How to Flip a House With No Money: It's Possible, But Not Easy

By Amy Beardsley

Posted on September 9th, 2022

How flipping works | Strategies | Live-in flip | Cash back for repairs | Hard money lenders | Private money lenders | Wholesaling | Seller financing | Tips and advice | FAQs

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If you're considering how to flip houses with no money, you might be asking the wrong question. Instead, consider whether you should flip houses if you don't have a down payment or cash reserves. Even if you can get a loan for a property, you'll need money to fix it up.

There are several ways to flip houses and make a profit, but each comes with significant risk. To reduce the risk of financial ruin, understand what you could lose trying to chase profits.

The safest routes for flipping a house without any cash are wholesaling or doing a live-in flip with a 0% down mortgage, while the riskiest option is going with a hard money lender.

If you're looking to buy an investment property, our friends at Clever can help by matching you with a top agent near you! Clever is a nationwide brokerage that can get you 0.5% cash back after closing in 41 states and Washington DC for home sales over $150,000. That's extra cash in your pocket to use on repairs!

💰 Buy with Clever, earn cash back. Connect with an agent today!

What Is House Flipping?

House flipping involves buying a house for a low price, making repairs and renovations, and then reselling it for more than it cost you to buy and fix the home. Ideally, you make a healthy profit to reinvest into another property and begin the process anew.

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Strategies to Flip a House With No Money

Flipping a house with no money means taking out a loan for the entire property and estimated repair costs.

Some real estate gurus and TV shows frame house flipping as a get rich quick strategy. But there are plenty of risks involved:

  • 💸 Paying too much for the house

  • 🔨 Repairs cost more than you budgeted for

  • ⏰ Repairs taking longer than expected

  • ⏬ Selling the house too low to make a profit

  • 📈 Increased interest rates

  • 🏚 Defaulting on the loan and losing the property

Buying a house without a down payment can be a useful strategy for an experienced investor to leverage buying power. But it’s not typically a great idea for beginners to take on that much debt.

If you’re interested in taking the plunge, here are some strategies to consider for flipping a house with no money.

Live-In Flip (AKA Owner-Occupant Investing)

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House flipping beginners can acquire a traditional loan and take advantage of a 0%-down government-sponsored mortgage program like a VA or USDA loan:

  • VA loans are only available to service members and these loans offer 0% down options. But the house will have to appraise for VA standards, which means you can't finance a run-down home with a VA loan.

  • USDA loans have no rules against house flipping. However, the USDA will only finance properties that qualify for a USDA loan. In addition to the USDA inspection process, the house has to be located in a rural area and your income can not exceed 115% of your area median income. A credit score of 640 is required for automatic underwriting approval, but you may be able to qualify with a lower score through manual underwriting.

If you don't qualify for these loans but you have some money, consider a low down payment mortgage option like a Fannie Mae HomeReady mortgage or an FHA loan.

  • HomeReady loans offer down payments as low as 3%, but eligibility requirements are strict. You can't earn more than 80% of your area's median income, you'll need a 620 credit score and complete up to 6 hours in an online homeownership education course.

  • FHA loans offer down payments as low as 3.5%. But FHA loans have tight inspection requirements, which means you can't purchase a true fixer-upper. If you want to flip houses with no money and bad credit, using an FHA loan to purchase and eventually flip a house is probably the best bet — FHA loans can be had for a minimum of 580 credit score and still qualify for a 3.5% down payment.

The critical requirement for qualifying for these loans is that you must show that you intend to live in the property you purchase, usually by providing a letter of intent to occupy. For both HomeReady and FHA loans, you are required to own the home for at least 91 days before being able to sell it again.

Living in a home you're renovating to flip can take longer, but you face less financial risk and have a better chance of success. If your flip doesn’t sell for enough profit, however, you may have problems paying off the loan.

You should also be aware of tax implications before you buy and sell. Especially consider the impact of short vs. long-term capital gains tax rate and whether you can qualify for the homeowner tax exemption.

