For most new real estate investors, cash is the greatest barrier to entry.
Because even when you borrow 80% of a home’s purchase price, that still leaves you coming up with $50,000 for a down payment on a $250,000 home. Which says nothing of closing costs, renovation costs, or carrying costs.
As you explore how to flip houses with no money, keep the following options in mind.
How to Flip Houses with No Money Down
Real estate investing is easier with plenty of cash on hand. But savvy investors know how to flip a house with no money down, even as they aim to build their own investing capital to lower their risk.
For your first few deals, try these ideas for how to flip houses with no money.
When you wholesale real estate deals, you never actually take title to the property. Instead, you flip the contract to buy a property.
It works like this: You find a great deal on a property, put it under contract, and then find another buyer to actually buy the property. You mark the contract up, taking a dealfinder fee.
For example, you find a homeowner with a $300,000 property in foreclosure. You offer to buy it for $220,000 with a 10-day settlement, then sell the contract for $230,000 to another real estate investor you know. The distressed homeowner gets a fast settlement, the investor gets a $300,000 property for $230,000, and you get a $10,000 finder’s fee without ever having to actually own any real estate.
Since you never take title, you never have to pay for the property. All you put down is a small earnest money deposit, which you receive back at settlement. In many cases, the seller never even cashes the check, they just hold it. That makes wholesaling an ideal starting point for any novice investors looking for how to flip a house with no money down.
While simple conceptually, the execution takes hard work. Read up on how to wholesale properties successfully before committing to this strategy.
2. Do a Live-In Flip
Alternatively, you could buy the house but move in yourself, and make the repairs yourself over the course of the next year or two.
Doing so comes with several huge advantages. First, you can take out an owner-occupied mortgage, with down payments as low as 0% through USDA or VA loans, or 3% through Fannie Mae’s HomeReady program. As a bonus, you get to borrow at extremely low interest rates as a homebuyer. Check today’s interest rates on Credible.
Second, you pay the lower long-term capital gains tax rate on your profits if you live there for at least a year. Or better yet, pay no capital gains taxes at all on your first $250,000 of profits if you live there for at least two years, with the homeowner exemption ($500,000 if you’re married).
And, of course, you can avoid paying a contractor if you do the repairs yourself.
If you want a standard conforming mortgage that doesn’t include funds for renovating the property, it must be habitable and just need cosmetic updates. Alternatively, you can use FHA’s 203K loan program or Fannie Mae’s HomeStyle renovation loan program (which you can use in conjunction with their HomeReady program for a low down payment).
Bear in mind that homeowner mortgages require you to live in the home for at least one year before moving out. After a year, you can either sell the house as a flip or keep it as a rental property, and potentially refinance it to pull your original down payment back out (read up on the BRRRR strategy for more details).
3. Partner with Deep Pockets
Another way to approach how to flip houses with no money down is to let someone else cough up the cash for you.
You find a real estate investing partner with money, and they cover the down payment for you. Of course, you need to bring something to this partnership yourself, whether that’s experience, labor, or a network of relevant personnel such as contractors and lenders.
There are plenty of investors with money but no time or experience with real estate investing, who would love to act as a silent partner and earn strong returns. Just make sure you can deliver for them.
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4. Borrow the Down Payment from Credit Lines
Another approach for how to flip a house with no money down is by borrowing the down payment from a rotating credit line.
That could mean a home equity line of credit (HELOC), or a business credit line, or business credit cards. For HELOCs, against either your primary residence or an investment property, check out Figure for a five-day settlement. Try Fund & Grow as a business credit concierge service, to help you maximize your unsecured business credit lines as a real estate investor.
If you use credit cards, you can avoid cash advance fees by using a service like Plastiq.
5. Seller Financing
Alternatively, you can borrow the money to buy the property from the seller, in the form of owner financing.
While that solves the problem of how to flip a house with no money down, it doesn’t cover your renovation costs. Those you’ll still need to cover either with cash or by borrowing money from elsewhere, such as credit cards or a HELOC.
6. Private Notes
The seller isn’t the only private party that can finance your deal. Another form of creative financing involves raising the money from other people you know, and signing private notes with them.
A promissory note is a legal commitment to repay a loan. When you borrow money from an individual, such as a friend or family member, you sign a promissory note to pay them back.
You pay them interest as negotiated, and they may or may not require a mortgage or deed of trust recorded to create a lien against the property. It makes for a flexible form of financing, often with few or no loan points charged.
Still, be careful when borrowing private notes from friends and family. You risk more than just money, and should establish a track record of success before putting your personal relationships on the line.
If you don’t have much cash to invest, but want to get started flipping real estate, consider land investing instead.
You can start investing in real estate with under $1,000, avoiding the need to borrow any money at all. Land also requires no renovation and comes with almost no carrying costs if you buy in cash.
As you build capital for real estate investing, you can take on larger projects. But start small, and be careful not to overleverage yourself. If you’ve only completed a few deals, or no deals at all, avoid borrowing the down payment when choosing how to flip houses with no money.
Stick with wholesaling deals, working with experienced and wealthier partners, or flipping land in cash, and in no time you’ll build your own capital to flip houses without having to overborrow.♦
Which tactics have you explored for how to flip a house with no money down? What’s worked well for you, and what hasn’t?
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About the Author
G. Brian Davis is a landlord, real estate investor, and co-founder of SparkRental. His mission: to help 5,000 people reach financial independence by replacing their 9-5 jobs with rental income. If you want to be one of them, join Brian, Deni, and guest Scott Hoefler for a free masterclass on how Scott ditched his day job in under five years.