Flipping houses is a great way to make money in the course of real estate investing. But what if you're on a tight budget and don't have much money to invest in a house-flipping project? The good news is that flipping houses doesn't have to be a needlessly expensive prospect, and there are ways to get your hands on the capital to pull it off. Here's how to flip a house when you're short on cash.
How to flip a house with no money
Flipping a house is easy when you have plenty of cash available to bankroll that renovation project. But you can still flip a house if you're coming in with a limited budget -- you just need to go out and get that money. Here are a few options.
Hard money loans
Hard money loans are fairly common in the real estate market, especially when it comes to house flipping with a low budget. With a traditional loan, you need to prove that you have solid credit to secure financing. Hard money lenders, on the other hand, aren't concerned with your credit -- they're more concerned with proof that you'll be able to repay them. And a previously flipped house could serve as that proof -- as can the house you're about to flip.
Specifically, the house you're flipping can be used as collateral for your loan so that if you don't repay it, your hard money lender can take control of that house and sell it to be made whole. Hard money loans are usually short-term loans, which is a good thing, because they tend to come with higher interest rates than traditional loans.
The upside of hard money loans is that they're generally processed quickly. When you're flipping homes, speed is crucial, because the longer a home sits unrenovated, the more your money is tied up. That said, you'll need to prove that you're a trusted borrower, and to that end, you may need equity in other homes to qualify.
Private money lenders
As the name implies, private money lenders are individual lenders with capital on hand to loan out. Like hard money lenders, private money lenders generally care about the collateral and the real estate transaction at hand more so than your credit history. If you can prove that you have the means to pay back money loans by flipping houses successfully, you're more likely to get your funding.
In some cases, you may be able to negotiate a better interest rate on the money you borrow by working with private money lenders over hard money lenders. The reason? Private money lenders aren't always primarily lenders -- they're people with extra money on hand who are willing to engage in a transaction that gives you the capital you need and earns them interest.
You might find a private money lender by networking or putting the word out that you're looking for someone to give you a loan, but that person won't necessarily be in the business of lending money to make a living.
Real estate partners
If you're looking to start flipping houses but don't have the money to do so on your own, then getting yourself a real estate partner who does have that capital could be a smart move. You can either seek out seasoned real estate investors or simply ask friends, associates, and colleagues if they or anyone they know is interested in partnering up.
Or, reach out to a local real estate agent and ask that person to put out feelers. If you can prove that you have a history of making money flipping houses, you're more likely to find someone willing to go in on that deal.
Of course, there are a few details you'll need to work out if you're going to partner with someone to flip a house. You'll need to figure out if you'll both be active house flippers -- meaning, you'll both do the work and share in the profits -- or if your partner will be contributing money, but not effort or time.
You'll also need to agree on how you'll make money. Will you sell your home in the hopes that it commands a huge purchase price and profit that way? Or will you turn your flipped house into a rental property and make money via a steady stream of tenants? Or a combination of both? These are details you'll need to hash out.
How to save money when flipping a house
When you're trying to flip a house with no money, you'll need to be savvy about finding ways to save on that project. Here are a few ways to lower the cost of flipping homes.
1. Do as much work yourself as possible
It can get expensive to hire a contractor or a series of contractors when flipping a house. If you have the skills needed to do much of that work yourself, it pays to put in the effort.
2. Source inexpensive labor
In some cases, you may be better off hiring a general contractor in the course of flipping a house than opting for individual contractors with specific skills. If you use the same contractor a lot throughout that project, you might benefit from a lower hourly rate.
By contrast, if you insist on hiring a framer for building walls, a flooring expert for installing hardwood, and a painter to put on those aesthetic touches, you'll have less bargaining power, and you'll likely pay more for those specialized services. Another option? Hire college students if the work involved is labor-intensive but doesn't require too many specific skills.
3. Find affordable construction materials
The less money you spend on materials to flip a house, the more you'll stretch what limited funds you have. Here are a few avenues to explore:
- Salvage yards are a good source for inexpensive materials, though you may need to visit a number of them to find what you're looking for.
- Other contractors may have leftover materials from previous house-flipping projects. Reach out and see if they have any to sell you at a discount.
- Hardware stores in your area may be dealing with an overstock of certain materials. If so, they may be willing to unload some on the cheap.
Flipping a house takes money, but if you're starting out with a limited supply of it, worry not. You have several borrowing options at your disposal, and you can also find ways to pull off a house flip without spending a fortune.
Better Returns - half the volatility. Join Mogul Today
Whether over the 21st century, the past 50 years... Or all the way back to more than 100 years... Real estate returns exceed stocks with SIGNIFICANTLY less volatility! In fact, since the early 1970's real estate has beat the stock market nearly 2:1.
That's why we launched Mogul, a breakthrough service designed to help you take advantage of this critical asset class. With volatility spiking, Mogul members have been receiving investing alerts with projected rates of return of 16.1%, 19.4%, even 23.9%, and cash yields of up to 12%! And these aren't in some 'moonshot' penny stocks or biotechs, but more stable multi-year real estate developments that don't see their value swing on a daily basis like the stock market.