Many dismiss real estate as an investment option because they don’t want to use their own funds. However, there is no reason you cannot invest in real estate using funds sourced elsewhere and still make the profit you want. If you’re an aspiring real estate investor with a lack of personal funds or an experienced investor looking for alternative funding sources for a house flip, you’ll want to keep the strategies on this list close.
From using a hard money lender to cashing out your home equity; this is how to to start flipping houses with little money.
Working With A Hard Money Lender
Many real estate investors looking to make money by flipping a property depend on hard money lenders for funding. Hard money lenders are non-bank loan originators that specialize in offering short-term funding backed by real estate. These types of loans are also sometimes referred to as asset-backed loans, with loan terms that can range between only a few months and up to two years.
Hard money lenders will typically only fund a certain percentage of a property’s purchase price – usually around 70%, but there are exceptions. Because these lenders are sometimes funded by a group of private investors, the lending options are more flexible to allow new investors and investors with a less than perfect credit score.
Due to the amount of risk involved in the transaction, hard money lenders will charge a slightly higher interest rate than conventional lenders like banks, which are unlikely to fund property flips.
Cashing Out Home Equity
If you already own the property that you currently live in, you can use the equity you’ve gained over the years to fund the purchase of another property. There are several options that you can use to get cash out of your equity. One such option is using a cash-out refinance, where you remortgage your property and use the cash you pull out to fund the purchase of another.
Legally there are no requirements around what you have to do with this money – which is why it can be used to finance a fix and flip investment. Another similar route is to take out a home equity line of credit which enables you to borrow against your equity and pay it off on a monthly basis.
It’s possible to purchase a fix and flip property, resell it and make a profit without having to renovate it yourself. This is known as property wholesaling, where you find a property deal, put it under contract and sell it to another buyer pre-renovation. Your profits in this deal come in the form of a percentage you earn which will be a portion of the final sale price of the property.
This strategy requires a lot of work on the side of the wholesaler, who should ideally have an existing network of potential buyers they can show the property to. To be a successful wholesaler, you will need to work on building this network and stay on top of the local real estate market and its performance.
Flip It With Partners
If you’re passionate about investing in real estate without using your own personal funds, you can also try partnering with another fix and flip investor. A partner that has the funds available could be the ideal solution for flipping houses with no money and bad credit. The key will be that it is a partnership; you should also bring something valuable to the deal, even if it’s not funding.
If you can’t bring money to the table, you could potentially find a property deal, or canvas and bring buyers into the equation. Many entrepreneurs starting a real estate business form a holding company that places formal structures and institutes investor protections for all parties.
You don’t necessarily need to use your own money to invest in and profit from real estate. Having some of your own funds is ideal, but there are several options to choose from if that’s not possible for you. Whether you choose to wholesale, do a cash-out refinance or partner with a flipper; don’t be deterred from investing in real estate.