You know that saying: You don't know what you don't know? Well, it's true.
Traditionally, when buying a house, you'd go to your bank or credit union and apply for a mortgage. You turn in all kinds of paperwork and documents, and 30-45 days later you're closing on the purchase.
Perhaps you've been doing lots of research and you know that's not how seasoned investors buy houses to flip.
Maybe you've even heard or learned some about hard money loans, or even private money loans.
Those are 2 great ways to buy flip houses.
However, there are 5 other ways to do so by using very little to none of your own money.
We will dig into some awesome strategies you can use, even if you're a complete beginner. You'll know more than many seasoned house flippers even do. Check it all out in this episode!
1. Learn more about Debbie DeBerry | The House Flipping Coach for Women
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Hey there, I hope you're having an awesome day. Thanks so much for tuning into today's episode. So here's the deal. Did you know that there are more ways to buy a flip house than just getting financing? I thought maybe you didn't. And that is exactly what we're diving into today. Seven ways to buy houses with little to no money down and not using traditional financing. So stay tuned,
you're listening to the flip houses like a girl podcast where we educate, empower and celebrate everyday women who are facing their fears, juggling family and business, embracing their awesomeness and wholeheartedly chasing their dream of flipping houses. Each episode delivers honest to goodness tools, tips and strategies you can implement today to get closer to your first or next successful house flip. Here's your spiky haired breakfast taco loving host, house flipping coach, Debbie DeBerry...
Alright, so I am calling this a quick tip episode and that means that whatever the tip tool or strategy is that I'm sharing with you, I will do so in under 20 minutes. Alright, so let's go ahead and jump right in. Have you ever thought to yourself, well, buying houses, flipping houses, like the buying part, super easy, you just go get a regular loan. And that could not be farther from the truth. But sometimes we hear other people say things like that and because we don't really know ourselves, we think, oh well they must be right. That must be how you do it. Well, when we're listening to people who don't know any more than we do and potentially less than we do, that just leads to all kinds of problems and frustrations and confusion going away of a traditional bank. Getting a regular, so to speak, loan is typically not desirable for investors for several reasons.
Usually they require a pretty hefty down payment and we're trying to minimize our risk. We're trying to have as little of our money in the project as possible. And secondly, they typically can't close loans fast enough. So in the house flipping world, we've got to be able to move pretty quickly. We're usually working with a seller who either needs cash fast or once cash fast. So time is of the essence and you've got to be able to close quickly, especially if you're up against a another investor. Their offer might not be as high as yours, but if they can close quicker and that's what's important to the seller, then they're going to go with the faster closing. There's also usually more hoops to jump through with a traditional bank and they do a much more thorough investigation of the borrower's credit worthiness and income. So a traditional loan is not the best way to go typically when trying to minimize your risk.
So I'm going to share with you seven ways to buy flip houses with little to none of your own cash, and without using traditional banks. Let's get started. So the first way we're going to talk about is likely the most common way real estate investors buy houses to flip. And that's with a hard money loan. Now I talked about hard money lenders in greater detail in the second episode, which is called the first five steps you must take to start flipping houses. But in a nutshell, what a hard money lender does is they have a percentage of the ARV or after repair value that they will lend up to. So let's say they will lend up to 70% of what the house will be worth when you're done renovating it and you go to resell it. So if they will lend up to 70% and you can get the purchase price, the renovation amount, and the carrying and closing costs all to total less than that 70% then you can finance the deal 100% with hard money.
Now it's harder to find in some states than in others. So you have to do your homework to research these hard money lenders and really vet them properly. Alright? You should be asking very specific questions to make sure you're comparing apples to apples with each lender. Alright, so the second way people finance flip deals is private money. Private money is pretty fantastic because the terms tend to be more negotiable than hard money. Hard money lenders aren't really going to negotiate on their terms. They might give you better terms once you are more established with them. That's what I've seen. That's what's been my experience. Private money, on the other hand, that's individuals, maybe it's friends, family, your doctor, your dentist, somebody you know who has money that's sitting there and it's not working for them. They could be a potential private money lender for you.
Additionally, other investors in your local market, they may interested in lending you money as well as a private money lender. So if they're financing the purchase, the renovation costs as well as the carrying and closing costs, then this is the second way that you can buy a flip house with little to none of your own money. Alright, so let's talk about the third way. And that is a HELOC or a home equity line of credit. So if you have a personal residence and you have equity that you can tap into, that might be a really great source of financing for you. So even if you don't have enough equity that you can pull out and finance the entire purchase and renovation and carrying and closing costs, maybe you have enough equity to cover the renovation and the carrying and closing costs. And then you can use a hard money loan for the purchase or a private money loan for the purchase.
So that might be a way that you can structure a deal using cash that's stuck in your current personal residence that's just sitting there and you're not coming out of pocket per se with additional cash to use to partially fund these deals. Now the fourth way we're going to talk about is similar to a HELOC in that you're tapping into equity that is just sitting there not doing anything for you. And this is a cash out refi of a rental. So if you have a rental property and you've got equity in it, you could absolutely do a cash out refi to pull some of that money out so you can actually have it working for you. And again, you can use that to fund the repairs or the closing and carrying costs or whatever else you might be able to fund on a project, depending on the amount of equity that you can tap into and the amount of cash you can pull out.
But that's another way that you can buy houses with little to none of your own cash in your pocket. You're tapping into equity, basically cash that's just sitting there not doing anything for you. Alright. The next three strategies are creative buying strategies and a lot of people don't even know that these are possibilities. So the first one is buying houses subject to, and that's subject to the existing financing - and it's one of the most powerful techniques to buy with zero money out of pocket. So what you're doing is you are finding a seller who has equity, Alright? They've got, they've got equity and they've also a great loan with great terms. Now what you're doing with the seller is you're agreeing to make the payments going forward in exchange for the deed to the property. Now it can get complicated and I highly recommend to use a savvy real estate attorney to guide you through this process and to make sure you're using the proper paperwork.
