How to Do a Fix-n-Flip with No Cash Out

[Wendell De Guzman]

Hi BP Nation. It's been a while since I've posted something here. 

I know a lot of you wants to flip houses given the popularity of fix-n-flip shows. SO for those of you beginners who don't have much cash and you want to flip a house, here's a 3-step process on how you can do your first fix-n-flip with no cash out of your pocket:

Step 1: Raise Your Downpayment Using a BUSINESS LINE OF CREDIT

Hard money lenders require that you have "skin in the game" or downpayment. Usually, HMLs lends you up to 80% of the purchase price and up to 100% of the renovation cost. You also need to pay points (2-4) and the cost of money (holding cost of 6-12 months). A typical $200,000 project will require about $60,000 cash out of your pocket.

If you have great credit (720 and above), you may be able to qualify for a BUSINESS LINE OF CREDIT. This business line is UNSECURED so you can use it as downpayment money or you can use it for repairs, or whatever you need it for. 

I've seen beginning real estate investors get $40,000, $60,000 even $100,000 in business line of credit. 

There are 2 forms of BLOC - business credit cards and a checkbook line of credit. If you have another business in a legal entity (LLC or corp) that has been in existence for 2 or more years, you may qualify for a checkbook line. Business credit cards are available even for brand new LLCs provided your credit is 720 or higher. You can then convert these business credit cards into cash.

The thing is, you need to get the cash "seasoned" in a bank account for 2-3 months so when your hard money lender sees the cash, that cash will qualify as part of your downpayment or part of your liquid assets.

You can search Biggerpockets for legitimate business line of credit providers or you can ask other BP members who have gotten unsecured BLOCs. BEWARE of BLOC providers who ask for money upfront! The legitimate BLOCs work based on a success fee. If they are successful in lining up BLOCs for you, that's the time you pay. The payment is usually between 8-15% of the BLOC amount they are able to get for you.

Step 2: Line up a Good Deal 

A good deal is where it all starts. So learn what a good deal looks like. Use a spreadsheet like below so you can analyze your leads and decide which lead is worth making an offer on. How do you find good deals? Search my posts here on BP entitled "The Science of Finding Deals" so you can have multiple sources for finding good deals.

Step 3: Line up a Good Hard Money Lender That Works With Newbies or Partner with More Experienced Investors On Your First Deal

Usually HMLs give loans to experienced real estate investors. There are some HMLs who lend to newbies but they charge 16% interest rate and 4-5 points. The thing is - ONCE YOU'VE DONE YOUR FIRST DEAL, the interest rate they charge goes down to 11-13%. So, you can choose to BITE the bullet and pay the HML a higher cost of money or you can partner up with a more experienced investor on your first deal. You can use the fact that you have some cash (which you got from Step 1 above) as your contribution to the partnership. The more experienced investor might have the deal for you and together, you both can qualify for the hard money loan.

Once you sell the property and cash out, you can pay your unsecured business line of credit so you can use that again to buy your next deal and so on.

By properly leveraging 2 different types of loans (unsecured business line of credit and hard money loan), together with finding a great fix-n-flip deal, you can get started rehabbing a house with NO CASH COMING OUT OF YOUR POCKET!