5 Ways To Get Money For House Flipping

Danny Johnson / 18 comments

Not sure where to get money for a house flip?

Join the club. The club for people not knowing where or how to get money for their house flips is probably larger than AARP.

Even though I was tempted to just talk about how to flip houses with almost no money, which is possible by wholesaling houses, I’ve decided to refrain and talk about some places to get money for those that are still hell bent on fix and flipping.

Obviously, if you are going to flip houses like on the TV shows, you are going to have to be able to come up with the money to buy a piece of junk house and fix it up…and pay holding costs…and for surprises… There I go again. I’m not trying to dissuade you too much am I? It’s serious business though, so beware the risks when fixing and flipping houses.

If you’re not lucky enough to have been born into a wealthy family, inherited a ton of cash, won the lottery and have hundreds of thousands of dollars lying around, you are going to have to find a way to get it. Most of the people I know in this business didn’t start with much money. We for sure didn’t. So I don’t want to hear any excuses.

It’s going to take some effort on your part. If you didn’t want to hear that or are tempted to stop reading at this point, just go and buy some lottery tickets. Most things worth doing take effort.

There are people that talk about no-money down deals that involve getting sellers to owner finance their house to you. But, in my experience, those deals are few and far between. There is also subject-to, where you buy the house subject to the existing mortgage. Basically, the seller deeds you the house and their mortgage stays in their name and you guarantee to make the payments. Also, pretty tough to find enough people willing to do this. Some investors do make a living with these strategies but I wouldn’t EVER advise it if you don’t have money saved up as reserves. A LOT OF MONEY. Don’t ever agree to take over someone’s payments if you haven’t the ability to make those payments in a timely manner, no matter what.

You Can’t Buy A Houes Without Money

So without money, your house flipping business is dead before it even got going. So many people are going around trying to learn about every aspect of real estate investing and house flipping without ever have a firm grasp on where they are going to get the moolah.

That’s a HUGE waste of energy and time. Ths is one of the first things that needs to be planned for and figured out.

Sad to say it, but if you can’t figure that part out, you might as well stop wasting your time learning how to flip houses.

If you are serious about starting a house flipping business, read on and I’ll give you 5 places to get the money you need to do your deals.

5 Places to Get Serious Cash For House Flipping

  1. Hard Money LendersHard money lenders are everywhere. There are some national ones and local ones that can be found by searching Google for ‘hard money lenders [your area]’. The key with these lenders is to find the ones that have the lowest rates. You need to find out how many ‘points’ (%’s of the loan charged as a fee for the loan) and their interest rate. Talk to dozens of them if you can and keep a list of the ones with the lowest rates at the top and go from best to worst.

    In addition to their rates, make sure you get a definitive answer regarding how long you have to repay the money. It’s best to find ones that will give you a full 12 months. If not, 9 months would be the least I would want. Some will allow extensions for a certain fee. Do not go and get a hard money loan that has to be repaid is a short timeframe without any way to extend the loan. Believe it or not, there are people out there that prey on investors by loaning them the money, allowing them to fix the house up and get it for sale, only to have to give it to the lender because the loan became due and they did not have the money to pay it off. That’s a great way for lenders to get properties at deep discounts and not have to do the work fixing them up.

    Get as long as possible for your loan terms.

    Hard money lenders are a good way to get started. They are aware of the risks and know the business. You won’t have to work to hard to convince them if you have a great deal. They can also keep you out of trouble by refusing to loan on a deal where the numbers don’t look good. If they refuse to loan on a deal, make sure to find out why and reconsider your purchase.

    After you’ve done some flips, it will be much easier to convince private lenders (which is the next one below) to lend to you. Most private lenders will want to see some kind of track record. If anything, your experience should allow you to have a stronger position in negotiating your loan terms with other lenders.

  2. Private Money LendersPrivate money lenders are like hard money lenders but they are typically just individuals that do not lend money for a living. They are tyically looking to make a higher rate of return on their money and like having real estate as the collateral.