For example, in Texas House Bill 2107 says the lender must give consent, which is highly unlikely or the deal must be closed at a title company with title insurance, which you're doing anyway because you listened to episode number three, the 13 house flipping mistakes to avoid and you listened to me and you are always going to buy title insurance. Now it's great for rentals or flips. Now with rentals, you just want to make sure that it's a fixed interest rate and it's a low rate and you don't want a balloon payment, meaning you don't want to be taking over a loan that might be due in two years. So look for those things. If you're buying the property as a rental, if you're buying it as a flip, really your only concern is to make sure that there's not a prepayment penalty because you're going to be selling the property pretty soon so you don't want to have a prepayment penalty when you sell.
Now, why would the seller agree to give you the deed to their house while their name is staying on the mortgage and you're taking over payments but you're going to benefit from the equity? Why would a seller do that? A seller would do that because they need help. They are trying to save their credit. They cannot make the payments and you are coming in and you are going to make the payments. It is a win win. You are helping them. You are always coming from a position of service. This is not a, how can I stick it to the seller and squeeze the most out of this deal? For me it is absolutely and always should be about how you can serve the seller. When it comes to subject two deals, you are helping the seller because you are taking over payments. Of a mortgage that they cannot afford and they are possibly about to lose the house.
Again, it's a powerful strategy. It's a win win and it's a great way to buy houses with zero money out of pocket. Now the initial objection you might have to this or concern is, Alright Debbie, well what about the do on sale clause? When I take over payments, isn't the lender going to know that and aren't they going to say, hey, based on the terms of our mortgage with seller x, once there's a sale, the full amount is due? Well yeah, that's a valid concern, but here's the thing. Ultimately what the bank cares about is are they getting paid? Is the mortgage being paid each month? That's been my experience and that's been the experience of thousands of other investors who have utilized this strategy. Now the second creative buying strategy is I'm sure something you've heard of before and that is owner financing or seller financing.
So that's when the property owner basically acts as the bank. So they are financing the deal for you. You don't have to go get a traditional loan. You don't have to get a hard money loan, you don't have to get any loan because the seller is acting as the bank. The great thing is you can get these with very little down payment, possibly none if it's structured that way. But I've picked up houses with owner financing with as little as 2% down and that's always my goal is to try to get these with 2% down. So why would an owner want to sell their house via owner financing? Right? Why would they do that? Aren't they selling their house because they want cash, they want to get their cash out of their house. Why would they want to finance it for you? What's in it for them?
This strategy is appealing to an owner who obviously doesn't need cash right away. And what they're most interested in is that bigger payday that's down the road and the monthly cashflow that comes from your mortgage payments to them. So that's why an owner would finance the sale. They're going to make money each month from the deal and they're also going to make more money down the road when you either refinance or you sell the property either way. So that's what's in it for them. Alright, the final way, the third creative buying strategy in the seventh way to finance flip houses with little to none of your own cash is via a strategy called equity partnering. And it's a great way to get deals done that are hard to make work otherwise. And it usually works best when there's a lot of equity because what you're doing is you're taking over the mortgage payments, you're renovating the property, and you're going to sell it, for as much as possible, and then what you're doing is you're splitting the profit with the seller.
Why would you want to do this? Well, basically you have very little risk in the deal because the loan pay off balance is super low. So you're doing this on houses where it would be nearly impossible, marring tragedy to lose money on the deal. So there's so much equity in the deal. Let's say the house is worth $400,000 when it's all fixed up, the owner, they only owe $110,000 they've owned it for 25 years. So you're coming in, they owe $110k you're putting $80k into it all in. Y'all are only at $190k and you're going to sell it for $400k. Now, those are just numbers to give you an idea of how it works, but do you see why you're willing to do this kind of deal? No. You might be saying, Alright, well where am I going to get the money to fund the renovations, Debbie?
Well, that's when you go get a private money lender because who wouldn't partner on that deal with you? I mean, that's a beautiful deal. I'll partner on it with you. Come find me. Okay, go find a deal like that and I'll lend you money on it. Okay, so those are seven creative ways to buy flip houses with little to none of your own cash. Now, I'm pretty sure you learn something new on this episode. I'm hoping you did. Most people don't know those three creative strategies that I shared with you. So now you know more than a lot of people and if you would do me a huge favor and help spread the word about this awesome podcast here, I would be so grateful wherever you listen to this podcast. If you would give me a rating and a review, it will help me reach more people like you.
And if I can instill in one more person the belief that she can absolutely flip houses for a living and have a fantastic life. That is my ultimate mission and I need your help to achieve that. Also in the show notes, I've got some links to some goodies, so I've got a link to a pdf download that summarizes these seven strategies for buying houses with little to none of your own cash out of pocket. Alright, so check the show notes for a link to that as well as information about a little promo I'm running where I'm giving away a pair of apple airpods, which happened to work with non-apple devices once we hit 250 reviews. So if you leave a review in a rating, you're going to screenshot that. You're going to either email it to me, my email address is in the show notes, or you're going to share that with me on Facebook and you'll be entered into the drawing.
So once we hit 250 reviews and ratings, I'll be doing a drawing and you could win some apple airpods. I don't know how I lived without these for so long. Honestly, I would see people with them and I'd be like, really? Like you can't just have a wired ones. And then I have got some as a gift and they're the best thing ever. So I want to share something I love with you. Alright, thanks so much for tuning into this quick tip episode and I will see you on the next one. Thanks so much. Make it a great day.
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