You probably know that cash is one of the most significant barriers to entry for most new real estate investors, including those looking to flip houses. This is simply because even when you borrow about 70% to 80% of a home’s purchase price, you will still have to come up with about $50,000 to $75,000 for a down payment on a $250,000 home. And keep in mind that this does not include renovation costs, closing costs, or carrying costs. So, as you explore how you can flip houses with no money or bad credit, it is essential to keep financing options in mind.
House flipping or flipping homes with no money and poor credit is challenging and time-consuming through conventional financing. However, don’t worry, as there are many other opportunities to start investing in distressed properties if you understand your different financing options, such as fix and flip loans.
While flipping houses with no money down and a poor credit score may seem impossible, you will be glad to know that there are more financing options, such as Hard Money Loans, than ever before for new investors.
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What is House Flipping?
We can define house flipping as buying a home or other property, often at auction, with the aim of fixing it up and then reselling it for a profit, usually within 12 months. When you purchase a property for house flipping, the main goal is to buy a home at a low price, make some improvements and renovations, and then sell the property at a profit.
One of the common misconceptions about real estate investing in the US is that you must have plenty of money to get started. Although having sufficient funds certainly helps start your investing journey, there are many ways to invest in local real estate without using your own money, and flipping houses is one of them.
If you want to flip houses with no money or poor credit, the trick is to find external funding sources, such as hard money lenders, that are right for your circumstances.
And house flipping is usually the most profitable when you can locate an undervalued home in the right market, buy it for a below market value, and get the highest possible bid once the house is repaired or renovated and put back on the real estate market.
There is no doubt that fix-and-flip real estate or home flipping has become a very popular way to invest in the property market. This is because it can produce remarkable profits in a relatively short period.
How Much Money Do You Need to Flip a House?
Purchasing, fixing, renovating, and quickly reselling a property can be lucrative. However, it usually takes much more funds to flip houses than to purchase a home where you would like to live. The cost of flipping a house varies on many factors, such as the interest rate, location, and type of repair needed.
Keep in mind that not only do you need the funds to become the property owner, but you will also need renovation or home improvement funds. You will also have to cover property taxes, homeowners’ insurance, and utilities from the day you close the sale through the rehab work until the day the property sells.
The initial cost of acquiring a fix and flip investment property is the purchase price, and it will comprise the most significant portion of the overall project budget. However, as of Q4 2021, remember that the median sale price was 408,100 and was highly dependent on location, with some US states going higher than others.
And your total acquisition cost will help guide the creation of your budget. This includes setting any deposit or transfer duty required to conclude the final closing. The total cost of flipping a house will consist of renovation or improvement expenses, utilities, insurance, and marketing the property.
The 70 Rule is one of the popular guidelines that real estate investors, such as house flippers, use to work out a profitable and reasonable purchase price when flipping homes.
How to Flip Houses with No Money and Bad Credit
Although there are some initial costs, you can flip houses with no money using several different strategies. If you are looking to flip a house but have no or little money of your own to buy a property, you will have to find outside funding sources, such as hard money lenders.
Here are some other steps you should take to flip a house with no money and poor credit.
Find a Suitable Market for House Flipping
The first and perhaps the most important thing is finding a profitable market. Location is important when flipping homes. The real estate market you invest in determines or influences how much money you can make from your home flipping project.
Here are a few of the main things to take into account when looking for the best cities or states to flip houses:
- Areas or neighborhoods with fewer new buildings and older homes. This provides more opportunities to purchase distressed properties or properties in foreclosure
- Strong local economy and an excellent job market
- Low crime rate
- High population growth
- Proximity to modern amenities, such as parks, schools, hospitals, and shopping centers
Choose the Right Property to Flip
Simply because a house is cheap does not mean you should purchase it. It is best to make sure that you can handle any repair work or renovations that need to be done to a property—and the costs of doing so are also recoverable.
Identify the Most Suitable Financing Strategy
If you want to flip houses with no money or poor credit, you must line up financing early. And if you do not have the funds to invest in home flipping, you will have to rely on other people’s money or fix and flip loans.
Here are a few common options to flip houses with poor credit or no money. If poor credit or lack of funds is keeping you from using a traditional bank loan to finance a house flip, you may consider alternative financing options, such as hard money loans and private lenders.
Private Money Lenders and Hard Money Lenders
When you have poor credit, a private lender or hard money lender could be a great source of funding. These lenders don’t have as many regulations as banks and are willing to invest in riskier projects.
For example, private lenders can lend based on their unique rules and conditions because they are not bound to a government-backed agency or financial institution.
What is a Hard Money Loan?
Did you know that hard money loans are one of the most common or popular financing options for investors? We can define a hard money loan as a short-term loan secured by real estate. Note that these loans are usually funded by private investors rather than conventional lenders like banks. While the terms are often around 12 months, it is possible to extend the loan term to longer terms of 3-5 years.
These kinds of flexible and tailored loans are created for real estate investors and properties that need improvements, providing short-term funding for the costs of purchasing the property and some, if not all, repairs.
The loan usually requires monthly payments of interest or loan interest and some principal, and there is a balloon payment at the end of the loan term.
What is a Hard Money Lender?
A hard money lender is more focused on the real estate industry. Their loan products are usually short-term but tend to allow for the high amounts needed in real estate transactions. Keep in mind that hard money lenders operate or function similarly to general private money lenders and lending guidelines but their restrictions are looser than traditional banks.
Unlike conventional loans, hard money loans are asset-based loans. These lenders use a different approach by lending money based on collateral.
As a result, a hard money lender places less emphasis on credit history. However, most hard money lenders will not typically loan 100 percent of the value of the home or property that buyers are looking for. This means you should have some cash on hand.
How to Find a Hard Money Lender?
There are several different ways to find a reliable and reputable hard money lender. For example, you can find a local hard money lender by searching Google for [your city] + “hard money lenders” – if you Google the best Southern California hard money lenders, you will find many lenders.
Another option is to find a brokerage firm that can match you with the right hard money lender based on your needs and preferences. You can also attend local real estate investor club meetings, which is another excellent way to find a hard money lender near you. You will be happy to know that real estate brokers, investors, and conventional mortgage brokers can also refer you to an experienced hard money lender.
When considering and understanding how to flip houses with no money or bad credit, you should know that your best chances of getting funding will be from hard money lenders and private money lenders. RTI Bridge Loans is one of the most reputable Southern California hard money lenders that will help you achieve your house-flipping dreams by providing quick approval and funding with competitive interest rates. RTI Bridge Loans offers hard money loans for buy-fix-rent and buy-fix-sell investments.