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Investing in real estate is not something requires large amount of money. Actually, you can still invest in real estate without much of your own money, even 0% of your own money! That’s what we called 100% financing. Today let’s look at how to complete a fix & flip deal where you literally don’t bring any of your own money to the table.
What is 100% Financing
Let’s say you’ve got a deal with a purchase price of $100k, rehab at $40k, and loan costs at $30k.
What does it mean when a lender says that they’ll fund 100% of the purchase price? They’re most likely referring to 100% of the purchase price, or $100k.
But…you’ll still be coming with the rehab and loan costs, and you’ll be looking at $70k to cover those. Most lenders will also fund part of the rehab cost, but it’s still pricey to come up with the loan costs yourself.
What about 100% of the purchase & rehab? Is that 140% financing?
Or what about 100% of the purchase, rehab, and loan costs? Is that 170% financing?
The short answer is…yes…to all of those. It just depends on how you want to define it, and every company does it different.
For the purpose of this article (and how we define it for the loans we fund) is that 100% financing means covering the purchase, rehab, and the loan costs. In other words, you bring $0 to the table.
Now that’s out of the way…let’s talk about the 16 ways to get 100% financing and bring $0 to the table!
Hard Money Alone
I have never heard of another company offering complete 100% financing on your project, so if that’s your goal, then we can help you out.
However, I will tell you that it’s difficult to find a deal like that.
The hard and fast rule is that we’ll lend up to 70% of the after repair value (ARV) of the property. If all your costs fit, you’re golden!
So for an example:
Purchase price: $100k
Rehab costs: $40k
Loan costs: $30k
With those numbers, your ARV needs to be about $243k in order to bring $0 to the table (243k x 0.7 = $170k). You can see how that might be hard. In order to fund 100% of the deal, the lender is taking on ALL the risk. The deal has to be perfect because the borrower is less incentivized to stay and finish the deal—especially if they run into issues.
Any lender willing to lend all (or even most) of the deal is going to be more conservative in all their valuations, including the property price and estimating the rehab and after repair value. For example, we’re very conservative in which comparable properties our borrowers are allowed to use when submitting the numbers on a deal.
So…of all the 16 ways to get 100% financing, getting hard money alone to cover it is by far the most difficult. It’s certainly doable, and we have borrowers frequently bring us deals that qualify, but I strongly, strongly urge you to use other strategies along the way…here’s why:
- You’re going to step over quarters looking for dollars. On your way to finding those deals for 100% financing, you’re going to miss out on other good deals because they require money. Instead of skipping over a deal with $50k in profit because you need to bring $10k to the closing table, combine hard money with another strategy and get the deal done!
- Hard money is expensive. In order to take on risk and only lend money for around 6-9 months, interest rates have to be high. A traditional loan can charge 4% because they make boatloads of money over 30 years. With a hard money loan, it’s a lot of risk in a short time so interest rates are higher. Even if you find a deal that qualifies for 100% financing, perhaps only using it for 80% of the loan and finding another source of funding can save you a good chunk of change.
Makes sense? Good. Let’s keep going.
Renegotiate With Seller
Let’s take that same example from before:
$100k purchase, $40k rehab, $30k loan costs.
But you’re realizing that you can only get $238k in your estimated After Repair Value! Now, you can only get a loan for $167k ($238 x 0.7 = $167k).
Now, that’s still a great deal, right? You bring $3k to the closing table, and you’ve got a deal with tens of thousands in potential profit…but for this example, let’s say that you don’t have any money, not even the $3k needed to make this deal happen.
What do you do? Well, you can go back and renegotiate!
My biggest tip would be this:
Don’t hide what you’re doing. Sometimes I have investors that try to hide that they’re going to flip the house because they think the seller will be angry or will realize they could flip it themselves!
