Flipping houses with no money is typically achieved by wholesaling properties to investors without purchasing them or by using other people’s money. However, when people talk about flipping houses with no money, they also mean doing it with no money down, and a third option is finding a hard money lender that offers 100% financing.
How Flipping Houses with No Money Works
Flipping houses with no money can be an involved process. Typically, you’ll have to find an attractive investment, convince an investor or lender to put down money, and then invest some sweat equity. However, when people talk about flipping houses with no money, they typically want to know how to actually finance the property.
You can typically flip a house with no money in the following 3 ways:
1. Wholesale the Fix and Flip
When wholesaling a fix and flip property you’re essentially selling the purchase contract without having to pay for the property first. You can do this by finding a seller and make them an offer with an assignment contingency. This lets you find another buyer and sell them the property for a premium and profiting off the difference.
Specifically, an assignment contingency is a contingency in a real estate contract that allows you to assign the property to anyone of your choosing before the agreed upon settlement date. The difference between what the contract is worth and the amount you sell it for is your profit. If you haven’t found someone to assign the contract to before the settlement date, you’re responsible for buying the property.
This is why it’s important to find out the property’s after repair value (ARV) and loan to value (LTV) so you leave enough room for the investor who purchases your contract to make money. Otherwise, the investor won’t want to purchase the property and you’ll be stuck with the purchase contract.
It’s up to you to market the property since you won’t have the help of a realtor. Wholesalers typically run a wholesaling business and buy leads and take care of the marketing. For this reason, it’s much more difficult to sell a wholesale fix and flip when compared to selling a house traditionally.
Usually, the people who purchase the wholesale contracts are real estate investors that want to rehab the property and then sell it to an owner occupant. They buy these contracts because they can get a good deal without having to put forth a lot of effort. The wholesaler has already found the property and negotiated a deal with the seller and the investor just has to go to closing and then rehab the property.
Who Wholesaling is Right For
Wholesaling is right for people who have an existing network of investors looking for fix and flip deals. Typically, those who are good at wholesaling can find distressed properties, compete with all cash buyers, and purchase the property for a low value. Then, they can turn around to their network and sell the purchase contract for a premium.
This is why most wholesalers have their own wholesale business. It’s advised that you only try wholesaling if you have buyers who are ready and looking for a deal should you present it to them. If not, you could be stuck with the purchase contract.
Pros and Cons of Wholesaling
Wholesaling real estate sounds great because you can buy a property with no money and then quickly sell it for a profit. However, it’s typically done by wholesale professionals and can be tough. Pros and cons of wholesaling include:
- Provides a way to get into real estate with less money than traditional methods.
- It’s less risky than putting a large sum of money into a project if you’re inexperienced.
- You need to be familiar with contracts and knowledgeable about the process to convince sellers to work with you.
- You need to find investors before your contract expires or you will be stuck paying for the property.
If wholesaling sounds interesting and you would like to find out more, check out our in-depth guide on how to wholesale real estate the right way. This article dives deeper into wholesaling contracts as well as how to find properties and how to find investors to purchase them.
2. Use Private Money
An alternative to wholesaling is that you actually buy a property with private money. This allows you to get into the fix and flip business without the risk of putting up your own money. Private money for flipping houses comes in the form of a cash partner found in an investment group or through a new or existing relationship.
Once you find a partner, you can decide together how you will split the proceeds from flipping the property. Regardless of what each partner brings to the table, make sure you have a partnership agreement in place. This will help prevent disagreements over each partner’s roles and their expected proceeds.
For example, if you can identify a good fix and flip deal and have the expertise to complete the rehab work or manage it, then you can use that as sweat equity while your partner uses his resources to fund the deal. At the end, you distribute the profits equally or according to your pre-defined agreement.
“One common form of partnership for home flipping is when one partner supplies the entirety of the funding, and the other partner brings the deal and manages the renovations. The partners then split up the profit how they see fit. Similarly, a home flipper can avoid putting any money down on a flip by utilizing a lender with a down payment requirement, and then finding a partner to make that down payment in exchange for profit from the flip.”
— Lucas Machado, President, House Heroes LLC
Where to find private money partners for flipping houses with no money:
An investment group is an organization that brings together local real estate investors and other industry related pros, such as hard money lenders and title companies. It provides networking opportunities and the chance to collaborate on investment deals including fix and flip projects.
If you can manage a rehab but need a money partner, you can use the connections you meet at an investment group to fund a deal using an investor’s money. It’s an opportunity to meet and form relationships with people you wouldn’t otherwise get to interface with.
An investment group can be found in your local area by doing a quick Google search using “your city + real estate investment group.” You can also get recommendations from other investors and realtors. Some national investment groups you can check out first include National REIA and National REIC.
