Tanner Ellis is a real estate investor in Dallas, Texas, dealilng in rentals, rehabs, and wholesale properties.
One of the most attractive aspects of real estate investing is the ability to get started with no money of your own. There are many ways to flip houses without using your capital. Each technique has its potential advantages and disadvantages, and they will be discussed below.
1. Hard Money Lenders
Hard money lenders provide capital for real estate investors. An investor would traditionally use a hard money lender to fund a "flip" (purchasing a distressed property at a discounted price, rehabbing the property, and re-selling the property on the market). Unlike a traditional bank, they do not look at a borrower's personal credit when making lending decisions. Rather, hard money lenders look at the profitability of the deal.
It is possible to find hard money lenders that will loan an investor 100% of the purchase price plus the funds needed to rehab the property. This allows an investor to enter the deal with no cash of their own. However, hard money is expensive. The interest rates charged are much higher than using a traditional bank, and often times "points" are charged when the property is sold.
2. Private Money
Similar to hard money lenders is "private money." Private money is capital acquired from an individual who has money to lend and is looking for a fair return on their capital. This could be a family member, someone in your professional network, or a wealthy investor you find in your market who is looking for a good return on their capital.
Typically, the interest rates are lower than hard money lenders but higher than banks. Borrowing capital from a private lender allows investors to enter a deal with no money of their own.
Another option for investors looking for a deal without capital is to create a partnership. Typically, they will bring "sweat equity" (which could be finding the deal, do-it yourself repairs, etc.) to the table in exchange for a partner who brings the money to the table. If you have time to offer and can find deals, there are always investors looking to partner in deals.
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My personal favorite way to flip a house with no money is to wholesale. Wholesaling real estate is the process where the wholesaler finds a deal, signs a contract with a seller, then finds another investor who will actually own or rehab the property. The wholesaler charges the investor an "assignment fee," which is basically a finders fee for finding the deal, closing it, and bringing it to the investor.
The wholesaler brings none of their own money to the table. The second investor is the one who actually purchases the property. While it is possible to wholesale without any money, it helps to have money for marketing and finding deals. The less marketing you utilize, the more time one will need to invest to find deals. Completing a few wholesale deals is a great way for new investors to build up capital to fund more deals and grow their business.
What You Can Learn by Wholesaling
Wholesaling teaches investors how to find deals on their own. This is the most valuable skill an investor can have. Wholesaler Than Merrill says,“The most successful real estate investors and wholesalers have one key thing in common: they are also expert marketers. To thrive as a wholesaler, you have to find the best deals. And to find the best deals, you need to know how to market effectively.”
If an investor can find deals on a regular basis, they will have a constant stream of income and the ability to wholesale deals to investors, or they can complete the rehab themselves. The more deals you can find and the more value you can bring to the market, the more successful you will be.
Real Estate Professional Anthony Hitt is quoted as saying, “to be successful in real estate, you must always and consistently put your clients’ best interests first. When you do, your personal needs will be realized beyond your greatest expectations.” If you help others reach their goals, yours will be accomplished as well.
You Can Build an Empire
Real estate is the most proven system for building long-term wealth. Entrepreneur Marshall Field once said, "Buying real estate is not only the best way, the quickest way, the safest way, but the only way to become wealthy." It is also a business that can be entered with no upfront money.
If someone has drive and discipline, they can flip houses and build an empire with no money of their own. It will not be easy, but the rewards are great. Get out there and find some deals!
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.