That never actually happens. The reason the seller is in that situation usually precludes them from having the time and/or money to flip the house themselves. Also, people are reasonable enough to understand business, and that you get a cut for fixing & flipping. By explaining the financial situation to the seller, they may be perfectly willing to lower the price by $3k in order to get the deal to happen. Something like this:
“So when I do a deal like this, I have to project at least 10% of the purchase price in profit or it’s just not worth. The risk is too high. Would be willing to drop the price by $3k?”
I actually have an extended member of my family who recently went back to tell a seller that he couldn’t do the deal because of the financials and he lowered his price by $50k! Needless to say, he made the deal happen!
Home Equity Line of Credit
In my mind, this is the easiest way to have your deal 100% paid for without using any of your own money!
If you’re unfamiliar, a line of credit means you have access to a certain amount of funds, but you only pay interest on the money that you withdraw! And what makes this strategy truly 100% financing is that you can actually use money that you’ve withdrawn to make payments and pay the interest!
Then when you complete your deal, you pay it off and you haven’t touched any of your own money. It’s brilliant.
It’s also nice to have a line of credit even if you don’t plan on using it for the project costs. This is because often there can be emergencies, or your rehab goes over budget. Having his money readily available gives you the peace of mind to be able to solve problems instantly.
With your home equity line of credit, you’re borrowing against the equity of your house. So naturally, you need to have some equity! You’ll typically need at least 15%-20% equity in your house. For example, if you’re house is worth $200k, you must owe no more than $170k to potentially qualify. You’ll also need a decent credit score, typically around 680.
But if you do qualify, it’s one of the lowest interest rate money you can get because it’s secured by such a good asset—your house.
Hard Money Loan + Home Equity Line of Credit
Of course if your HELOC is large enough, it’s actually a great way to fund your deal!
However that’s not usually the case, and you can fall back on a hard money loan funding most of the deal and then using your HELOC to make up the difference.
Here’s an interesting one that a ton of people never even think about!
Did you know that if you have a retirement account that you can usually borrow against it?
It makes sense—banks love to loan out money (so they can make money, of course), and they just want to see that you have reliable collateral. Money sitting in a retirement account counts. You are just borrowing against yourself, although some administrators will want you to pay back the money with interest.
You can often get these loans for six months to a year. And like a HELOC, if you have a big enough retirement account, you may be able to borrow enough to just fund your entire deal.
Hard Money Loan + 401(k)/IRA/Retirement Loan
Use that hard money as the sound foundation for your loan, and then borrow the rest from yourself!
Self-Directed Retirement Accounts
Alright, now we’re having some fun!
We’re getting into some of my absolute favorite wealth-building strategies. If you think real estate is profitable, wait until you can combine it with your Roth IRA account.
So, when you’re setting up a retirement account, you’re usually looking at a 401(k), which is through your employer, or an IRA account, which is for an individual. Most people set up standard accounts, meaning that your money is invested into a typical portfolio of stocks and bonds.
However, instead of going the standard route, you can set up a self-directed account. These are great because you can have more control over how that money is being invested. Typically you can choose a standard portfolio of stocks and bonds, or you choose an alternative investment, such as cryptocurrency, precious metals, and—you guessed it—real estate!
That means that you can take the funds in your self-directed retirement account and use it to fund your deal! Then your profit at the end goes straight back into your retirement account. Talk about having a nice retirement!
Okay…here’s the REAL secret…the thing that I love to do that grows my retirement account at an astronomical rate.
So, you can also choose between a traditional retirement account and a Roth. Here’s the difference:
A Roth retirement account means that you’re putting the money in after it’s been taxed. A traditional account means that the money goes in tax-free.
I’m a massive fan of Roth retirement accounts for these reasons:
- Roth accounts allow you to withdraw any contributions you’ve made to the account at any time! You can’t withdraw any earnings that your contributions have made, but the money you put in is yours. The way I see it, it’s like a bank account, except with incredible gains.
- Roth accounts even have some tax-free benefits for passing those accounts to your children. That’s a bit complicated, but it can be done…so if you’re interested, talk to a professional.
