The single biggest barrier to people getting started flipping houses is where to get the money! I’m sharing 5 ways to get money for your house flips in this post!
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.
First, have you joined our private FlippingJunkie facebook group? Come network with us!
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. This 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.
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.
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 possibly 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 Johnson is the owner and CEO of Danny Buys Houses in San Antonio, TX.
DannyBuysHouses.comNext: 203: 30 Year Fixed Hard Money
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,
I’m glad you found the site, A Bret.
Thanks for the appreciation. Keep in touch.
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.
That’s awesome, Alex.
This is the point of serious growth. You will face challenges, but they will make you stronger. Super glad to hear you are taking action and have the burning desire to make it work.
To your success,
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!
Amen to that, Brooks.
The time we spent building relationships with private money lenders was so well worth it. Don’t know what we’d do if we hadn’t. They always want their money out their with us.
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.
Thanks for your comments Lubasha. Where are you finding your deals?
While I respect your opinion, I feel that there is a need for a mindset shift.
Yes, there is a lot of competition again. But, there are still deals out there. If you focus on what the majority of people aren’t you will find the ones that can still be bought for cheap. Think different. Easy to say and not so easy to do, but it is still possible.
In my experience with motivated sellers, most of them only call 1-3 investors to make offers. Yes, some only call 1. The first person to talk to them and come over to make an offer.
Ask yourself the right questions. How can I find deals that others aren’t focusing as much on? Instead of: Why are people paying so much for junk? or Why aren’t there any good deals anymore?
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.
Sounds like a great plan, Russell.
Rome wasn’t built in a day. This will take work and time. Doing things in the right order is very important and I’m glad you are understanding that. That’s what it takes.
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.
With local banks, yes you would be trying to get a line of credit (best) or for them to lend on each deal (could be a problem if not fast or require too much in way of appraisals etc.).
I do not use contracts with lenders or RE investors. For lenders, they lend per deal and have their money secured with the real estate (note and deed of trust). Find a competent real estate attorney to draw up these docs (title companies can usually handle this).
No contracts for birddogging, just a lot of trust and checking up. Wholesaling, I use an assignment of contract when assigning contracts or purchase and sale agreement to sell to another investor when double-closing.
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!!
I would have liked to have seen that you would be immediately be splitting the profits. Do you have your agreement in writing? I would hate to see you do 2 and then have him tell you he’s no longer interested for the third.
Just trying to make sure you are covered here.
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.
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.
Yes. That is definitely doable. I started with much less. I’d advise doing a couple and then looking for private lenders.