It’s a question I hear all the time… how do you find money to buy and fix the houses you flip? After all, if you’re going to flip a house, you better be ready to spend a lot of money… right?
Not having “enough money” is one of the biggest obstacles new investors struggle with. But it doesn’t have to be an obstacle at all. You don’t need to have tens of thousands of dollars of your own money to spend if you want to get into this business. There are many ways to fund deals… and many professional investors rarely use their own money, if ever.
So, how do the pros do it? Where do they find money for fixing and flipping? Let’s find out…
I asked 19 active, professional investors, “What’s the #1 method you use to finance your investment properties?” You might notice something interesting about their responses… maybe finding funds for flipping is more straightforward than you might think. 🙂
Check out their replies!
Private money is where it’s at. Using private lenders allows you to move quickly and avoid having to obtain appraisals and jump through hoops. Private lenders will also usually give you much better terms than hard money, as most of the private lenders I’ve used are very happy with the return they get (it’s much better than stocks, and much safer in my opinion as well).
My typical private money loan will be for a term of 12 months (though I usually pay them within 6 months) and are about 10% interest. Sometimes I pay interest-only monthly payments and sometimes I pay everything when I pay off the loan (no payments… how cool is that?).
How do you find these lenders? What I did was got the addresses of houses bought on the MLS that were completely run down and weren’t bought with cash (If you’re looking for investor buyers, get the addresses of the houses that are bought with cash). I then cross reference those address with county records to see if there is a deed of trust filed the same day the property was bought. This will show who the lender was.
After looking through dozens of these, you will start to notice some of them over and over again. These people are who you want to contact.
But, a special warning about contacting people about lending on your deals… follow SEC guidelines. Check with an attorney, as I am not one and I’ve never claimed to be one. What I understand is that you cannot advertise specific deals and numbers when making contact. Keep it to one lender per deal.
When you make contact, simply let them know that you are a real estate investor and would like to meet them for lunch to discuss your business.
This is where it’s best to have a proven track record. If you’ve never done any deals, it will be pretty difficult to have people want to lend money to you. I recommend either partnering with a local seasoned investor, doing all the legwork and letting them put up the money and splitting the profits. Or, you could use hard money for the first several deals.
Danny Johnson has flipped hundreds of houses over the last 12 years in San Antonio, TX. He blogs about flipping houses at FlippingJunkie.com and has a best-selling book on Amazon entitled Flipping Houses Exposed: 34 Weeks in the Life of a Successful House Flipper. He also provides real estate investor websites at LeadPropeller.com. And he’s Justin’s bestest friend in the whole world. (Ha ha, Danny wrote this bio himself… thanks Danny! Love ya, man! – Justin)
My number one source of financing is private money lenders whom I’ve met through my networking in business as well as living my life. If we ever find ourselves in a position with more deals than private lenders and we are on a tight timeline, we will use hard money lenders. We have never lost a deal due to lack of money. My favorite hard money lender is Ken Starks at Civic (www.CivicFundsDeals.com, 714.328.4475). He has the best pricing as of this writing, works super-fast, and funds in many states.
If you find a good deal, you should be able to find the money for it. If you’re new and don’t have enough of your own money to put in a deal to satisfy a hard money lender, consider bringing a private lender in to cover the down payment and construction costs. A commonly used split is to offer that lender (sometimes called a gap lender-because they are filling the “gap” of the down payment and construction costs) a 50% profit split of what’s left after all costs are paid.
I have personally provided gap funds and created a total win-win opportunity for investors who have no cash to put in a deal but still benefit from the profit split. Their return on investment turns into infinity!
Holly McKhann is a full-time real estate investor and works with her husband Scott, having done over 200 fix and flips together in Southern California over the past seven years. Holly began her career as a CPA, working for Ernst & Young. She also earned an MBA in finance. Scott is a registered civil engineer with a decade of experience at public home builders. Their blend of expertise and experience has attracted multiple investors, allowing them to expand their business. You can check out everything they’re up to at HouseFlipMasters.com!
Holly and Scott love working from home and enjoying their freedom as entrepreneurs. They have been married 24 years and have 4 children ages 13, 15, 18 and 21. They live in Dana Point, CA and flip homes all throughout Southern California. Holly is a member of the House Flipping Formula coaching program.
For my flips, I use a hard money first trust deed and a private lender second trust deed. The hard money usually covers 80-90% of the purchase price, and the private money will cover the balance plus some of the rehab cost. Both trust deeds are recorded in escrow with proper insurance. For rental properties, I use a commercial lender. But I am not buying rentals right now – unless some screaming good deal jumps out at me, I am saving cash and waiting for the next California down turn to buy more rentals.
