By Greg Herlean
People who don’t have much experience in real estate tend to make some pretty funny assumptions about flipping houses. They think that they can’t get into the business because you need to come up with your own capital to fund your flips. Well, if that were true, the only people you’d see in this business would be lottery winners and people with trust funds and inheritances. The truth is there are a lot of ways to get real estate funding without spending a dime of your own savings. Here are just a few of the options open to you to get your flipping business started.
Do you know someone who has liquid capital to invest? Whether they’re a friend, family member, or colleague, if you have a good relationship with someone in this position, the two of you could have a very good opportunity ahead of you.
With a partnership like this, your investing partner puts in the cash for the deal, and you put in “sweat equity”. They fund the project but are not required to do any of the work. You don’t have to put any cash down on the deal, but you’re in charge of finding the property, making the deal, getting the rehab done, and selling. At the end of the flip, you split the profits down the middle, and you both walk away with more cash than you had going in.
Banks and large mortgage lenders aren’t usually willing to approve loans for flips because they know that they’re not likely to see a lot of interest when you pay the mortgage off in just a few weeks or months. Private lenders, on the other hand, are much more likely to help you out.
A private lender could be a family member or friend, or they could be someone in your community who has cash on hand and who wants to get a fast return on their investment. Getting a private loan is a lot like working with an investing partner, but instead of splitting the profits, you agree to pay the loan back with agreed-upon interest in a certain amount of time, whether the house has sold or not.
You can sometimes get people to agree to a private loan more readily than a partnership because their risk is very low. With a partnership, they’re guaranteed to get their money back plus half the profits, but if the house doesn’t sell or sells for less than you anticipated, they could actually lose money. With a private loan, they don’t stand to make quite as much, but they are guaranteed some return. Some private lenders may eventually become investing partners once you’ve proven that you can consistently find and flip great properties.
The last option I’ll discuss today (though there are definitely more out there) is one of the newest and most interesting real estate funding opportunities out there: crowdfunding. Just like crowdfunding platforms like Kickstarter and Indiegogo, real estate investing crowdfunding platforms allow you to get backing for a project from a lot of small investors instead of one investor with a lump sum.
When you sign up for a real estate investing crowd funding site like RealtyShare or FundRise, people can put in as little as $5,000 to help you reach your funding goal. After you reach your goal and flip your property, your backers will get a percentage of the profits, and you’ll have successfully performed a truly 21st century flip with no money of your own at all.
You don’t need to be independently wealthy to flip houses, and you don’t need to put yourself in massive debt, either. With these real estate funding opportunities, you can get started and build your business right now.