By Mike Baird
So you want to get into flipping houses because it’s one of the best ways to get into real estate investing without any money. There’s a problem, though – you don’t have any money! So, if you get in over your head on a flip, and you lose money on it, you aren’t going to have any disposable income laying around to bail yourself out. If the idea of losing money on a flip and not being able to dig your way out is what’s keeping you from getting started flipping houses, then I have some good news for you.
Everyone loses money on house flips from time to time. It’s kind of a rite of passage in this business, and you really shouldn’t look at it as a huge threat or the end of the world when it does happen. Instead, just implement one or all of these strategies and get back in the flipping saddle.
Recoup Your Losses
If you know that a rehab is getting too expensive or you have a house that’s sitting on the market and isn’t getting any attention from buyers at your asking price, it’s time to do something. It’s time to take advantage of an exit strategy – like selling at a discount to another investor, renting the property out, or lowering your asking price.
Almost all of these strategies will mean that you either barely break even or you lose some money. However, if you don’t pull the ripcord on one of your exit strategies, you’re just going to start bleeding money. If you take your exit strategy, on the other hand, you’ll be able to pay off your investors or lenders, and you won’t end up in massive debt in addition to your initial loss.
Talk to Your Investors About What Happened
If you funded your flip with investor money, you should be upfront and transparent with them throughout the process. If they think everything’s going fine and then they find out that they’re getting nothing more than their initial investment back without even a little bit of interest, they’re not going to be too keen on working with you again.
On the other hand, if you keep them posted about the project and what’s going on at every step, they won’t be surprised and will be a lot more likely to want to continue working with you on future deals. They may not be ready to invest with you again just yet, but once you have a little bit more experience and a few successful deals under your belt, they’ll probably come around.
Get a Hard Money Loan and Get Back on the Horse
So here’s the beautiful thing about hard money loans – they don’t approve you based on your credit score. As soon as you pay off your old loan with whatever losses you were able to recoup, you can find another deal and take out another loan. Like I said, if you’ve just had a loss like this, private investors and lenders might not be ready to trust you with their money, but hard money lenders tend to be a lot more lenient because their interest rates are so high.
So, find a great deal that you can fix and flip quickly. Then get a hard money loan, flip your house, and start saving money and building your reputation. See? It’s possible to get into real estate investing without any money, and if you’re active with exit strategies and open with your investors, you can easily recover from losing money when flipping houses, too. Then you can get right back in the game and start making money again.