Kristi Cirtwill is an active real estate investor who has purchased over 125 properties in the southern California area to flip and hold since 2008. She lives in Cerritos and hosts food nights and plays music in her spare time. To connect with Kristi and check out some of the incredible rehabs she’s done, head over to Cirtwill Investments Inc! Kristi is a member of the House Flipping Formula coaching program.
We purchase all of our properties with private money. We have raised $5 million to use for purchase and rehab costs. It has taken time to develop these relationships. The key is to be prepared. Have a private lender package that goes over your program, terms, business model etc. We have a professional package we email or mail out to prospective investors that includes a commitment form. Today we just send our package out to potential investors and because of our credibility and posture, the commitment form comes back with how much the investor wants to invest. We now have a minimum of $100,000 but in the beginning we would raise minimum of $25,000.
Shawn Wolfswinkel has 15 years of experience in Real Estate. He purchased his first investment property at the age of 19. Since then he has bought and sold over 700 properties. He has continued his training every year, attending numerous seminars and educational functions to strengthen his expertise in Real Estate. He has been educated on wholesaling property, pre-foreclosures, rehabilitation and contracting, leasing and management, owner financing, Commercial real estate, financing, contracts, and state laws. He currently owns 28 personal rental properties, buys and sells 100 homes a year through his Turnkey Company, TexasTurnkeyProperties.com, and manages 700 properties through his Management companies, Real Property Management Preferred located in Houston, TX and Real Property Management Albuquerque located in Albuquerque, NM.
My own cash, private investor funds, and seller financing.
Andy McFarland is a self-made real estate entrepreneur who started with nothing and currently makes seven figures a year in his real estate business.
After getting fired from his last W-2 job in 2004, Andy went into real estate full time and has never looked back. Andy currently focuses on wholesaling properties in three different states; Utah, New Mexico, and Indiana. In 2015 alone, Andy did over 150 wholesale deals. You can follow Andy on his real estate journey by going to his website: www.iloverealestatestories.com or on his YouTube channel by searching for I Love Real Estate Stories. Andy is a coach along with Justin Williams in the House Flipping Formula and 7 Figure Flipping programs.
For equity, I raise money from investors. For debt, I use a mortgage broker.
From being the youngest vice president of a New York City ad agency to creating a company that in 6 months controlled over $7,000,000 of property, Joe Fairless lives up to his Fearless Fairless nickname. He’s the host of the popular podcast, Best Real Estate Investing Advice Ever show where he’s interviewed Barbara Corcoran and Robert Kiyosaki.
He currently controls over $21,000,000 in real estate and consults investors who want to raise money and buy apartment buildings. Go to www.joefairless.com to get your free real estate investing crash course!
Our number one method is primarily hard money lenders that we have good relationships with, as well as private lenders.
Gabriel lives in Miramar, FL, and invests in Miami Dade, Broward, and West Palm Beach counties. He’s been investing since 2012, and is currently focused on rehabs and wholesales. He finished off 2015 with about 50 completed transactions and is aiming to double that in 2016. Check out Gabriel’s website, FloridaCashHomeBuyers.com, or connect with him directly on Facebook!
Dave Payerchin is co-founding partner of Columbus Turnkey Houses and a Licensed Realtor with Shoreway Realty group in Ohio. His specialties are networking, raising capital, system automation, and developing/maintaining relationships. Dave has formal training in several facets of real estate investing and has been successfully closing real estate transactions in several states (including Ohio) since 2005. Prior to joining Columbus Turn Key Houses Dave worked as a real estate trainer and professional speaker. His hobbies include rooting for the Cleveland Browns & Cavs, rooting for The Ohio State Buckeyes, spending time with his parents and his 7 nieces and nephews.
Cory Boatright is a social connector who believes in servant leadership. He’s a serial entrepreneur and founder of Real Estate Investing Profits and Phenomenal Results Coaching. Between himself, his teams, and his students all over the world, he’s bought and sold over 75 million dollars in real estate by completing over 1000 real estate transactions.
Today he coaches high achieving entrepreneurs and their teams to getting phenomenal results in their businesses. Fast Company Magazine, The Wall Street Journal, and even Harvard University are among a few leading organizations that view him as a thought leader and visionary. Cory’s biggest success was beating Thyroid Cancer. Today he’s using the life lessons in what he learned to inspire, impact and serve others at The GrafefulProject.
Equal parts hard money and private money.
William has been investing in RE since 2003 and has performed 11 rehabs, 5 wholesales, and 2 buy and hold deals. He lives and invests on the Central Coast of California, in San Luis Obispo County and the surrounding areas, where home prices range between $400k to 600k or more. Properties vary widely from upscale coastal areas, horse county, wine country and rural. His primary focus is rehabs. Check out his site, http://www.williambuyshouses.com/. William is a member of the House Flipping Formula coaching program.
I am a wholesaler now. Since I double close all my properties that isn’t an issue for me. When I was rehabbing I used an investor-friendly bank for all my deals. Today with the tighter lending requirements I would probably use private money. Hard money is just too expensive.