How to Save Money When Using a Mortgage for a Fix and Flip

If you're using a mortgage to buy a home, you're going to want a real estate agent in your corner — it doesn't cost you anything, and the seller will pay for your buyer's agent fee with their closing costs. Even sellers who sell for sale by owner (FSBO) understand that they need to offer a buyer's agent fee when marketing their homes.

If you're buying an investment property with a mortgage, use a company that offers cash back at closing so you have some money in your pocket for repairs. We recommend our friends at Clever Real Estate, which can get you up to 0.5% cash back on your home purchase in 41 states and Washington, DC.

Here's how it works: Clever is a nationwide low-commission brokerage that partners with top-performing, local agents who can help you find a fantastic investment property in your area. Clever will match you with up to three pre-vetted agents. You pick the one you love the most and they'll negotiate on your behalf to get you the best deal possible. If you close on a home sale of at least $150,000, you'll get 0.5% cash back.

Buying with Clever is that simple. On a $250,000 house, that's an extra $1,250 in your pocket for repairs and renovations — just for using a Clever agent.

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Hard Money Lenders

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Unlike traditional mortgage lenders, hard money lenders are more concerned about the quality of the property you’re buying than your income or credit score. Typically, these individuals or investment companies have a short payoff time —anywhere from a few months to three years — for the loans they offer.

The asset is used as collateral for the loan, so its value determines the loan amount. It’s beneficial because they let you finance repairs as well, and that amount can be included in the loan amount. However, it’s often considered a loan of “last resort” because the borrowing cost is higher than financing through banks or government lending programs. Expect to pay interest rates of 8-15%.

Waiting for approval from a traditional lender can result in you losing out on a property you want, while hard money loans can be faster to secure. It might be a good option as a bridge loan to get financing quickly when making a cash offer for a property.

How Hard Money Lenders Work

Hard money lenders have their own, differing eligibility requirements. Typically they'll have minimum property values and some kind of income verification requirement, depending on the product offered.

Most hard money lenders will only fund a certain amount of a home's ARV, typically 70-75%.

A home that was purchased for $150,000 but will be worth $200,000 after $50,000 in repairs has an ARV of $200,000. A hard money lender might finance a maximum of 75% of that $200,000, or $140,000.

Some hard money lenders offer 100% financing cash-to-close, but be wary. Hard money lenders are unregulated, so be absolutely certain you understand their terms before signing any agreements and watch out for predatory deals. If possible, hire a lawyer to look at any contract you sign.

Private Money Lenders

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Private money lenders share some similarities with hard money lenders, but they are not necessarily investment companies. They are often individuals, like a real estate enthusiast, friend, or family member, who are willing to lend the entire purchase amount plus repair costs.

Private lenders can help you close a real estate deal quickly because they have available funds but not the time to work on flipping houses. They lend you money and wait for you to sell the house, and then they collect a piece of the profit — in addition to any loan payments you’ve made to them.

Private money lenders are difficult to find. They don't advertise, and you can only find them by word of mouth. You’ll likely need to be a savvy negotiator to ensure you don’t end up with the short end of the stick.

Wholesaling

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Wholesaling real estate is a different approach to flipping houses. Wholesalers don't buy properties themselves. Instead, they find potential properties and connect sellers to buyers for a fee.

To wholesale successfully, you need a network of reliable investors who are looking for house-flipping deals but don't have time to ‌scout for properties. That’s why they’re willing to pay a wholesaler to do it for them.

As an intermediary, you contact the property owner and offer to buy the property. Then you reach out to your network of investors and offer to sell them the contract for more than you offered the owner.

How Wholesaling Works

Wholesalers never take ownership of the property. Instead, they sell the contract they worked out with the homeowner. Generally, it’s less complicated and risky than investing, but the profits are lower.

Suppose you live in Tampa, Florida, and want to start a wholesaling business. First, you would go to real estate investor groups and meetings, make contact with buyers, and let them know you’re a real estate wholesaler.

Once you've developed a network of buyers, you drive around Tampa and the surrounding area and scout for good potential buys. If a certain property you’re interested in isn’t actively on the market, you can use public data to look up the owner's contact information, or drop them a letter in their mailbox. If you can get in contact with them, let them know you'd like to make a cash offer for their house, and negotiate a deal — let's say for $90,000.

