Is Fix and Flipping With No Money Down Possible?

House flipping can be a lucrative business for real estate investors, but for those who don’t have a lot of upfront capital, is it possible to get into the game? And, why would you want to?

One reason is that flipping is making a comeback. According to ATTOM data solutions, flips represented 8.7% of all U.S. property sales in the first quarter of 2024. Their data also showed that flippers could expect to make an average profit of 30.2%, marking the fourth consecutive quarter of rising profits after six years of stagnancy.

With the flipping scene heading on a positive trajectory, now could be prime time for first-time house flippers to enter the market. While it’s generally challenging to complete a real estate deal with no money down, there are some strategies and scenarios that can help you to secure your investment property, even with minimal cash.

1. Wholesale real estate transactions

One of the easiest ways to conduct a real estate transaction with little to no money down is through wholesale. This is similar to real estate flipping but without the need to fix the property before making your profit.

In this approach, the investor completely skips the traditional real estate market to buy and sell property. They start by finding a hard-to-sell property — for example, one that’s distressed, or owned by someone who needs quick cash — and offers to buy it for under the market rate.

They then secure a purchase contract from the seller, which they then assign to another buyer. This can either be done for an assignment fee or by selling the property to them for market rate. The investor then steps back as the sale is finalized between the seller and the buyer.

Because the wholesaler isn’t actually buying the property, only minimal capital is needed. Forbes quotes an estimate that investors can make an average of $3,000 to $20,000 per sale. This would be a considerable side income.

What to consider

While you don’t need a real estate license to sell wholesale real estate in most states, you ideally need to have some real estate skills and experience. You also need to be able to put yourself out there to find profitable properties and potential sellers. Taking out ads in local newspapers, flyering, and cold-calling are some of the strategies seasoned investors use.

While wholesaling is a viable alternative to fix and flip, it can be time-consuming due to the extensive effort required to find properties and cash buyers. It’s important to be aware of state laws and the potential risk of losing earnest money (which serves as a deposit) if you can’t find a buyer.

Wholesale real estate can also be less profitable than other strategies.

2. Fix and flip loans with 100% financing

One way to get money for your investment is to take out a fix and flip loan, either with a private lender or a conventional bank. If you have no money to put down, you’d be looking at 100% financing — that is, borrowing the property’s full value.

Even with lenders that offer no money down fix and flip loans, you’ll still need some cash reserves to cover costs over-and-above the price of the property.

For example, you’ll still need to pay for:

• Renovation expenses: if you’re buying dilapidated homes you’ll need a renovation budget to get them up to scratch for a house flip. For major renovations, this could be quite a lot of money
• Closing fees: these are typically higher when you opt for100% financing
• Holding costs: as the buyer you’ll need to cover property taxes, insurance, and other holding costs
• Monthly interest payments: even with favorable loan terms, you’ll still need to have enough cash flow to cover repayments.

While this financial solution can help you to get started with a fix and flip, it can be tricky. You’ll need to have a great credit history and be super sure of your investment strategy to make sure the flip is a success. Before making a property purchase, follow our tips to evaluate a fix and flip’s potential.

What to consider

100% financing may cover the cost of your investment property, but it comes with some financial risks.

For example, there are often higher costs that eat into profits and an increased risk due to over-leverage.

If you plan to refinance in the future, it’s likely that you’ll need to bring additional funds to the table. Lenders typically refinance at 75-80% of the property’s current value. You also need to think about your exit strategy. When you sell the property, you’ll need to make enough profit to cover the higher financing costs: as well as repaying the loan, while having enough left over to make it all worthwhile.

3. Creative financing options

If you don’t qualify for a traditional loan, there are some other ways to buy houses without money. With all of these methods, you’ll need to make sure the deal has enough margin to repay the original loan (the principle) and any interest. Otherwise, there could be some major risks: both socially and financially.

Rather than taking out conventional loans, you could try:

Use a Home Equity Line of Credit (HELOC) as the down payment

If you already own your primary residence, you can use it as collateral for a secured loan. These agreements usually involve the lender agreeing to lend a maximum amount of money within an agreed period of time. The inherent risk of an equity loan is that, if you can’t repay the loan, you’re at risk of losing your home — as well as your investment property.