Sharon Vornholt is the owner of Innovative Property Solutions in Louisville, KY. She has been investing in real estate since 1998 and has been a full time wholesaler since 2008.
Sharon is the creator of the Louisville Gals Real Estate Louisville Gals Real Estate Blog and the popular podcast “Let’s Talk Real Estate Investing”. She is also mentor and a coach who loves teaching others how to succeed in this business. You can find out more about her at LouisvilleGalsRealEstateBlog.com.
Doug and Andrea Van Soest
We primarily use private lenders. We love working with private lenders because the terms are flexible, funding is simple, and we can help make money for friends and family.
Doug is a former appraiser and his wife Andrea is an interior designer and licensed realtor. They began flipping houses in the Inland Empire area of Southern California in late 2008. They quickly transitioned to flipping houses full-time and have been fix-n-flipping, wholesaling, and buying rentals all over Southern California ever since. They are currently doing about 5-6 deals per month and just started a podcast called Spouses Flipping Houses.
For sure it is a network private money lenders. We have great working relationships with individuals who want to make good and consistent returns on their money and are satisfied with the returns we’ve been providing.
Randy Lawrence is an indomitable entrepreneur with over 24 years of experience and four successful real estate investment companies. He is also a pastor and founder of multiple life changing ministries and in the last 15 years has impacted over 40,000 people. He has been featured in the St. Petersburg Times, Tampa Tribune, and seen on CBN, NBC and CTN as the “Transformation Expert” focused on transforming lives. Randy is also the host of the Real Estate Preacher Podcast.
Hard money is my #1 financing method. I have very little private money available and plan to increase that as my portfolio increases over time to share with potential private capital partners.
Alex Bejenaru is a lifelong Southern California resident living in Yorba Linda, CA, with his wife and 2 kids. He started his flipping business in February 2014 as Premier Pacific Properties, LLC (webuysocalhomes.com), and in 2015, he quit his full time gig as a residential loan officer to be a flipper full time. In 2014 he bought 2 flips and is finishing up 2015 with an additional 9 flips completed and 2 properties wholesaled.
Private money or local banks. But I love wholesale deals, because there is no financing needed!
Andrew Herrig lives in Dallas, TX along with his wife and daughter. He has been investing in the DFW market since 2013 when he bought his first rental property. Andrew is primarily focused on his wholesaling business, but also flips and has a growing portfolio of rental properties. He has done 11 deals in the past two years, and is looking forward to scaling his business in 2016 and beyond! Check out his website at http://www.andrewbuyshousesdfw.com. Andrew is a member of the House Flipping Formula coaching program.
RJ is an experienced real estate investor who has closed over 150 real estate transactions and co-founder of Columbus Turnkey Houses. He is an expert in the Columbus market. He has had formal training in deal structuring, creative financing, and other residential real estate areas. He received his BA in Marketing Management from Youngstown State University in 2005. RJ attended Youngstown State University on a full ride tennis scholarship where he played #1 Singles and Doubles all 4 years. His hobbies include tennis, photography, Cross-fit workouts, and guitar.
I don’t need financing because I am in a market segment where I can buy land for under $5,000 and thus can self finance.
Jack Bosch is one of the Country’s foremost experts in Tax Delinquent Property Investing and more recently an educator in Real Estate Investing. Since 2002, Jack has been buying and selling mainly unimproved land and has completed more than 3,203 land deals. Learn more at JackBosch.com.
My top financing method is private lenders. I’ve received money this way for 2 years.
Tom has been investing in real estate for 13 years. A former Catholic priest, he is married with 2 teenage sons and flips houses in the Chicagoland area. Tom is a member of the House Flipping Formula coaching program.
Hard money. Over the years as a wholesaler I’ve sold multiple deals to end buyers that have used HML. Which allowed me to gain an inside look to lenders financing abilities and cost. So naturally I have built relationships with HML to get special rates that aren’t typically advertise to the public. Although hard money isn’t as cheap as private money, it does have its benefits; for example, I’ve been given the privilege to list foreclosed deals that other investors lost; no learning curve (teaching private lenders); less selling (begging them to believe this is a good deal or making sure that the timing is right in their life to make another investment); having the 2nd look from an outside party (the only private lenders I have now will fund anything I give them, where as with HML I’m not always the smartest guy in the room and I get to see the deal from another prospective).
Delon Hall is a fix-and-flipper in Atlanta, who in 2016 will attempt to take on Chicago and Orlando as well. A wholesaler since 2008, Delon is also a buy and hold investor with 3 properties in NW Indiana, 2 in Chicago, and a package deal in the works in SW Atlanta. He is also a licensed agent with a team of 2 staff and 3 agents. Delon is a member of the House Flipping Formula coaching program.