Flipping a house with no funding of your own is possible under the right circumstances. All it takes is some careful planning and finding the right investor(s) for your project.
In house flipping, the goal is to buy a home at a low price, make some renovations, then sell it at a profit. But how do you flip a house with no money?
Flipping a home without using money of your own can be difficult, but not impossible. The trick is to find an outside funding source that’s right for your circumstances.
That’s why Jerry
, the home and car insurance
comparison app, is here to show you how it works. Read on to learn what to consider when flipping a house and what options can help you secure funds for your project. RECOMMENDEDNo spam or unwanted phone calls · No long forms
How to flip a home with no money
If you’re trying to flip a house but have little to no money of your own to purchase a property, you’ll need to find an outside funding source. But to convince another lender that it’s worth it to loan you their money, you’ll need to do some preparatory work on your end first.
Choose the right house to flip
Just because a house is cheap doesn’t mean you should buy it. You’ll want to make sure any repair work that needs to be done to a property is work you’ll be able to handle—and the costs to do so are recoverable.
This becomes especially important when you have outside investors supporting your project and expect to see a return on it.
When looking for the right property to invest in, you’ll want to keep a careful eye out for red flags like structural or foundation issues that could dramatically increase your renovation costs and impact your ability to resell the home.
Have a clear goal in mind
When flipping a house, the main goal is to purchase a property at a low price, make changes to increase the value, then sell it at a profit.
Some investors will want you to make a pitch that shows you have a solid plan before they’ll be willing to invest in your property.
Besides that, you’ll want to have a clear goal of what you want to accomplish with the skills and knowledge you have. Consider asking yourself:
Is there a specific profit margin you want to reach when the project is complete?
How much will repairs cost?
What will the projected home value be when they’re complete?
How long do homes in the area usually take to sell?
How much do homes sell for?
Is there room in your budget to address unexpected issues?
Having your numbers and answers ready for other investors is essential in getting financial help.
What you want to accomplish with your house flip is up to you, but a common guiding principle in the world of house flipping is the 70% rule.
The 70% rule says an investor shouldn’t pay more than 70% of a property’s after-repair value (ARV) once repair costs have been subtracted.
Explore alternative funding sources
If lack of funds or poor credit is holding you back from using a conventional loan to finance a house flip, you can consider alternative funding options like private lenders and hard money loans.
No funding source comes without risks, so pay close attention to the terms and conditions. If your house flip doesn’t go as expected, you don’t want to wind up with an unmanageable amount of debt.
The following are just a handful of alternative funding options you can explore to get started on your house flipping project.
Private lender
A private lender is a lending source that isn’t affiliated with a bank or another financial institution. They’re a person with spare cash to lend to projects that suit their interests.
A private lender might have the desire to make money from a flipped house but not the skills or time to do it. If you can offer those two things, they might be willing to offer you the funds to make it happen.
Technically, anyone with money to spare can become a private lender for the right project—and that person could already be in your network of colleagues, family, or friends.
You can often negotiate loan terms with a private lender to come to an agreement that works for both of you. For example, you might be able to negotiate sharing a certain amount of the profits with a private lender in exchange for not being charged interest, or you could end up with a lower rate than you might if you opted for a hard money lender instead.
There are plenty of ways for an agreement with a private lender to go south, so whatever agreement you come to, make sure to get it in writing and seek legal counsel to check for any overlooked conditions before sealing the deal.
Hard money lender
Hard money loans often have higher fees and interest rates than a typical loan (plus points) from a bank or other traditional financial institution—which you’ll want to pay close attention to. On the plus side, though, the requirements to qualify for one can be more lenient.
The terms are also typically shorter than a conventional home loan, which will commonly have a term of 15 or 30 years. In contrast, hard money loan terms are often between six months and two years.
Hard money loans can be especially good options for experienced house flippers who have already been through the process, are familiar with their local real estate market, and know what to expect in terms of repair costs and potential profits.
The amount you can borrow for a hard money loan is typically based on a percentage of the home’s ARV.
Crowdfunding
Crowdfunding can invite more investors onto your project and give you more funding to work with for your house flip. Typically, with more investors, each person can assume less risk in the investment.
You can arrange your own group of crowdfunders with people who are already in your network. There are also several online options for crowdfunding various projects, including house flipping.
Crowdfunding cons
Crowdfunding can have its setbacks, however. Sometimes it can make the process go slower and offer less room to negotiate since the number of investors you’re working with is larger. Depending on your terms, more funders will also mean you’re giving away larger portions of the house flip’s profits.
Using equity
If you have a good amount of equity built on a property you already own, you have the option of using a cash-out refinance or home equity line of credit (HELOC).
If you decide the benefits outweigh the risks, either of these options could give you the cash necessary to make a down payment on a house you want to flip. Requirements will vary depending on your lender.
It’s always a good idea to make sure you’ll have a minimum amount of equity left in a home after borrowing a certain amount against it—20% is a common recommendation.
Wholesaling
Real estate wholesaling is another option to secure financing for a house flip, but it’ll take some careful planning to work out in your favor.
Wholesaling works by finding a low-cost property, buying it under contract, and then transferring it to another investor. As the wholesaler, you can then charge the buyer of the property a fee (commonly between 5% and 10% of the home sale price).
How to save money on home insurance
If you’re trying to finance a house flip, any savings you can find on recurring expenses can go a long way—including your car and home insurance payments. With the Jerry
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The average Jerry user saves $887 per year on car insurance alone, and you could find additional savings when you bundle your car and home insurance
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