some experience of house flipping, or you can form a good connection between the buyers and the seller in what is called wholesaling. You are now informed. The ball is in your cot.