In Google, the search phrase “how to start flipping houses” gets 1,500 searches per month. The phrase “how to start flipping houses with no money” gets half of that, 700.
Clearly (and for good reason), there’s a lot of interest in profiting from flipping homes without having to offload a lot of cash.
That’s why you’re here.
Maybe you have experience flipping homes but you want to stop using your own money. Or maybe you’re brand new and this is the first article you’ve read about flipping houses.
Either way, you’re in the right place.
We’ll start by discussing a critical mindset shift all great real estate investors have to make at one point or another. And then we’ll dive into 6 steps (details & examples included) to start flipping houses with other people’s money.
Critical Mindset Shift: Cash Flow Vs. Debt-Free
Being risk averse is a human trait.
You and I have made it as far as we have largely because we don’t do a lot of stupid stuff — we don’t antagonize the lion that escaped from the zoo, we don’t jump off cliffs, and we don’t do into a lot of debt without serious forthought.
On that last point, you’ve probably heard something like this from Dave Ramsey…
“Debt is not a tool; it is a method to make banks wealthy, not you. The borrower truly is slave to the lender.”
That’s a direct quote.
And some version of that idea has brainwashed the vast majority of normal people.
Debt is bad. Paying in cash is good.
Successful real estate investors cringe, though, when they read that… because they know it’s not the truth. They know that debt is (by far) the fastest, easiest way to become wealthy through real estate investing. Without it, even those with deep pockets struggle to move much volume.
Because if you only ever use your own cash, you will always be limited by your own financial standing.
Walt Disney was very aware of this when he was building his empire: “I’d say it’s been my biggest problem all my life… it’s money. It takes a lot of money to make these dreams come true.”
Debt is what allows people like you and me to invest in real estate without using our own money. And it’s what allows real estate investors (even the wealthy ones) to scale and do more deals per year.
Ryan Dossey once told me that he plays a game with his real estate investing buddies: “Whoever dies with the most cash-flowing debt wins.”
The point is, you’ve probably been taught that debt is bad… but it’s not.
Consider some of the following benefits of cash-flowing debit…
- Scale Faster — Since you’re using other people’s money, you can do many more deals per year than you’d be able to do if you were just using your own money.
- Higher ROI — In terms of the money you are actually investing into each deal, the ROI is much higher when you primarily use other people’s money.
- Lower Risk — Since you’re not having to empty your personal savings account, going into debt is actually much less risky for you than funding all of your own deals would be.
Of course, not all debt is equal.
So let’s talk about the best type of debt for real estate investing…
Step 1. Build a Private Lender List
When we talk about debt, most people immediately think of going to a bank and getting a loan.
That’s not the worst thing you could do (it’s better than using your own money), but it’s also not the best thing you could do.
The first reason is that banks have to approve your investment based on their stringent criteria — they’re going to decide for themselves whether your investment is a good one. And second, banks will only give you so many loans and so much money at a time… if you have loans at other establishments or your credit score isn’t excellent, then you’re going to struggle to get more money for more deals.
A far better option is to build your own network of private lenders.
These are just family, friends, or acquaintances with some extra cash that they want to invest.
You can offer these people an interest rate of 8% to 12% based on the size of their investment.
How do you do this?
In this private money guide, we have 12 ideas you can use to find lenders.
And for a more thorough walkthrough of what this process looks like, check out the video below by Ryan Dossey…
Go here to check out the actual documents Ryan uses when signing papers with his private lenders.
The biggest benefits of using private lenders instead of going through a bank is that no one is checking your credit score, you can get as much money from as many private lenders as you want, and you have control over the agreement. This is a huge benefit when you’re trying to scale or do your first house flip.
Step 2. Find a Really Good Deal
Once you’ve got a list of serious private lenders (try to get at least 20!), then it’s time to start looking for a deal.
The sooner you find a great deal and send it to them, the better.
How what is a “great” deal?
And how do you find one?
Here are some criteria to consider when you’re determining the quality of a deal…
- Neighborhood — What neighborhood is the property in? Is that a neighborhood where homes sell easily? Or is it quite difficult to sell properties there? When you’re flipping homes, it’s important to have a good idea of where you’re buying and what the market is like.
- ARV — ARV stands for After Repair Value and it’s one of the most important numbers to get right when you’re flipping houses. How much will you be able to sell the property for once you’ve finished repairs? Check out our guide to running comps over here or befriend a real estate agent and ask them to do it for you. This estimate needs to be accurate if your house flip is going to be a success.
- Repair Costs — How much will you need to spend to repair the property so that it can sell for the ARV? Check out our guide to estimating repair costs over here.
