The lessons I learned on how to start flipping houses with no money
Wanna know what happened to me last week? I met a Portuguese real estate investor (let’s call him John) who made a fortune in 4 years. He was generous enough to tell me exactly how he did it and offered himself to help me doing the same. (Yes, little did he know that I already have a master plan under execution).
Although I am sticking to my own plan, I found his story so compelling that I had to share it.
This guy started flipping houses in the worst financial moment of his life. He had just divorced from his wife, and he had about $1000 on his account. He had a brick and mortar business, which he had to shut down because of the divorce, in 2008. John basically started flipping houses with no money! I actually got so intrigued by John’s story and I realized that there are more people flipping houses without money! In fact, there are signs that will tell you if you should flip houses!
Fortunately for him, the housing market crash was at its peak at the time, and he had taken a course, two years before that, on flipping houses…
After determining how much house flippers make, he jumped right into it. But how, since he had no money? Here’s what I learned…
#1 – If you have no money, you better have perfect timing!
Like I said above, John divorced right in the middle of the last housing market crash. I soon learned that that was a determining factor for success. There was a ton of foreclosures and a lot of short sales as well. John started with a short sale: the owners had their second house damaged by water and didn’t have the money to repair it.
Eventually, the housing market crash hit and they couldn’t their mortgage. They owed the bank almost $60.000 on a property that cost them almost $200.000. John was able to buy this property for $55.000 and the owners got to keep their mortgage on the first property (if the bank didn’t agree on the short-sale, the owners would default on their primary property as well and the bank would get another house to their inventory – which was growing fast at that time). “I sold it the first day I walked inside. I had a toolbox and I was up to some repairs, but a neighbor saw me coming and offered me $80.000, which I took. That day I realized I could make a ton of money flipping homes…”
Of course that to replicate this, you would have to predict when the real estate market is going to crash. Or not. You can simply time the market in a different way. I mean, not in terms of crashes, but situations where owners are willing to sell for a loss. The key point is to get a property that can be bought way under its market value (maybe my portfolio will inspire you).
The key reasons why this is so important is so that you can make a large profit on the flip, but above all, so that you get 100% financed. Plus, there are many types of loans that also grant you money for the renovation works.
#2 – Is it what you know, or who you know?
OK, easier said than done, right? How easy is it to get a sweet deal, where you buy a property for way less than what it is worth? Not easy… unless you know the right people.
In this case, I will speak based on personal experience. I’ve always bought real estate on discount. I was always able to buy properties at least 30% less than what they are actually worth.
To accomplish this, I believe that real estate investors need either time-consuming or sophisticated strategies… unless you know the right people. And who can be the right people in this market? Real estate agents and brokers, of course! Get along with them, let them know you’re a serious buyer but you’ll only buy underprice because that is your business.
#3 – Still no 0-dollar deals? Ask family and friends!
Let’s assume you cannot find 100% financed deals. Your timing is not ideal and even though you got along with many agents, none was able to bring you the sweet deals you are looking for… those that can be 100% financed. There are proper ways to ask for loans to flip houses, you knew that?
If you are still presented deals where you can make a profit if you flip the property but you need to put 20% down.
If that is the case, you have no alternative other than raising money from friends, family or partners. Ideally, you should raise a bit more than 20% of the downpayment, as you’ll need money to renovate the property as well. If you do find great deals, which the bank will finance at 100%, you will still have to raise money for the closing costs and the renovation of the property.
Partners are easier to obtain, but you’ll need a tracking record. I know a bunch of people who would partner up with you if you show them a really good deal and you’re willing to do the hard work. Go to real estate seminars. Go to real estate events in general. Ask your broker for contacts – he will most likely provide them to you (as you’ll be buying from him if you’re able to find a partner).
No money from friends and family? Can’t find a partner? Check out the next tip…
#4 – Credit cards
I don’t personally like to use credit cards and their cash advance offers because the risk increases considerably. However, if someone wants to start investing and has no money, they can be a solution.
If you want to flip homes and you have no money, you will need to raise money for:
- Buying the house. If you find a great deal, you’ll be able to be 100% financed. Essentially, the appraisal of the home must be way higher than the purchasing price. This way, you’ll be giving the bank a collateral way higher than the mortgage you’ll get. When this happens, you will not only increase your chance to be 100% financed, but you increase the chances to have better interest rates.
- Closing costs. These are notary costs, fees, and taxes. BTW – here’s a hack: if you are planning on buying multiple homes, you should perhaps think about getting your own real estate license. If you get your own license, you’ll receive half of the buying commission, which may well cover notary costs, fees, and taxes!