“If you join a real estate investment group in your area, you will build your cash buyers list, you will meet the most honest hard money lenders, and find the most creative title companies for doing deals like wrapping mortgages and buying subject to the mortgage. Basically, you can build your power team and expand the options available to you.”
— Todd Hutcheson, Founder, IBuyHomes.com
Another option to help you flip a property with no money down is by tapping your existing network. This way, you can either find a partner that you have already done business with or a new partner you find via a warm referral. You and the partner can decide together on the terms of your partnership and what is required from each partner.
These relationships can be found through friends, family, neighbors, and coworkers. Also, consider real estate professionals that you have worked with before such as realtors or other investors.
Who Private Money is Right For
Private money is right for those flipping houses with no money who have contracting, rehabbing, or project management experience. This is because you’ll typically have to add value that matches the money invested by your private money partner. Successful private money partnerships are those that have a balance of skills and needs.
Pros and Cons of Private Money
Private money has its advantages and disadvantages when using it to flip houses with no money. The pros and cons of using private money for flipping houses include:
- Lending criteria is not as strict as conventional lenders so if your credit isn’t great, they may still accept you (check your credit for free here)
- Fixer upper properties are accepted
- Short approval process lets you compete with cash buyers
- Dividing up tasks so you have less to do
- Splitting the risk if something goes wrong during the deal
- Some investment groups charge their members a monthly fee or other costs
- Short payback period so having an exit strategy is key
- Personality differences that make working together a challenge
- Someone else will need to sign off on your decisions
- A ruined relationship if the partnership doesn’t work out
- Lack of communication between partners can lead to a longer timeline which increases project carrying costs
In some cases, hard money is considered private money, but not always. Let’s now take a look at hard money loans, the 3rd way to flip houses with no money.
3. Hard Money Loan with No Money Down
Typically, hard money lenders require a down payment (usually 20%+) to finance the deal. On top of that, they charge between 2 and 10 points to fund the deal. To flip a house with no money, you need to find a lender that rolls the points into the deal and use cross collateralization for the down payment so you don’t have to put money down.
When this is the case, hard money lenders allow you to use the equity in another property as collateral for your new fix and flip project. To qualify, you need to own the other property free and clear or have enough available equity to finance the deal, at least 40%. These numbers vary based on lenders.
However, hard money loans typically have interest-only monthly payments, and you’ll need to either flip the property within one month or find a partner that’s willing to cover monthly holding costs. These costs can include the monthly interest payments, rehab costs, utilities, property taxes, and more.
A hard money loan, in general, is easy to find, but one with no money down can be more challenging. Start by calling hard money lenders and asking about their down payment requirements. Then tell them about your project and other properties you own that could be used in lieu of a down payment. Also, make sure they can roll their fees into the loan.
Who a Hard Money Loan with No Money Down is Right For
A hard money lender will really only offer a loan with no money down if you have other assets to pledge as collateral. For this reason, this option for flipping houses with no money is best for experienced investors with one or more existing properties. It’s also good for owner occupants with significant equity in their home.
Pros and Cons of Hard Money Loan with No Money Down
A hard money loan with no money down isn’t a traditional financing tool so it’s harder to find than hard money loans that require down payments. You will need to have equity in another property but it can be a good way to avoid using cash for a down payment. The pros and cons of using hard money with no down payment include:
- No out of pocket money.
- Loan is acceptable for a distressed property.
- More lenient lending criteria since qualifications are mostly based on the property and your cross collateral.
- Hard to find these lenders.
- Short term loan so strong exit strategy must be in place.
- Must own another property that has equity in it.
For more information on hard money loans and where to find them, check out our best hard money lenders guide. Read it to find out which hard money lender can provide a rehab loan for your investment property.
How to Find the Right No Money Property
Flipping a house with no money often requires the help of others through wholesaling the deal, using private money or using a hard money lender. Since they have to agree to the deal, you need to know how to identify the types of no money down opportunities that excite them. It’s the first step to flipping houses with no money.
Wholesalers, private money lenders, and hard money lenders all want a deal that has upside potential. Investors that buy wholesale properties and private money lenders focus on the neighborhood, school ratings, and local amenities since they affect who will buy the house and for how much. Hard money lenders look more at if the deal makes senses from a numbers standpoint. They also consider if the investor has prior real estate experience and what their exit strategy is.
Basically, you need to get someone to fund your house flip so you want to buy in a stable or up and coming neighborhood that has desirable amenities for homeowners. You also want to choose a property that will have enough room for everyone to make money when it’s finished being rehabbed.
Now you know that flipping houses with no money down is an option, but it does involve creative, out of the box thinking and working closely with other investors. It’s ideal for some real estate investors but others prefer to fix and flip properties by financing them with a hard money lender.