Fix and Flip Loans Bad Credit – House Flip Central

Flippers who are just starting out or inexperienced flippers may struggle with securing funding for their first purchase especially if they are unable to apply for credit, have bad credit, cannot apply for short term loans and do not have a large income to accommodate. Flipping a house requires money to purchase the home, pay taxes, insurance and to perform the repairs and sell the property.

The first time flipper can provide the sweat equity and do the physical labor but still needs to find funding to make the purchase and pay for repairs. This will require finding a lender such as a hard money lender or a partner willing to finance but not provide labor.

Can you start flipping houses with no money and bad credit? Yes, the flipper can request a short term 100% hard money loan, work out a owner financing or partner with an investor that provides the money and splits the profit with you and your crew.

Flipping a house with bad credit and no money requires using other people’s money to finance the purchase and repair needed for each deal. There are a few commonly used techniques in the Real Estate industry for accumulating capital and acquiring property.

What Is A Hard Money Loan?

Hard money lenders lend money at higher interest rates for short periods of time for purposes such a fix and flip. Interest rates will vary and some ranges have been as wide as 8% to 15% depending on the loan to value and experience of the investor. For some hard money lenders the loans may also include points that can add another percentage point.

Hard money lenders will require no personal guarantees, credit checks, tax returns or bank statements to apply for a loan. Many direct lenders will have programs for first time flippers and can help with funding the right first property.

Loan terms will be 6-12 months in most cases with a limitation on the total amount borrowed. For example you get $100K for a first time flipper and $250K for the 2nd house to be flipped etc. This usually increases again as you provide more successful flips and prove you are capable of finding and completing flips. Google provided a few websites for Hard Money lending, but there are more:

The key point to understand is this type of loan is expected to see a return quickly and they are looking for motivated and skilled entrepreneurs. Thats why the loan is usually 6-12 months long. This is also the best way to use other peoples money instead of your own money and credit.

What Is A House Flipping Partnership?

Taking on a partner as the investor or money side of the flip avoids any credit and income questions. A private equity partner may fund the entire project and split the profits when the property is sold or they might charge a high interest rate over a short term such as 4 or 6 months to a year. This is similar to the hard money lending loan but is more common with individuals.

As an example, considering a $100K loan @ 10% APR, the investor will see $5-10k depending on how long the property takes to rehab and sell. This profit comes without providing any physical workload, just financial help. The flippers responsibility is to provide the physical labor to complete any rehab.

Another option is to offer the partner a split on the profits instead of just providing the loan. Using $100K again we end up purchasing the property for $90k, spend $10K on repairs and sell the house for $130K. I this case both partners will profit $15K which is more than the investor would have in the above scenario using the same amount.

When discussing this type of partnership it should be decided in the beginning what responsibilities each partner has before moving forward. It might be necessary to split the profit differently since 1 party is doing more of the labor. Although an investor will be more willing to participate if they know they are only need to provide financing.

What Is Owner Financing?

Seller or owner financing is where the seller agrees to finance the full price of the home and repairs or just the repairs using their own credit and/or equity in the property. Basically, the seller allows the buyer to make monthly payments on the property possibly with interest until it is fully paid off or the term of the seller loan ends.

This type of financing is attractive because there is no bank, credit check or income requirements for the flipper. The seller will need to use their own credit and maybe equity in the property to retain the loan so the buyer will need to provide a down payment and promissory note to be paid to the seller.

If there is equity in the property it offers some room to pay for the repair costs without using any out of pocket money. The deal can be structured many different ways depending on equity and how motivated the seller is.

With owner financing both parties should consult a lawyer that specializes in Real Estate contracts to work out the details and structure an agreement properly.

What Is Wholesaling?

Wholesaling is finding well priced homes that can be easily flipped for a profit. The wholesaler negotiates a selling price with the seller and then “flips” the property to the investor who actually purchases the property, fixes and sells it.

Wholesalers can work this process without spending any money out of pocket or ever needing to request a loan and a credit check. This method can be a good way to learn flipping with no money down and multiple flips can be done at the same time.

One of the cons to this process is that the real estate investor will make less money using this process as opposed to flipping the property themselves.

Should I Ask Family?

Another source of funding that will not require a credit check or copies of your income statements are loans from family members. This can be direct family or Ants and Uncles who have always been ready to listen to your money making pitches.

The first flip may not need a large amount of money to complete the deal. Brothers or Sister in-laws might have property that they will donate to help you get started. Selling property is a common method of building capital when starting out in any business.

Family may also be interested in participating directly and providing more than just financial assistance. It’s also possible to borrow from a retirement accounts or insurance policies.

Does The Government Have Grants?

Some municipalities and states have been setting aside money to help with redeveloping certain areas. They are granting money to people who are interested in improving the communities within their area. This process may require some paperwork and multiple properties but can be a source of financial support and you can search for grants online.

The house flipper will need to develop and show their plan for improving houses and how this will be beneficial to the community. They will need to write an executive summary that clearly defines how the improvements can be made. This is presenting to people who may not understand what flipping a house is.

Suggestions

Join a real estate investment group in your area to connect with other investors and network with people who are willing to provide loans and financial assistance.

Connect with Real Estate agents in your area. They have access to the MLS and can help with finding new properties to flip.

Partner with individuals with a similar entrepreneurial spirit and skills that can help save on contracting costs. Keep going you will gain more experience from these first flips and the profits can be used for future purchases.

Try searching for properties and actually working out the numbers for different house flipping scenarios. Use the many online tools to find possibly opportunities and scale out the house price, repairs and re-listing.