Having the cash-on-hand to buy a dilapidated house and renovate it into a profit-generating dream home takes much of the financial strain off a house flipper's shoulders. But what about that hard-working person who possesses the skills and expertise but lacks money?
Does the mere fact someone doesn't have the cushion of a large bank account prevent them from building a successful fix-and-flip business? Not necessarily.
Although people who enter the industry with cash to spare may have an easier go of it, everyday Americans can roll up their sleeves and leverage a wide range of financial resources to launch a start-up enterprise. These are ways a determined individual can create an opportunity for themselves with little cash-on-hand.
People in the construction and real estate sectors gain valuable experience about the methods and costs associated with house flipping. That knowledge can prove a valuable asset in business. Upstart house flippers can reach out to people with investment capital and broker a deal. One or more parties usually put up the money, and the other sees the project through. It may be worth considering entering into agreements on a house-by-house basis. As the person with the industry knowledge, forming an LLC or other corporation type could limit your freedom once you have cash-on-hand.
These resources typically charge high-interest rates, as well as points, for relatively short-term financing. They generally offer borrows more flexibility and larger sums than traditional banks. A hard money lender may provide a house flipper with all the funding necessary to make the initial purchase, complete all the renovations, and bring the property to market. Some form of collateral usually secures the loan. In the house flipping sector, the lender may place a lien on the property to ensure it can recover the investment. From the upstart house flipper's perspective, that can seem fair given you gain an opportunity to launch a business.
This can be a type of backdoor into the house flipping world. Look for blighted buildings that could bring a hefty profit if restored. Ask property owners to do a walk-through and develop a cost estimate of potential rehabilitation. Evaluate that number against the anticipated resale price and craft a proposal. If the numbers make sense, you could offer your renovation knowledge and sweat equity. The property owner would be responsible for financing the costs out of pocket or borrowing against the house's equity. The seller probably understands fixer-uppers languish on the real estate market and rarely bring a decent return. But when the house has been renovated, you can split the profit and move on to the next project.
This practice involves groups of people pooling small amounts of money to invest in projects and businesses. These non-traditional lenders earn interest on the money and enjoy wide-reaching flexibility about how its deployed. Persuading people to invest in your venture usually requires a concise business plan that demonstrates a secure return on investment. Although crowdfunding efforts can be time-consuming, they deliver an opportunity to get into the house-flipping sector without significant cash-on-hand.
