"I Can't Flip a House... I Don't Have the Money!"
From working in the Disposition seat at Reno Area Home Buyers and running the local 'Reno Real Estate Investors' meetup group here in Reno NV, I get to talk to a lot of current Buyers... and a lot of future Buyers. I hear variations of the statement above many times per week.
Although I don't recommend brand new investors flip a house on their first deal (without experience via a partner, working in the trades, etc), you can definitely flip houses using little to none of your own capital.
There is REAL risk when you flip, especially when you're new - not knowing your numbers, not knowing how to manage rehabs, things (always) going wrong, market conditions changing, over improving the property, etc. (Trust me, we've taken a bath on a few of them!)
The risk STARTS when you take title. This is why I always encourage new investors that are interested in flipping to wholesale a few deals first. You'll learn a lot about the transaction, finding deals, running numbers, AND the Buyers you build relationships with can probably teach you a thing or two about flipping.
For those that are ready to flip, you don't need to use 100% of your own cash to buy.
"Hard Money" is a blanket term covering many different types of private financing. For the purpose of this post, I'll refer to 'fix and flip lenders' as Hard Money and 'individual lenders' as Private Money.
Through these conversations I get to have, it blows my mind how many people don't use Google! There are TONS of Hard Money lenders available to anyone in a 2 second search. Kiavi, Anchor, Civic just to name a few.
These lenders specialize in distressed property, can close pretty fast, they fund the rehab on a draw system, and most of them will even fund assignment fees if you're buying from a wholesaler.
Most of them work on a tier system, so after you have a track record of a few flips, you'll get better rates. We flipped our first house with Lending Home (now Kiavi) with no track record.
It's also a great safety net. Since they are funding the deal and need to approve it independently, they probably aren't going to let you buy an obvious bad deal with THEIR money at risk. At the very least, you'll get input on what they think the ARV and rehab is.
Lending criteria changes with the market, but often times, with a good deal and track record, these guys will fund up to 90% of the purchase price and 100% of the rehab. Much easier to come up with a 10% down payment and some extra cash to get the rehab started than ALL of the money for the entire deal.
Yes, their rates are "high" compared to what you're used to seeing on normal mortgages, but as long as you factor in the lending and holding costs when underwriting, the deal can still pencil.
"Private Money" is by far the easiest way to fund deals. Since you're working with an individual, the terms are whatever you two can agree to. Points, interest rate, monthly payments or balloon, etc.
We've had private money fund 100% of the purchase price and we fund the rehab. We've had private money fund 100% of the purchase price AND 100% of the rehab. We've had one lender fund 90% of the purchase price and another lender fund the remainder + the rehab in 2nd position on the deed.
The most common way we've funded flips in the past is Hard Money in 1st position and Private Money in 2nd. Not growing up around money, it took me a LONG time to realize there are TONS of people with $50k-$150k sitting in the bank doing nothing for them that are willing to fund 'the gap' in 2nd position.
Obviously, getting Private Money is a high trust relationship. Unless you have friends or family that REALLY believe in you on your first deal, you're going to need a robust track record of operating successful fix and flips to have anyone give you money like stated above.
That being said, its 100% possible. Just like anything else, it gets easier as you go.
Hope that helps. Drop a comment if you have any questions and I'll do my best to get it answered.
