How To Flip Houses With No Money Out Of Your Own Pocket
Key Takeaways
- There are no rules stating that the money you use to flip houses needs to be your own.
- There are two necessary assets every investor needs at their disposal: private and hard money lenders.
- While they may come at a higher price, private and hard money lenders are often the greatest source of funding for investors to take advantage of.
Let’s make one thing clear: it is entirely possible to flip houses with no money out of your own pocket; not only that, but there’s an entire community of investors ready and able to lend you the funds you need to complete your first deal. That’s right, there are plenty of investors willing to fill your pockets with their money — if you can prove to them that you deserve it, that is.
If you want to start investing today, using other people’s money will most likely be your quickest path to success, but you need to know who to look for. Below you will find your best options for funding your first deal.
Your Options For Flipping Houses With No Money
Nowhere does it say an investor needs to fund a deal with their own money. As it turns out, there are several options for funding a deal made available to today’s investors, none of which will require you to use capital from your own pocket. In fact, it’s quite easy to argue that using other people’s money is the gold standard, at least when it comes to investing in real estate. If for nothing else, private lenders, hard money lenders and any house flipping investors with an interest in making money are all more than viable options to seek out for your next deal.
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Private Lenders
More often than not, private lenders will serve as an investor’s greatest source of funding. After all, private money lenders are essentially banks without the endless hoops to jump through most traditional lenders have become synonymous with. That said, private lenders are anyone with a few extra dollars in their pocket, a desire to invest, and a propensity to have their “ears bent.” Perhaps even more importantly, they are not associated with a financial institution or a government-backed agency, such as Fannie Mae or Freddie Mac. That’s an important distinction to make; it means they are able to make their own rules.
With the ability to set their own parameters, private money lenders will typically come at a steep price; it’s not uncommon for their fee to rest somewhere in the neighborhood of six and 12 percent, but I digress. While the average private money lenders rate is slightly higher than that of a traditional lender, they can have the money in an investor’s hand in as little as a few days, or even hours. Therein lies the greatest benefit of working with private money lenders: speed of implementation. The slightly higher interest rate is well worth the cost of admission if it means an investor can secure funding in as little time as possible. Not surprisingly, most investors will find that the speed in which they are able to make an offer is more important than the interest rate it came with. Traditional banks, on the other hand, may take as long as 30 to 45 days to close on a loan, or just long enough to let a deal slip through your fingers.
In exchange for the funds, most private money lenders will require a bit of an insurance policy; or, more specifically, a promissory note and a mortgage or trust deed on the subject property. Some private lenders will even want borrowers to take it a step further and guarantee the loan with their own assets, but everything is negotiable.
Hard Money Lenders
In their simplest form, hard money lenders are lending companies that offer specialized short-term real estate-backed loans. Unlike their private money counterparts, they are actually affiliated with a company that specializes in lending. However, not to be confused with traditional lending institutions, hard money lenders will typically offer shorter loan terms. Whereas transactional lenders will offer loans up to 15 and 30 years, hard money lenders tend to stick with a six month to two year window.
Other than their affiliation with an actual company, hard money lenders will operate a lot like a private money lender. Not only are their lending guidelines a lot looser than traditional institutions, but their rates are also slightly higher. Hard money lenders will usually ask for about 11 to 15 percent and about five points (additional upfront percentage fees based on the loan amount). It is worth noting, however, that there are no universal hard money lender guidelines; each will come complete with a different set of criteria.
It is also important to note that most hard money lenders will usually only loan a percentage of the purchase price — typically around 70 percent, to be exact. That, will require most investors to look elsewhere if they don’t want to spend any money out of their own pockets; perhaps a private lender.
House Flipping Investors
Both private and hard money lenders are a great way for investors to flip houses with no money out of their own pockets, but they are not the only ways. There is one additional way to flip a house without using any of your own money: partner with house flipping investors. It is entirely possible that teaming up with someone that is already flipping houses can be your next best move, and there’s no reason they couldn’t provide you with the funding you need. That said, a partner with money is just as good as a private lender or hard money lender.
Instead of taking on your next deal alone, consider the idea of partnering up with house flipping investors. Provided the right alliances are made, there’s no reason your partner can’t fund the deal — so long as you bring value to the table. It is worth noting, however, that if you aren’t bringing the funds to the partnership, you had better bring a lot of value elsewhere. Perhaps you actually know of a deal, or maybe you have the right contacts. Whatever the case may be, as a partner, you need to be able to carry your own weight. At the very least, partnering with investors that already have money is a great way to get started investing.
Can You Start Making Money Flipping Houses Today?
Through no fault of their own, far too many new investors are unaware of the funding opportunities made available to them. For one reason or another, they are convinced they need to use their own money to buy a home, but they couldn’t be more wrong. In fact, you don’t need to use any of your own money if you want to start investing today. That is not to say having your own money wouldn’t help, but it’s certainly not necessary.
If you want to start investing today, your best chances of receiving funding are going to be private money lenders, hard money lenders and partners. Each of these three options is made available to investors the day they get into the game.