- Even though a Roth account is taxed up front, any gains you put in there will never be taxed.
That last one is perhaps my greatest wealth building secret.
I use my self-directed Roth IRA to fund real estate deals. Then when I profit on the deal, it all goes back into my Roth IRA account…NEVER TO BE TAXED, EVER. I mean, come on. That’s incredible and should be taught to everyone, everywhere! And I can still pull out my contributions at any time like a bank account! If you’re stashing money in your Wells Fargo account, just stop.
Hard Money Loan+ Self-Directed Retirement Account
Use your self-directed retirement account to make up what hard money won’t cover!
For this strategy, your seller will likely need to have a bit of an entrepreneurial/investment mindset, and not need the cash right away. This works very well with someone who owns several rental properties and is trying to offload one because of vandalism/tenant issues.
What happens here is that the SELLER is actually going to help you finance the deal!
Sounds a little weird right? They’re going to give you the money to buy their own house?
But it’s really just like a business partnership. Think of it as a friend of yours just lending you money for the deal…it’s just in this case the seller.
There are several ways to do this:
- They can lend you the entire cost of the property or just the percent that you’re lacking
- They can have you pay back a percent of what you borrow (like a traditional bank)
- They can ask for a percent of the deal itself. For example, you pay back the money, plus 20% of whatever profit you make.
- You can make interest payments along the way.
- Or you can pay it all back at the end after you sell the deal
Some of these strategies might seem a little tricky, but here’s a note I’d like to add:
A career real estate investor will use as many ways to fund deals as possible, depending on the situation. At first, you might use simple ones, but as you move forward, don’t be scared to try out as many as you can.
Then as you encounter different types of deals, you can pull a funding strategy out of your toolkit and use it!
- Maybe a friend finds a deal so you partner up for it
- Perhaps you already have a deal and another falls in your lap, so you wholesale it
- The seller is clearly well off and interested in investing, so you do seller financing!
Whatever makes the deal the easiest, makes the deal possible, and/or gives you the fewest headaches can all be determining factors in which 100% financing strategy you can use.
Hard Money Loan + Seller Financing
This is more common…if your hard money loan won’t cover all your costs, use seller financing for the rest!
Okay, so not a fix & flip strategy, but certainly one of the most popular flipping strategies out there!
If you’re unfamiliar, this means that you’re going to find a great deal, as if you were going to fix & flip it. Then you put it under contract (You’ll of course have done all the evaluations and rehab estimates so you know it’s a profitable deal). But then you assign the contract to another real estate investor and they pay you a finder’s fee!
So if you find a deal that might have $50k in profit potential, you can find someone else who goes and gets a loan and then pays you $5k or so.
Wholesaling is awesome because:
- No loan
- No rehab
- No contractors
- No deadlines
- No interest payments
- Fewer headaches!
You’ll make less money, but $5k for a week or two of work is still pretty incredible! In fact, with my Find-Fund-Flip System, our members bring us deals that they’d like to wholesale and we send it out to our list of real estate investors to help get it moved fast!
This is a company or an individual who will cover “gap” of what you’re missing. Just like the seller financing, you can arrange to pay back the gap financier with interest payments or with a profit split.
I’d also like to mention that you could be a gap financier as well! You don’t even need a ton of money to do it—even $5k to $10k can get you started. You don’t have to do anything, but you can earn 15%+ back on your money.
The trick of course is to find people interested in fix & flips, so online forums, groups, or even in-person real estate clubs can be good places to find them. A lot of this is happening on social media as well!
Deal Partner – Debt
Your deal partner will either be coming to the deal with cash or with good credit. If they’ve got the cash, then they can finance part of the deal or the whole enchilada! If they’ve got great credit, they can help secure a lower interest rate, or qualify for a line of credit themselves to use for the deal.
This obviously benefits you because you get the money you need for the deal. It benefits them because they don’t have to do anything and get a fantastic return on their money!