Borrow from Friends or Family

Asking friends or family for short-term loans is a good way to avoid all of the paperwork that goes with traditional loans. After all, they’re unlikely to ask for a minimum credit score or to see your tax returns (some of the more savvy ones might).

They may ask to be your business partner, asking for a share of your profit as well as having their money repaid. This could work to your advantage depending on their experience — it’s always good to have helping hands on a big real estate project.

The biggest risk of this approach is causing friction within your relationship if the real estate investment doesn’t go to plan. For example, if the rehab costs are higher than anticipated and the money runs out before there’s a chance to sell.

Use Gap funding

Gap funding — also known as a bridge loan — is a short-term loan that closes the gap between the money you have and the money you need to complete your real estate project. It’s often used by real estate professionals: learn more about how bridge loans help New York house flippers to reach their goals.

Remember that this is temporary financing, designed to cover immediate costs while you get a more permanent financial solution in place. If you’re planning to fix and flip the property super quickly, you could sell and make enough profit in time to pay the loan back. The biggest risk is that you don’t make a sale, or make enough, in time to pay back the loan.

Try the BRRRR method

One of the most popular strategies that house flippers use to minimize out-of-pocket expenses is the BRRRR method (Buy, Rehab, Rent, Refinance, Repeat).

It goes like this:

1. Buy a property for less than its market value
2. Rehabilitate it. You’ll need cash for repairs, whether you choose to do a simple cosmetic rehab (e.g. painting and decorating) or more heavy rehab (e.g. full re-wiring, fitting a new bathroom)
3. Rent it out. Find a decent tenant and use their rent payments to start paying back your loan
4. Refinance the property to recover some or all of your down payment. By taking out a loan with better terms, you can cash out on the increase in equity without selling
5. Repeat: go back to step one, find another undervalued property, and complete the process again to build up your fix and flip portfolio.

Things to consider

For this to work, the property needs to service the debt for its original loan amount. It’s best practice that 75% of the property value should cover the loan request and down payment. One of the most important steps for this is rehabilitation: we’ve put together some tips on how to increase the value of your fix and flip property.

30-Year DSCR Mortgages

Back to money loans, another way to buy a property with little capital upfront is with a DSCR (Debt Service Coverage Ratio) loan. This type of loan is based on the potential cash flow of your property, and whether it could be used to make the payments.

For 30-year DSCR (Debt Service Coverage Ratio) mortgages, lenders typically require the down payment funds to have sat in the investor’s account for 1-3 months. It’s less common to borrow 100% of the purchase price for these deals due to the longer loan term. Few private money lenders would be willing to lock their money for such a long time, especially with no money down.

To get a long-term DSCR mortgage, it’s recommended you have the following cash reserves:

• Down payment: 10-25% of the purchase price or 20% for long-term rental financing. This varies with experience level: it’s likely that investors just starting out may require more of a down-payment, as they don’t yet have a proven track record
• Initial renovation budget: At least 10% of the budget you’ve made for rehabilitation
• Closing costs: 10% of the purchase price
• Contingency: 5% of the purchase price to account for the unexpected
• Interest payments: 3-6 months’ worth of interest payments, especially for vacant properties, to avoid defaulting on the loan.

Conclusion: it’s best to have some capital upfront

While flipping houses with little or no money is possible, having a financial safety net is key to weathering unexpected challenges along the way. Even an experienced flipper could run into issues such as unexpected project costs, a stagnant real estate market with little chance of finding a buyer, or a selling price lower than they were hoping for. If you’re ready to take the leap into the exciting world of property investment, it’s wise to have some cash reserves ready to handle any curveballs that come your way. For expert guidance and financing solutions tailored to your needs, don’t hesitate to get in touch with Express Capital Financing. Our team of skilled loan officers is here to support you in achieving your real estate goals. Reach out today and let’s get started on your flipping journey!