How to Flip Houses with No Money of Your Own
Often times folks become discouraged at the initial investment needed to flip a house. Beginners especially sometimes believe they just don’t have enough money to get involved in real estate investing.
The good news is that it is 100% possible to flip houses with no money by using OPM (other people’s money). Banks, private money lenders, hard money lenders and partnerships represent several different ways to use OPM to fund your next house flip deal.
How Do You Flip Houses with No Money of Your Own
Hi everyone, it is Mike with House Flipping School. We have done a series of videos. And this one is about how to flip houses with none of your own money.
The bottom line is, you need money, and it has to come from somewhere, because someone has to pay for the sale of that property.
I have put up on the white board, OPM (other people’s money). We talked about that in another video, and really it is nothing more than other people’s money. Really what is the best way to go about that?
First and foremost, if you are able to go to the bank, if you have good credit, you have some money, you have a good job, and you have some reserves, or some IRA money, you may be bankable. The reality is that a lot of people are not bankable. And the bank does not want to take the risk in lending to someone, especially if this is your first flip. And the bottom line is so then we can cross off the bank. However, I put it on there, because maybe you should try it out. Get to know a few bankers, put together a business plan. My first business deal was with the bank ad I got a very good interest rate to do the deal. Then I ramped up my business and do a lot more deals and realized that the bank wasn’t going to lend me as much money as I wanted. So I ended up going the route of private money.
Private money is nothing more than private individuals, every day folks that you see, your dentist, you lawyer, your attorney, people that you meet at Chamber, network meeting, Kiwanis Club members, etc. These are individuals that may have some money, maybe in a CD, or bank account, but perhaps they are happy maybe they are not happy with the performance in their IRA’s. So they may want to work with you to make a nice return on their money. Before you do that, you want to be careful; there are certain guidelines that you must adhere to. You have to stay within the letter of the law.
The other one is hard money. These are usually individuals that approach you to lend you money. You can usually seek these people out at real estate investments organizations; you can Google ‘hard money” and you will have an endless stream of people willing to lend you money. and that will be your hardest rate. You could end up paying somewhere between 12-18%. More than likely, if it is your first deal, you are going to be paying higher end rate. You are going to be paying points, which is additional money on top of the interest rate that you are going to pay on top of that loan.
It is very typical that the hard line lenders can charge up to 5 or 6 points. So I have talked to many first time investors that say that they will never borrow hard money.
At the end of the day, if you put your hard money numbers, into the analysis that we talked about earlier, into the interest portion, which is part of your soft cost, and your project can support it, if because you ran the numbers, and if it makes sense, well hard money may be a perfect option for you. At the end of the day if you can make money, then go for it.
The other possibility is going to a partnership. You partner up with somebody that puts up the money and you offer them 50% of the profits. That hard money may be less than what a hard money may cost you.
There is a lot to talk about in a short video. I’d be happy to go into more details with you. This is what we teach. We go into the intricate details.. You can buy houses with none of your money, and there are ways to go out and get other people’s money, and we will share more about that in future videos.
Thanks again, its Mike from House Flipping School.
Please leave a comment below if you have any questions regarding how to flip houses with no money of your own.