    Private lenders can be friends, family, neighbors, dentisits, doctors, whomever. They are usually much cheaper than hard money lenders and will be more willing to allow at least 12 months for the loan term. You can even negotiate including your payments in the loan (if the deal is good enough) or even no payments (where the principal and interest are all due at the end of the loan term – or when you sell the fixed up house).

    I’ve already written an article on how to find and approach private money lenders for real estate. Check it out.

  3. Small Local BanksSmall local banks can be easier to build relationships with and get loans for real estate investments than the large, national banks. You want to find the small banks that will allow you to meet with and speak to the decision makers. Larger, national banks have too many rules and processes to allow for someone to make a decision based on anything other than the strict parameters they base decisions on.

    The key here is to make sure you are talking to the right person at the right bank. You should ask, “do you make real estate loans for investors?” That will probably eleminate a lot of them and save you a lot of time. Also, try to find local banks that keep the loans in their portfolio. If they do, schedule to meet with a senior loan officer. Don’t try to discuss everything over the phone. Meet with a senior loan officer and act professionally.

    When meeting with a banker, make sure to come prepared. Bring bank statements, a credit report, and examples of deals you will be doing or have done. Always be humble and don’t try to act like you know something if you do not. Always ask them what they prefer to lend on and what they currently do. You might be able to find common ground based on what they currently do that might make it easier for them to agree to lend on your investments.

  4. HELOCsMaybe you have a home with quite a bit of equity. CAUTION: I would only do this if you have a real deal that is bought so far below market value that you would have a very hard time losing money on it. I don’t ever like to risk something like a personal residence, so be careful with this one.

    If you have enough equity, you might be able to qualify for a Home Equity Line of Credit (HELOC) that you could use to purchase and fix up a flip.

    I’ve not done this and so cannot give much detail on how it works. A quick Google search on using HELOC for flipping houses should give you plenty of reading material.

  5. Other Real Estate InvestorsThis is actually how we got started. We didn’t have the funds to buy houses and fix them up. We wanted a way to be able to buy multiple properties and didn’t want to pass up on deals that our marketing brought because we didn’t have enough money. The option that we chose was to work with a successful local investor that was willing to put the money up and split the profits. We would do all of the leg work: finding the deals, negotiating the deals, closing the deals, hiring contractors, managing rehabs, marketing and selling the house…everything.

    That was fine by me! We wanted to learn the business and what better way than to do everything. All of the risk is on the investor though, so you have to convince them that you are willing to do whatever it takes to get the deal done. You have to show that you are a doer. You have to show that you’ve learned what you need to and won’t let challenges stop you. You show all of this by educating yourself and finding a good deal. Even better is finding good deals and birddogging and wholesaling these deals to the investor that would consider setting up a 50/50 relationship like this.

    Give them value and let them know that you are worth working with, that you are a safe investment. Great deals also help.

Start Looking For A Funding Source Now

It doesn’t hurt to start looking for lenders for your deals right now, no matter where you are in your education.

Do some searching on Google and make a list of hard money lenders. Start calling them and asking them what their criteria is. Make that spreadsheet I was talking about that you can use to keep track of who has the best loan terms.

Start talking to other investors to see if they know of any other lenders that are currently looking to lend on real estate investments. I’ve found some of my best lenders by asking other people. So, before you immediately write this off and think that other investors wouldn’t possible share their lenders, think again. Sometimes they have even better ones that they won’t share, but will be perfectly happy to share the ones that charge more (even though it is still less than hard money lenders). You never know.

If you know of some other sources to fund house flips, or have something to share with your experience in getting funding for your first deal or other deals, please share them in the comments below.

Have you started making plans to find funding? Get to it.

Danny
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You say, “I want to sell my house fast.”
We say, “We buy houses for cash, in San Antonio.”

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18 awesome responses to “5 Ways To Get Money For House Flipping”

  1. ABret on

    Dear Danny,
    I just found your site and I just want to express my thanks at your selflessness in sharing your knowledge.

    I have been wanting to do this for quite a few years now but only really buckling down and taking action now.

    Your post today is very timely. I just submitted a Home Equity Loan application to my bank.. I will take caution and will be very careful.

