Do you want to start flipping houses but only have $10k in your account? Read this article and find out how to flip a house with $10k right now!
Flipping houses is a hard business that requires time, money, and hard work.
However, some of you might not have enough money to do it despite having the experience and knowledge.
If that’s you and you only have $10K in your wallet, this article will guide you on how to flip a house with $10K.
House flipping is, at its core, a business tactic that consists of buying a property not to live in but to make money.
The idea is to buy cheap houses, renovate them, and sell them for more instead of keeping them as an investment.
You’ll have to sell them fast, avoiding long-term costs like bills, insurance, and taxes.
But flipping isn’t always easy.
To make the most money and not lose out, don’t spend too much on the house and know how much fixing it will take to make a profit.
This helps you decide the best price to pay for the house you’ll flip.
If you’re a beginner, you should only know one rule: the 70% rule.
Here, you’ll only pay up to 70% of the house's worth after it’s fixed, minus the repair costs.
For instance, if a house will be worth $200,000 after fixes and the repairs cost $35,000, you should pay no more than $105,000.
If you can take it for less, it’s even better!
Like any other business, flipping houses can be tougher and more costly than you think, so always be careful when planning your first flip. Otherwise, you might lose money, especially if you just want to get rich fast.
Pro Tip: Don’t ever go all in on a property, as you never know the demand for the house, how many days or weeks you’ll wait for a buyer, or if it’ll be profitable. It’s best to keep some cash on the side to cover all living and carrying expenses.
Flipping a house with only $10,000 in the bank might seem impossible, but it’s not.
Most advanced real estate investors have started their house flipping businesses with less than that and reached 8-figure yearly revenues.
If you want to be like them, here are five simple steps you can take even if you have $10,000 or less:
Researching the market is crucial, as you can choose a better investment property and allocate your small budget more wisely.
Start by graphing and illustrating the purchase price in all the states you want to work in.
Then, compare the price of purchasing and selling a property and choose the most profitable state.
Once you’ve selected a state, it’s time to decide which city you want to approach. For cities, the procedure is the same.
You can also look for places with cheaper materials and labor if you’re in the market for a property needing much renovation.
Lastly, do some social research. Get some numbers on the population of the city, how it’s changed over the years, and what age gaps you’re working with.
For example, if most tenants are young families with kids, you’ll look for houses with 2-3 bedrooms and a spacious garage.
On the contrary, if most tenants are single or families without kids, one-bedroom apartments would be your best choice.
You can either use your money as a down payment for a mortgage or use it to survive while building a compelling business plan that’ll attract and convince real estate investors.
Let’s talk about the second possibility.
If you’ve done your research and know the place and type of property you want to invest in, you must find a real estate investor.
Nobody will give you more than $50,000 without a business plan, which won’t even cover the property.
A house flipping business plan must show the process of flipping a property as detailed as possible.
Talk about loan terms, repair costs, and other investment opportunities after selling the property.
Also, illustrate everything with figures, graphs, and tables.
You should calculate every penny, as you’re using other people’s money to start your business.
Pro Tip: Tailor your business plan to your every flip. You can’t use the same approach for every property you’re buying.
Finding an investor is probably the hardest part of your journey, as you’ll have to impress people who already succeeded in the real estate business.
Be it private lenders, hard money lenders, or other investors, they all wait for you to make the first step and sell your idea, which can be very hard for some.
To increase your chances of getting the real estate investing you need, start by doing some research.
Find investors with some history in the house flipping industry, as they’ll be more prone to finance a market they already know.
Also, if you’re a beginner with just $10,000 in your bank account, you should find someone willing to support risky endeavors and startups.
Most real estate investors don’t have that risky bone in them; that’s why you should also look into other industries.
Besides research, do some networking. It’ll help to meet potential investors at a restaurant or a private dinner; they’ll feel more attracted to you psychologically.
The hard part is behind you. You secured the funding and have the cash to fix and flip the property you wanted.