After you and the homeowner sign the contract, you reach out to your buyers and offer the contract. A buyer agrees to buy the contract at $100,000, because they know move-in-ready comps in the area sell for $250,000.

Finally, you assign the contract to the buyer, your buyer pays the homeowner, and you take home the difference. In this example, you would make $10,000.

You'll want a lawyer's help to draw up the contract. And you'll want a contingency clause which gives you an out if you can't find a buyer for the property within a certain timeframe.

Seller Financing

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Seller financing is another possible strategy for house flipping with no money. The owner/seller holds the mortgage, so you owe the borrowed money to the seller rather than a bank or mortgage company.

You’re likely to pay more than the house’s selling price, because the seller earns a premium on the money they lend you to purchase their property. Additionally, finding willing sellers can be challenging because most homeowners want to sell their property and be done with it. Seller financing ties them to it for several years while they finance your purchase.

Seller financing lies outside of regulation, so loan terms and interest rates depend on the seller. Generally, expect to pay higher interest rates with shorter loan terms, like three or five years. After the loan term has concluded, a balloon payment may be due. If you don't have the money by then, the seller may repossess the house.

Usually, sellers require a substantial down payment. But since each seller is different, you may be able to find one who is willing to sell with no or little money down — but it might take a while.

Seller financing can be a speedy way to buy a home since only the buyer and seller are involved, and seller financing means fewer closing costs since you won't have to pay things like loan origination fees. All paperwork should be handled by a professional.

While seller financing can be a good deal for the sale, buyers must use their own cash for repairs or renovations, or borrow it from another source.

Tips for House Flipping Beginners

Before you jump into starting a house-flipping business, conduct due diligence.

  • Do the math. Don’t buy more house than you can afford. Be sure to consider other costs like closing fees, taxes, insurance, HOA fees, and utilities.
  • Location: Buying a home in the right neighborhood makes all the difference when you want to sell or rent it out.
  • Make the right repairs. Don't do a kitchen remodel if some paint and hardware replacements will do the trick. A fixer-upper may need costly infrastructure repairs like fixing leaks, a cracked foundation, or outdated wiring, or replacing the roof or AC unit. Always get a home inspection so you know what to expect when you take ownership.
  • Use a buyer's agent. If you're buying with a home purchase loan, the seller pays for the buyer's agent fee. A good buyer's agent will help you get the best deal possible and steer you away from buying a lemon. Our friends at Clever can match you with top rated buyer's agents who can get you cash back in 41 states!

Is House Flipping Right for You?

House flipping might be a good investment strategy if you:

  • Prefer tangible investment property over stocks, bonds, and mutual funds
  • Enjoy the physical work of improving a home
  • Have good credit and manage cash flow diligently
  • Are very familiar with the local real estate industry and consider yourself a real estate expert
  • Have a high risk tolerance in case the market turns and you cannot sell the house immediately

If you're looking to buy a house to flip but have limited funds, go with a brokerage that gives you cash back at closing (if your state allows it). Our friends at Clever can get you 0.5% cash back after closing for home sales of at least $150,000 in 41 states and Washington DC.

Clever is a nationwide brokerage that can match you with top-performing, local buyer's agents who can help you find the perfect investment property. Clever is free to use, too — all you need to do is match with a local agent, find a property to buy, and you can get up to 0.5% back in 41 states. On a $300,000 home sale, that's an extra $1,500 in your pocket for repairs and renovations!

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Recommended Reading

FAQs about Flipping Houses Without Money

How do you flip a house without any money?

If you want to flip a house without any money, your options are: 0% down loans (for a live-in flip), hard money lenders, private lenders, wholesaling, and seller financing. Read more about how to flip houses when you're strapped for cash.

How can I flip houses with no money and bad credit?

If you're lacking money and have poor credit, your best bets would be: wholesaling, hard money loans, finding a private lender or using a 0% down mortgage for a live-in flip. Read more about these options.

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Posted in House Flipping, Real Estate Investing