- Renovation costs. Tip number #6 will teach you a hack on this, but you’ll need to raise money for this anyways. This is perhaps where cash advance on your credit card can come in handy. Renovation costs can be quite high, and you have to factor them in when estimating how much you’ll need.
If you try to sell the property (after you flip it) through a real estate agency, you don’t need to have the money for the commission right away: remember that you only pay the agency when the house is sold.
Your credit is so bad that you won’t qualify for a credit card? Check tip number 5…
#5 – Sell stuff (or work part-time) to buy a home
If you have bad credit, you may not have access to credit cards. You can still do great deals and get 100% financed, to the best of my knowledge.
To solve this problem, you can sell stuff you have a home and you don’t use anymore… and use it for a downpayment. I have done this myself. Just go to the attic and look around for things you don’t use anymore and you can sell online. Make a list and consider 20% below the worst case scenario. I personally found this to be a great activity: I made money to buy a home and I cleaned my parents’ home at the same time.”
This is actually one of my tips to quickly make some bucks. If you don’t have stuff at home, you can always buy stuff online and flip it buy selling it later on for a profit.
Working part-time can be another solution. You can quickly save up for closing costs (assuming you get 100% financed) by working part-time. Making some money quickly is not hard. It simply takes effort and persistence.
#6 – Negotiate awesome payment terms
OK, this is a really big one.
Having favorable payment terms is the best thing one can do when flipping homes with little or no money.
This goes for renovation material and contractors (assuming you cannot do the work yourself). I typically negociate installments, when I have the cash, but I negotiate 30-90 day payment dues when I don’t have the money. This may give me 90 days after the renovation is done to pay the contractor. If we apply this to flips, we could actually end up selling the home before we have to pay for the renovation work!
So, always negotiate 30-90 payment dues with the contractor and the retailer that will provide with the material for the renovation.
#7 – Sell it before you flip it
This is really what really makes a difference when flipping a home with no money. It is also the best scenario that may happen, for a variety of reasons.
But what does it mean to sell a home before we flip it?
There are two different types of flips that can be done this way.
The first one is what I described in a previous post on a perfect flip. These are typically homes that you know you can sell for more than you bought them for, even without any renovation. Let us be realistic: some homes simply lack promotion and end up not selling for the right price. Sometimes you bump into really motivated sellers who want to sell really quick, resulting in incredibly low prices.
The second type is based on selling the home you bought to flip before you renovate it, but based on what the renovation is going to be. For example, you could tell the real estate agencies that you are willing to allow the end client to choose the tiles used in the renovation, or any other material they like. This will attract more buyers and increase your odds of selling the house fast.
Either, promting the house while you are flipping it is key to sell fast…
#8 – Promote the home during the flip
Take pictures while you are guttering the house. Take pictures of the tiles you choose. And pictures of the tub! Then, ask your friends on Facebook whether they like it. And ask them to tag their friends who may be looking for a new home.
This will pay off big time.
First off, if buyers can choose the materials for the flip, they will be inclined to buy your home over another. People love personalized homes. If they can choose what goes in there, they will definitely shift their attention towards that home, and forget others.
Second, asking your friends on Facebook what tiles/tubs/taps/whatever look better will entice them to the project. This can both help you with the flip, choosing materials that will be preferred by more people, and increase your chances to sell – especially if they share your pictures. People love home renovation. Not actually doing it, or ordering it. But following one closely. How many TV shows that are based on home renovations do you know? A few, at least, right? That is because there is a market!
John actually set up a Facebook page – called “Undergoing renovations” or something similar (I actually forgot it down the road) to promote his flips. A very clever thing to do! Once you have more practice with this market, and you start doing flips often, you’ll come up with clever methods to sell your flips faster. In fact, this is almost what this is all about…
#9 – Eventually, you may well become a real estate mogul like John…
Today, John is a real estate mogul. He almost never lost money on any deal, and he does about 20 flips a year. Pretty awesome!
He actually told me it is easy to become a real estate mogul. To have a successful flipping business, you need two things, according to him: finding deals where you buy way undervalue, and sell fast (even if you sell at discount sometimes). These are, according to him, the two key ingredients of a successful business.
I personally prefer to buy and hold, to be honest. However, I recognize that there is a lot of money in the flipping market. If you have the right infrastructure in place, you can do very well, even if you are looking to start flipping some homes with no money.
Are you a flipper yourself? What is your experience? Let me know in the comments down below!