Now, it’s time to impress the property owners and maybe get a discount for the property.
You must meet the owners before signing the contract, even if you work with a real estate agency.
This way, you can talk with them and maybe get a better deal or spot some problems you’ll need to focus on when renovating the house.
After you seal the deal with them, it’s time to start renovating. Even before signing the contract, you should’ve found a crew to complete the renovation process.
Pro Tip: If it's your first fix and flip, it’s better to get an experienced crew that’ll give you a good deal and renovate the property properly.
Now, it’s time to buy the materials. Don’t get the cheapest ones, but also don’t go for the high-end paint or cement.
Choose something mid-priced and mid-quality to increase profitability and maintain a good reputation.
Keep ~8% of the budget to cover any unexpected expenses you might encounter when renovating the property.
While many think selling a property is the easiest part, it is not.
Most house flippers use real estate agencies to sell the properties after repairs, mainly because they can sell them faster, reducing the carrying costs.
But if you have extra cash to cover the carrying costs for a while, you should cut the real estate agency and keep those 6% of the deal they’ll earn from you.
Now that you have a successful flip under your belt, you can take on another property with the profit and the network you’ve made.
You can even contact more prominent real estate investors since, at this point, your experience is more important to them than your bank account.
The cost to renovate and flip a house varies based on the kind of property, its location, and the scope of the improvements.
However, as a rule of thumb, those looking to invest should set aside roughly 10% of the home’s purchase value for flipping.
For instance, if you purchase a house for $250,000 and aim to sell it for $400,000. In this case, budgeting at least $25,000 for flipping expenses would be prudent.
Here’s a more detailed list of things you will have to pay for if you want to flip a house:
Closing Costs
You need to set aside 3% to 6% of the acquisition price to cover all the closing costs.
These charges include title search, lender fees, attorney fees, and appraisal.
You should be prudent about these costs, as many flippers don’t consider them when building a business plan and go way above the budget.
Taxes
Like any home purchase, you’ll be responsible for state and local property taxes.
Local authorities determine taxes by applying a set percentage to the property’s valuation. Depending on your region or state, these taxes can vary.
You can also try to obtain a tax-deductible house, making your tax burden a little easier.
Promotion and Transaction Expenses
Selling a property isn’t free. You’ll have to pay an additional 6% of the selling price through real estate commissions.
Otherwise, you’ll have to wait until your property gets sold.
Holding Expenses
Carrying a property isn’t cheap. You must cover expenses like taxes, mortgage, insurance, utilities, and HOA fees until the property is off the market.
You must put aside 3-4% of the price to afford that.
These are the costs of flipping a house. However, you must’ve seen that we didn’t include the purchase cost of the house and the renovation cost.
That’s because, in real life, these costs are unpredictable.
If you want to renovate the house successfully, you must put aside another 10% of the price.
Traditional home loan structures, like 30-year mortgages, aren’t the most suitable for short-term house-flipping endeavors.
If you want to earn cash, you need low-interest rates and low costs.
Here are some types of loans you can use if you want to maximize your profit:
Hard Money Loans
These are short-duration loans often secured against real property or equity.
Unlike conventional loans from banks or credit unions, these types of loans are generally provided by private lenders.
Their biggest advantage is that you have no risk; these loans use the property you buy as collateral.
Hence, if you don’t have any cash left to cover the interest, the investor just takes the property.
Home Equity Lines of Credit (HELOC)
This type of loan acts as a second mortgage, where you borrow against the equity of your primary residence.
It gives you access to funds as a credit line. The only difference is that you eat your house, not the bank’s money.
This is a risky type of loan and should be used only for 100% sure deals.
Cash-Out Refinances
This option lets you leverage the equity you’ve built in your house.
By refinancing for a value higher than what you owe on your existing mortgage, you can extract the difference in cash and use it, as most investors do, to buy more real estate.
Personal Network Loans
If you have high-network individuals in your family, it would be great to borrow from them.
