Fix and flip is my bread and butter. Its what I love and I find the “cut and thrust” so to speak, exciting! I thought, given a lot of enquiry regarding this strategy this week I would use today’s training piece as an opportunity to show how it can be down without having large sums of money to invest. If your looking for a passive way of generating income, then fix and flip is NOT for you, but if you don’t mind rolling up the sleeves and getting on the front line, there is not too many better strategies out there!
Now, this article is from an American Flipper – Danny Johnson, known in the US as the Flipping Junkie, but a lot of what he says is still relevant to us. Bird dogging and wholesaling can be a little more difficult without being “on the ground” so to speak, but certainly not impossible. Enjoy!
5 Ways To Flip Houses Without Much Money
Flipping houses is not just about buying a fixer-upper, rehabbing it and selling it retail to someone that is going to live in it. This is what is shown on all of the TV shows, but it’s not the only way to do it.
The first three of these are ways to flip houses that way, but the last two are ways to flip without actually taking ownership of a house. This should interest you as it allows you to make money flipping without the risk and without having to fix up the houses. You probably won’t make as much, but for the effort they really can’t be beat.
1. Partner and Split the Profits
You could find a money partner that would be willing to put up the money for the flip and take a portion (usually 50%) of the profit. This person normally is a mentor and can help you through the deal.
Investors willing to do this are everywhere but are not always easy to find. Nor are they usually easy to convince to work with you, especially if you are new. A great place to look for investors willing to do this is at your local Real Estate Investor Association meeting. (or for us Aussies, your local US Property Investors Network meeting! )
Now you will want to show that you’ve done most of the preliminary work and learned the basics. Most will also want to see that you’ve found some leads and are actively working toward landing a deal. You need to show that you are willing to do whatever it takes to make this business work. They want to see that you have a burning desire and that nothing is going to stop you. Try very hard to not seem that you are begging them to work with you or are needy. Do not go around complaining about the problems you are having. Please don’t do that.
You will likely be expected to find the deals (don’t worry, I’m going to show you some inexpensive marketing tactics later in this post) and handle the rehab and resell. Usually, the money partner/mentor will walk you through all of this, which is priceless.
I highly recommend trying to get in the business this way. You don’t have to start here. You can work some of the other methods first and then be in a better position to attract a great mentor that is willing to put up the money or help you find it.
2. Use Hard Money
Hard money lenders are everywhere as well and are willing to lend money on investment properties. Many will fund the entire purchase and cost of repairs if the numbers work. The terms just depend on the lender. Never ever go with the first one that says yes to you for a deal. You need to find the one with the best terms.
Hard money is called ‘hard’ because of the cost of the loan. It’s usually quite a bit more than a normal loan from a bank. It’s not unlikely to find lenders wanting 5 or more points (a point being 1% of the loan amount paid up front) and 18% interest. Of course you could also probably find 1 point and 12% interest, which isn’t that bad.
Some will want you to have skin in the game, but not all of them. This is a great way to get started even if it does cost more. Once you have a track record, a lot more doors will open.
3. Use Private Money
Private money is where you get loans from private individuals. These can be friends or relatives or just other people wanting a better return on their money than they are getting in the stock market.
Private money is a method best approached after you’ve gained some experience. It can be very difficult to convince someone to let you borrow ten or hundreds of thousands of dollars when you don’t have a track record. It’s not impossible though. Nothing is.
4. Bird dog
This method is one of my favourites. With just a few phone calls, you can make several thousand dollars. Who wouldn’t like that?
The process is simple. You get a lead on a deal (usually directly from motivated sellers) that has potential and you bird dog this lead to another investor. The other investor contacts the seller and attempts to strike a deal. If they buy the house, they will pay you whatever you requested as your ‘finder’s fee’.
The fee is usually a thousand dollars, but you can ask whatever you want, within reason. Some people have offered as much as $3k-$5k for bird dog leads that they’ve bought.
You will need to find experienced investors that do a lot of deals. You don’t want someone that will not likely be able to put together deals or get overwhelmed with just a couple. I just have a few that I send all of my bird dogs leads to. I trust them and they make a deal when a deal is possible. They act quickly and keep me informed as to what is happening.
I keep a simple spreadsheet of the property address and who I told about the lead, along with the sellers name and phone number and the amount I requested for the lead. On occasion, I call sellers of properties that didn’t go anywhere and find out if they sold them. This is to make sure I’m always being paid when I am supposed to be. If the investor buys the house, they will send you a check for your fee. Not bad for so little work.
You’ll want to make sure that there is motivation from the seller to sell at a discounted price and that they have some equity. If they can’t sell it for as low as an investor would need to buy it for, it would just be a waste of time.
Be aware though, that some people consider this acting as an agent without a license. They view it this way because you are bringing a seller and a buyer together. You can view it that way if you want.
I haven’t heard of anybody having any trouble bird dogging before. I’m merely selling leads. So whatever.
Wholesaling houses is one of my favourites. This is where you take it one step further than bird dogging. This is where you find the leads, make an offer and actually put the house under contract.
You then assign your contract to another investor for an assignment fee. You can download an assignment contract on the house flipping resources page. Once assigned, the new buyer is then obligated to perform under the terms of the contract. All you do is wait for them to close and receive your check.
Because you are doing more work, as you are actually negotiating and putting the house under contract, assignment fees are generally a lot bigger than bird dog fees. Typical wholesale fees go from $3,000 to $8,000. Many people are consistently getting $10,000 to $20,000 and some are even landing $50,000 or more on a wholesale deal. I like those numbers!