    Again, thank you in advance for the many things I will learn from your site. God Speed,

    A Bret

  2. Alex on

    Danny,

    Thank you so much for this all the invaluable info you’ve put on the websites. I’ve researched real estate for a long time and now I am motivated more than ever to get this started off the ground (getting off the computer!). I’ve read all your articles, and the biggerpockets podcast. I will be ordering my bandit signs and creating a website by the middle of next week. I even plan to keep a weekly progress (just like your 34 weeks) so i can see the progress i’ve made.

  3. Brooks on

    Danny,
    Great post.
    It’s ironic that a money is source is so widely available with a simple google search (hard money) but that most new investors talk about not being able to find money for their deals.

    I’ve only looked at a few of those companies and was terrified at what I found. Like 5 points, 17%, 6 month loans — something ridiculous like that — haha, should I look again?

    I find that the cool thing about private money is that once you find a source you don’t stop looking. If their rates are high you look for one cheaper. It feels so good when you can send a deal to 2 different lenders and ask them what terms they’ll do and get a good healthy competition going!

  4. Lubasha on

    My first deal in 2009 was funded with home equity loan. I bought house with falling roof and so on, fixed it entirely during 8 months, made a lot of mistakes on the way but sold with net about 25k. The purchase price was 8 times lower then the price house was sold for. So you really make a deal when you buy right. I never could buy that good any time after my first deal, every deal is a hurdle nowadays and you struggle for pennies. Meantime everyone around believes you are that son of b… that making easy fortune, so you don’t have no mercy available for everyone else. It became ordinal to see properties that sold for higher price then their ARV and they still need repairs. Too many in this business today without clue what they are doing, so beware of the risks. I don’t want to take your dream away but IMHO RE is not the best business for newbies to start right now.

    1. Russell on

      Thanks for your comments Lubasha. Where are you finding your deals?

  5. Russell on

    I’m glad you pointed out the need to build some credibility before you approach a private lender, I was kinda thinking the same thing. I spent a few hours at the county recorders office and got 19 names and addresses of people who have financed local flips but didn’t want to blow those leads by marketing to them before I felt I was a solid candidate.

    I made a handshake agreement the other day with a local investor that if I could get a good deal under contract I would give him exclusive first access in exchange for letting me shadow the deal.

  6. Tim Watts on

    I love the disclaimers. Good post. I have a list of Hard Money lenders that are reasonable (reasonable for hard money). They are a great tool, but they are a bit pricey if you can’t turn it around fast. So I have been looking into syndication and the other options that you list.

    Local banks. Are you trying to get a line of credit or something else?

    Do you use contracts with your private lenders or other RE investors? Do you approach each person with a different agreement, or do you have a preset up agreement that you can present when approaching these investors? How would I learn how to set these up?

    Last: In reading your book, I go to wondering how you set up your birddog and wholesale agreements. it is a gentleman’s agreement or a contract?

    I’ve started driving for dollars thanks to you and all these questions start coming up. Thanks for all your work and willingness to share what you have learned.

  7. Nate K. on

    Danny,

    Good tips! The only that I would use personally is finding private investors. I currently found one that I am working with. I got a house under contract and we are waiting to close on the deal. What we have worked out right now is that I provide $2,500 and find a deal (already paid and already found). He lives in Houston but flies down weekly. He will buy the property and will pay for all repairs. I will manage the rehab and the workers and he will market for sale. He will keep all profits on the first 2 properties that we work together. On the third property, we will begin splitting the profits 50/50. This isn’t ideal, but considering I did not have any other place to start, the training is helpful and later down the road I can make some money. It will be atleast 4-6 months until 3 complete rehabs have been bought and sold but I think it will be worth it in the long run. Here’s to a better life!!

    Cheers,
    Nate K.

    1. Kevin on

      I agree with Danny. You are paying 2,500 and doing the work but you aren’t getting paid until the third. Who knows if he will actually keep up his end of the bargain. I would say to renegotiate so you can at least get something and not have to pay out. But if it works out, then you are doing well.

  8. Bryan on

    Have a 50 properties in 10 years goal. Have 225k mortgage preapproval 70k cash and 25k credit that a good start? Also actively seeking more investors and doesnt seem hard as I am a contractor with multiple work crews and A ratings.