- Holding Costs — Don’t forget that the entire time you’re taking to rehab the property, you’ll also be paying holding costs; debt payments, utilities, and property taxes. You need to factor these into your profit and max offer estimates.
- The 75% Rule — The 75% rule states that you should pay no more than 75% of the ARV of a property, minus the cost of repairs. Here’s a video explaining how this works.
- Max Offer — Your max offer is the maximum amount of money you’re able to offer the seller after calculating the properties ARV, repair costs, holding costs, and the 75% rule. Don’t ever go above your max offer, no matter how tough the negotiations.
And here is the simplest process we know of for finding great deals…
- Use Propstream to pull a list of motivated sellers. Try to get at least 5,000 addresses (no duplicates). See below some of our favorite lists to pull when looking for distressed properties (all of these should be high equity, 80%+)…
- Attorneys (Probate, divorce, estate, etc.)
- Absentee owners — People who don’t live in the property.
- Out-of-state landlords
- People who own homes free-and-clear — i.e. 100% equity and no liens
- Properties with liens
- Homeowners going through probate
- Send hand-written mailers using Ballpoint Marketing to at least 3,000-5,000 addresses (the bigger your market, the more mailers you’ll need to send).
- Answer the phone when it rings (or let us answer it for you!)
Step 3. Create a Lender Packet
If you send enough mailers and are dedicated to answering the phone and talking to sellers, then eventually you’re going to find a deal that fits the above criteria.
Sign a basic purchase agreement with the seller and then create a one-page packet to send to your list of private lenders. This can be very simple and just give the basics of the property you’re planning to flip.
Here’s an example of what this can look like (this is for a buy-and-hold deal, but it could easily be modified for a fix-and-flip).
This is a very important part of the process because it gives the lender enough information to feel like they’re a part of the process and they know what they’re investing in… but not so much that it’s a headache to read. It also is clear about the amount of money you’re looking for and the return they can expect to receive if they invest.
Send this to your list of investors and, if you’ve locked up a good deal, then you shouldn’t have much trouble getting someone to send you a check.
Step 4. Get a Good Reference For Contractors
One of the biggest headaches you can run into if you’re not careful when flipping houses is hiring a contractor who doesn’t take the project as seriously as you do.
They don’t show up when they say they’re going to show up.
They charge more than they quoted.
And they are dishonest about how long the entire project is going to take.
Fortunately, there’s a pretty reliable trick for avoiding bad contractors: always ask for references.
Ideally, just find a real estate investor and get a referral to a contractor that they trust and use regularly. If you don’t have many real estate invstor friends in the area, then just ask the contractor you’re speaking with for references you can call. If they dodge the question, don’t work with them… plain and simple. If they give you references, actually call those people and ask what their experience was like.
It might mean it takes you a little longer to find a good contractor… but it’s time well-spent.
Step 5. Don’t Over-Renovate
This is one of the most common mistakes that new real estate investors make when flipping homes…
They over-repair and over-renovate the property.
And because of that, they end up making less money (and taking more time) than they should have on the deal.
Remember: you’re not the star of an HGTV show… you’re only repairing and renovating the property to the point where it will be able to sell for it’s ARV.
A lot of times that just means…
- New flooring (carpet in the bedrooms, laminate in living areas)
- Cleaning up the landscaping
- Updating some of the fixtures and appliances
That’s usually more than enough to get a good return on your investment. Of course, it partly depends on the shape of the property.
But the lesson is this: don’t go overboard with it and make sure you’re focusing on the things that will actually bring in the most money.
Step 6. Market The Property
Once your property is ready to list, it’s time to start marketing it.
The good news is that, if you followed all of the above steps correctly, then marketing the property to sell should be a heck of a lot easier than finding the deal in the first place.
The most effective way to market a house for sale is by getting it listed on the MLS.
If you have a real estate license then you can just do this yourself. Otherwise you can pay a real estate agent to do it for you. Or you can just find a service that will list your property on the MLS for a flat fee.
You could, of course, have a real estate agent help you sell the property… but they’re going to cut into your profit and you’ve come this far without them!
Why not just finish the deal yourself?
Either way, you might end up needing help from a real estate agent at some point in this process. So here’s a video that’ll show you a proven method for finding investor-friendly agents in your market.
Flipping houses is a great way to make big profits in real estate. But it’s not for the faint of heart.
It takes skill, knowledge, and hustle to find good deals and turn them into profitable flips. If you want to get started flipping houses, follow these 6 steps and you’ll be well on your way to success (without any of your own money).