What I’d like to shed some light on how to start a house flipping business where you are rehabbing and selling real estate investment properties.
There are 3 parts to the Single Family Triad™:
1. Wholesaling Houses
2. Rehabbing and Selling Houses
Now, when most people think of flipping houses, they think of #2 – Rehabbing and selling houses. If you’re completely new, I’ll usually guide you towards wholesaling houses first because you can get in with little money, no credit, and ZERO risk.
Then, once you have a grasp on how deals work and you have some nice profits in your pocket from multiple deals, I’ll migrate you into rehabbing and selling houses which yields much larger profits.
That way works well for a lot of people because their comfort and confidence increases as they make profits. It makes complete sense. Now, I’m not saying that you MUST start off wholesaling. In fact, plenty of people jump right into rehabbing when they start. That’s totally cool.
Some people have a decent amount of capital and want to get rolling with bigger profits right away. Maybe you don’t have significant money, but you still want to get into rehabbing and selling because you’re ready for those killer profits of tens of thousands or more!
Flipping Houses & Hard Money Lenders
The other entry into it with little capital (besides the entry where you start wholesaling first and then jump in), is to use a hard money lender. I’ll expand on all of the details of these lenders in another post, but I want to roughly explain how they work.
These are private lenders (not banks) that lend you their capital on a “per deal” basis. They are less interested in credit score, and more interested in the deal, how much equity is has, how experienced you are at doing deals, etc…
Now, even if you’re new, they can still work with you, most prefer experience. Some of them require some type of down payment, but many don’t. I’ve been dealing with hard money lenders for many years, and if you use them wisely, you can build a serious empire. Hard Money lender rates are usually more expensive than traditional bank rates, but they get you into monster profit deals with little to no money out of your pocket.
How Does Private Money/Hard Money Work Investors
Here’s basically how it works:
1. You find a deeply discounted property to rehab and flip
2. You get it under contract at your nicely discounted price
3. Call your hard money lender and give them a copy of your accepted offer
4. You negotiate your terms (fees, interest, time frames, etc)
5. You close on it with their money
6. They escrow money for repairs and remodeling (you pay for some repairs up front, they reimburse you in a draw, then you pay for more, then they reimburse you with another draw, etc until the job is completed. Then you are into it for nothing out of your pocket.
7. You sell the property to a retail buyer and they get paid back at that closing and you collect your big PROFIT check!