House flipping can be a lucrative business. Property values are up and demand for housing has seldom been higher. Building houses from the ground up has a lot of issues. You have to buy land, get permits, and a bunch of other things. There is another option: Flipping houses In essence, flippers take houses with problems and repair them, then sell them on the market for the This sounds expensive but it doesn’t have to be. With the right tactics, you can start a house-flipping business without spending much if any money out of pocket.
To start a house flipping business with no money, live in the house as you flip it, get loans or investors, use your home equity and acquire partners,
Live in the House as You Flip It
Living in a house as you flip it can be a way to start a house-flipping business cheaply. If you live in the house, you don’t have the added expense of paying for another place to live in during the flipping process. Plus, you won’t have to pay for gas for getting to and from your flipping job. This can be good since a van full of various tools can use a lot of gas. Since you’re saving money by living in the home, you can take your time with the projects and deliver a better product. Most people who try this house-flipping arrangement try to do their homes section-by-section. Living in the home allows you and perhaps some friends to work on your schedule. You could (after getting the most vital parts of the house fixed up) come home from work and work on the house or work on it during weekends.
Since you will be living in the home, you may have financing opportunities you may not have in a more conventional arrangement. If you meet the requirements, agencies like the VA or the USDA can also help. Some of the house repairs can be done by yourself. This will save money on contractors and landscapers.
The big issue with this approach to house flipping is that it might affect your family. Not every spouse will like living in a house as you repair it. It can be taxing. If you have small children, this approach to house flipping is a bad idea. A house in the flipping process is an active construction site. Kids have a habit of getting into places they shouldn’t be in under normal circumstances so adding construction equipment isn’t the best plan. Plus, if you intend to do a lot of house flips, moving around can put a lot of stress on your family.
You also have to consider the condition of the house. While living in a house as you flip it saves you money, you have to make sure the house is habitable before you buy it. Otherwise, you’ll have to rent a motel room while you get your house up to the bare minimum of habitability. This can eat into the profits.
This isn’t to say that living in the house you’re flipping is a bad idea but you need to consider your life circumstances, as well as the house you’re flipping.
How To Get Funding As A Real Estate Investor
Getting Loans or Investors
Another way to get capital for a house-flipping venture is to seek out loans or investors. There are a few different types of lenders.
There are conventional loans from banks. However, they may not loan out money to a new house flipping business especially if you have a low credit score. You can also look into hard-money lenders. They often have looser requirements and look into factors besides your credit score. However, the terms of repayment are a lot tighter. Instead of a payment schedule that lasts a decade or more, you may have only 6 months or a couple of years. Because hard money lenders don’t look at credit scores as much as traditional banks, they do have higher interest rates. You also can’t expect them to loan out all the money you need for the project. At best, they will probably only loan around 70%. This means that you’ll have to get the rest of the money you need from other sources.
Hard-money lenders also have other quirks. Unlike banks, which are often more standardized, the rules hard-money lenders operate by can vary widely. This means you have the chance to shop around for the best terms. Of course, a hard-money lender will have less favorable terms than traditional lenders.
Another option is getting investors. Since the real estate market is hot, it is a bit easier to get investors for a house-flipping business. However, you’ll need to know the real estate market. It’s nice to have repair skills as a house flipper but you need business savvy to go with it. To get loans and investors, you’ll need a comprehensive business plan. A business plan includes, among many other things, your plan to make your investors’ money back. The business plan you present will need to demonstrate your knowledge of the local real estate market and the houses you intend to renovate. The investors will also want to know your projected revenues and expenses. This may mean visiting the house you intend to visit and getting an estimate on what you intend to renovate. You’ll also need an estimate of what the property will be worth after you renovate it. Your bank or investors will want to see that you understand the business you’re getting into. When you show potential investors that you know about the real estate world, they’re more likely to invest in you.
The 70% Rule
One of the big rules in house-flipping is the 70% Rule. The 70% Rule states that you should only spend 70% of what the house is worth when you sell it. Making sure you follow the 70% rule is essential. When you’re starting a house-flipping business, you may want to start with an easy house to renovate with the capital you get. This will allow you to get experience in the flipping business without using a lot of money. Flipping a few easy houses will build up your capital and give you a good reputation among investors.
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Using Your Home Equity
If your house is worth enough, borrowing against your home to build a flipping business can be an option. There are a couple of opinions if you want to go this route. There’s the cash-out refinance option. You can redo your existing mortgage and pocket the difference between your loans. The best part is that you can use the money for whatever you need. You can even use the money for a down payment on a rehab property.
The next option is the Home Equity Line Of Credit (HELOC). It essentially operates like a credit card but for your house. The HELOC allows you to borrow the money you need for a flipping project and pay it back every month. like a regular credit card. The interest payments can be tax-deductible.
However, there are some risks and limitations. If your house isn’t worth a lot, you probably won’t be able to use your home equity or get a HELOC. If your business fails, you may lose your house. If you have a family you will want to talk to them about this before you use your home equity to start any kind of business.
Acquiring Business Partners
Sometimes, the best option is to get partners in on your business venture. Like when you’re trying to get investors, you’ll need to present a business plan to make them want to work with you. One other thing you’ll need is skills. If you don’t have a lot of money to bring to the partnership, you’ll need to bring something else to the table. For example, your partner might want someone who has contact with someone who has a property to sell. They might need someone good with their hands and who can help with flipping the houses. This approach can be easy to make if you have a background in home repair and landscaping. It’s common to see an investor partner with someone good with home repair to flip houses. In addition to creating your business plan, you’ll also want to vet your investors the way they’ll be vetting you.
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Frequently Asked Questions
- Which markets should I look in if I want to find houses to flip for cheap?
The best states for a house-flipping business are states like Georgia, North Carolina, and Ohio. If you’re living in an expensive state like California and don’t have money to start a house-flipping business, you will have to save up the money to move if you want to start a flipping business.
- What resources should I use to find houses to flip?
There are sites like FlipScout which not only give out the locations of flippable houses sorted by zip codes, but they also give out potential returns on investment. Since those are computer generated, you should treat these numbers merely as guides. Some real estate sites like Zillow also have a list of foreclosures that you can use.
To learn more on how to plan your own house flipping business click here!
Please note that the contents of this blog are for informational and entertainment purposes only and should not be construed as legal advice. Any action taken based on the information provided in this blog is solely at your own risk. Additionally, all images used in this blog are generated under the CC0 license of Creative Commons, which means they are free to use for any purpose without attribution.
About the author. A lifetime of Entrepreneurship.
Hi! My name is Shawn and I am a happy individual who happens to be an entrepreneur. I have owned several types of businesses in my life from a coffee shop (link here http://archives.starbulletin.com/2003/05/18/business/index.html) to an import and export business to an online review business plus a few more and now I create online resources for those interested in starting new ventures. It’s demanding work but I love it. I do it for those passionate about their business and their goals. That’s why when I meet new business owner, I see myself. I know how hard the struggle is to obtain and retain clients, finding good employees and making sure everything works together all while trying to stay competitive.