Not only will they give you better conditions for financing your project, but you will also have some experienced real estate investors helping you if you can’t pull something off.
These are just some of the most popular types of loans you can use to start a house flipping business.
In reality, you can use any type of financing for your first flip. You can even use a traditional mortgage to buy the property and then use your own cash to flip it.
Unfortunately, you won’t ever be able to flip a house with $10,000 in the U.S. Here are five reasons why you can’t do that:
Property Prices
The most obvious barrier here is the price of real estate itself.
In most states, $10,000 wouldn’t even cover a down payment, let alone the full purchase price.
Renovation Costs
Even if you find a property worth buying for $10,000, you won’t be able to renovate it.
Whether cosmetic changes like paint and landscaping or major overhauls like kitchen remodels and structural repairs, renovations are pretty costly.
You can even do it all by yourself and still have a budget higher than what you have.
Closing and Holding Costs
Imagine you got a house for $8,000 and did the renovations for $2,000; you still have to market and sell the house.
In the real world, house flippers pay up to 6% of the total price just to sell the house through a real estate agency.
You're not talking about how much money you’ll bleed while keeping this house on your balance sheet.
Unforeseen Complications
Older houses can contain asbestos or lead paint. There might also be foundational issues or problems not identified during the initial inspections.
These complications can be expensive to rectify.
Real Estate Market Fluctuations
Markets are dynamic. If you’re working with a tight budget, even minor fluctuations can have major implications.
Investors are highly vulnerable without the cushion that a loan or additional capital provides.
That’s why you just can’t flip a house with $10,000 without taking a loan first.
Here are the best tricks and tips to use if you only have $10,000 to start a house flipping business:
Sometimes, the hardest part to overcome in house flipping isn’t the initial inflow of capital in your business but the lack of experience and knowledge.
If you can’t use the loan to flip a house profitably, your attempt is worthless. On top of that, it’ll diminish your chances of getting another financing round.
But having an experienced partner who has dealt with such problems in the past or has dipped their hands in the real estate industry will help you overcome all the barriers and probably put those $10,000 of yours to better use.
Commercial property is for the top dogs. With only $10,000 under your belt, you won’t be able to get into this business.
Start with a small apartment and go up the ladder with bigger properties every time.
You don’t need to pay that loan in ten months when you can close it in five and move on to the next task.
Pro Tip: Residential properties are usually sold faster and with less marketing involved. Less marketing = less costs for you.
It’s better to start flipping houses in Louisiana or Texas than in California or New Jersey.
The costs and taxes there are much smaller, and the demand for houses is practically the same.
Even if you’re a resident of these expensive states, moving and starting a business where the real estate is cheaper would be better. This way, you maximize your profit and can scale your business faster.
After you’ve conquered the low-cost states, you can try to go up on the food chain and take on California or Washington.
From a business point of view, taking care of your taxes can significantly lower production costs.
Imagine how much money you can save on different tax deductions if you do your homework once.
Many young entrepreneurs make the mistake of not paying taxes for a few years, not knowing that the payable tax can double or triple if they don’t pay it on time.
As a result, they bankrupt their firm before going to the top level.
That’s why it’s important for you to make sure to keep your taxes in order. If you can do the calculations yourself, that’s better; otherwise, you can hire an accountant to help you.
If this is your first flip, you’ll most likely have a tight budget.
As such, you shouldn’t spend money on anything except the most necessary things.
Not only can you save enough money, but you also ensure you receive the maximum profit possible after selling the property.
With such a profit in hand, you can afford to buy bigger properties for more extensive flip projects.
Flipping a house is a costly business, and your $10,000 might only cover a small portion of the total costs.
Luckily, there are ways for you to have additional capital without breaking the bank.
You can either find a willing investor or apply for a loan to help fund the flip.
To increase your chances of securing such funds, you have to present a clear business plan stating the process from start to finish.
If you’re planning to do a flipping project with $10,000 or less, let us know in the comments how it’s going for you so far.
And if you have friends in a similar situation, share this article with them.
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