Buying and flipping houses involves buying properties, renovating them and then selling them with the hopes of making a profit. This article is about how to do this with no money.
Before you get all excited about the “no money” part, you should understand that there will always be money involved. The thing is that you will be doing this transaction without using any of your own money. You will simply be taking advantage of some financing options available.
Let’s walk through the process of getting this done. In the meantime, you can learn more about buy and flip here: https://www.investopedia.com/.
It is important that you take some time for proper diligence. You should be sure that you understand the basics of how the real estate business works. You need to learn how to identify markets where you can get the ideal properties for buy and flip deals.
To ensure that you can indeed be profitable, you need to understand renovation costs, as well as financing and its associated cost. Having a good understanding of all the factors involved is the only way to ensure that you can pull off a successful buy and flip and be profitable.
You should also ensure that you have a contractor you can completely trust because the efficiency and cost at which the renovations are done is crucial to the success of the entire operation. If you work with an unreliable contractor, you can have the job dragged for longer than necessary, costing you both time and money.
With all that background done, let’s get into the part you’ve been waiting for. Like we noted, the “no money” just means no out of pocket money from you. You will be relying on financing or what someone termed OPM “other people’s money”.
Let’s look at a few ways that you can access financing for this deal.
These are short-term loans that are not given based on your income or credit. Instead, they are given on the strength of the value of the property to be flipped. This is actually a very common type of loan in this market.
The amount that you can get with these types of lenders can be up to 90% of the ARV or “After Repair Value” of the property. You will also have a repayment term of between 6 to 18 months.
Interests usually range from around 10% to 15% and may require 1 to 3 points upfront. In some cases, a down payment may also be required. This however is not often required.
This type of loan is ideal for situations where the property to be flipped is on sale for much lower than its ARV. With hard money flipping, you can get the entire funding you require so the project can be completed quickly. This will ensure that you can make good profit from the deal.
This is a different type of financing that can be gotten based on your relationships. Your investor can be a family member, friend or anyone with the funds and interest to invest in your venture. The deal here is simple – they give you the funds required for the purchase and renovation and you return their money with the agreed on interest.
The interest here is quite flexible as it can be a fixed percentage on the loaned amount or a fixed percentage of the profit after sale. It will all depend on what you negotiate with the investor.
Going this route usually requires that you have a convincing plan that shows the profitability of the deal. You must also have a clear timeline for the renovation as well as a good plan for the sale after renovation.
The deal you can get here will rest squarely on how well you can sell the prospects of the deal to your intended investor.
For those who already own a property, maybe a primary residence, you can leverage on this to raise the funds you need for the deal. Using the Home Equity Line of Credit (HELOC), you can raise funds on the strength of your home’s equity to fund your flip project.
This is a slightly different approach to financing that will require some money from you. In this type of deal, the seller is motivated (maybe does not want their property foreclosed) and so is willing to take payment for the property in installments. While this can take care of the purchase of the property, it will still leave you needing the funds to handle the renovation, especially if the renovation work will be extensive.
This is more of a way to raise funds over time than actual financing. In this type of deal, you neither buy nor flip the property. What you basically will be doing here is selling the deal to another investor for a fee.
You can do this a few times or until you earn enough money to fund your own buy and flip. You can learn more about wholesaling here.
Every investment comes with risks, even ones you do without your own personal funds. There are a few things that could go wrong in a deal like this so you need to know how to be proactive in mitigating these risks.
Earlier, we mentioned the need to understand how the real estate market works. You must carry out proper due diligence to be sure that things are truly the way you think they are. Before purchasing any property, carry out a professional inspection and title search to be sure that there are no issues with the property.
One of the worst things you can do in situations like these is not to have adequate insurance. Get builder’s risk insurance and ensure it doesn’t lapse until the entire deal is done.
It’s possible that things may not work out the way you planned it on paper. You should therefore have a plan B and maybe even a plan C. For example, selling off the property may not be as fast as you may have thought it would be. In such a case, you can quickly rent it out so you can begin to recoup some funds while waiting for the market to become favorable for sales.
With every type of financing you access, you will attract some cost. If you are able to build your own capital over time, you can begin to execute your deals without requiring these expensive loans. This will translate into better profit margins for you.
You can learn more about pitfalls to avoid here: https://www.thelondoneconomic.com/.
Buying and flipping a house for profit without spending your own money is quite possible. It requires some work but it is doable if you understand the process and know how to go about it.
In this article, we have provided a simple guide that can help you get started. You can only learn when you actually get your feet wet. So, don’t over think it; get out there and start the process of completing your first buy and flip deal.
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