With this particular strategy they’re going to loan you the money as if they were a bank. That’s why it’s called a “debt partner”…they’re financing the loan and you pay back the agreed upon interest—whether that’s all at once or month by month.
Deal Partner – Equity
This is the same as the previous one…you’ll find someone to partner with on this particular deal who can provide cash, good credit, or both!
The difference is that instead of loaning you money, they get repaid by having equity in the deal. For example, let’s say that they loan you $10,000, and you agree to split the profit 50-50 (that’s a pretty common split, especially for a new investor). Then upon resale, let’s say there is $50,000 in profit. Your partner gets back the $10,000 so the debt is squared off. Then you split the $40,000.
You get $20,000 for doing the hard work of finding, rehabbing, and selling the property. They get $20,000 for being your partner! It’s a great deal for them…in around 6 months’ time, they risked $10,000 and got back $30,000. If that’s the way it works out, that person will be itching to partner up with you again on your next deal.
Formal Business Partner
This is fairly similar to having a deal partner, but this is a much more formal agreement. You’re going to set up an LLC with the expectation that you’re going to be doing several deals together. Together, you can find money using any sources we’ve talked about, or it could be that they have money and you have the desire to do the flip yourself!
You’re likely going to be splitting the profits 50-50 in this arrangement.
Credit Card Financing
I first heard about this strategy from a friend who had somehow picked up a ton of properties in a short time even though I was pretty sure he didn’t have money sitting around for that!
And when he told me it was from credit cards…and you can get 0% interest…I thought it was at best shady and at worst illegal.
Turns out it’s neither…and it’s just a fantastic strategy for getting money!
So, the simplified version of credit card financing might already be a strategy you know about….
You know those credit cards that come in the mail that offer 0% on new purchases for 12 months? You can apply for the very next one of those that comes in the mail, and now you’ll have access to money that you don’t have to pay interest on! You are borrowing money of course, but the goal would be to flip the property before you owe any interest, so you can pay your debt off from your profit.
The issue with this version is that you might not be able to use credit card purchases for many of the things you need to buy, like cash-to-close and paying the Title Company. You’d be able to use it for rehab purchases though.
Now…the souped-up version of this is actually working with a broker to get you a 0% interest advance on your credit card. It will be slightly more expensive, but the broker can help customize a solution for what you’re looking for. You’ll also get “clean” money (okay, now that sounds really shady) that you can use however you need. It won’t be money from a credit card…you’ll have actual cash from the broker.
Typically you’ll pay a one-time origination, and the 0% usually lasts around 6-24 months. Most of my borrowers finish deals in around 6 months, so if you can secure a 9-12 month time frame, you’ll likely have your profits before you need to pay any interest on the credit card advance.
Let me reiterate something I said earlier because it’s essential:
Don’t walk away from a good deal because there’s a little more cash-to-close required than you have sitting in your bank account. It’s painful to me to see a property with $50,000 in profit potential go to waste because an investor can’t find the $10,000 to make the deal work!
That’s why learning these financing strategies is incredibly important and profitable. The more creative you can get with your financing, then the more deals that you’ll be able to do. For example, you might not have the credit score right now to get a line of credit and you’re having trouble finding a partner, just wholesale the deal!
You walk away with $5k or so, and then perhaps the next deal you find requires $5k cash-to-close…which you already have sitting in your bank account! Maybe now your credit’s improved enough to get a line of credit, and you use that for your next deal. Then your brother mentions something about real estate investing (because you’ve mentioned before that you have a successful flip or two) and he wants to partner up with you on your next deal!
There’s no reason to learn one strategy and try to stick to it no matter what—especially if you’re only trying to find deals that qualify for a 100% financed hard money loan. I like to say that you’re stepping over quarters looking for dollars. You should be picking up those quarters, too!
I hope this helps you figure out how to make more deals happen for you in the future.