The Caveat No One Discusses When It Comes to No Money Down Real Estate

The Caveat No One Discusses When It Comes to No Money Down Real Estate

5 min read
Ben Leybovich Read More

I don’t do much air travel these days. I am not part of corporate America where travel is part and parcel, nor am I too much of a recreational traveler, with two young children and all. I am sure this will change as Aaron and Isabella become older, but for now it is not often that you’ll see me on an airplane. The last two times I traveled through the air was to look at apartments. Today, however, is different.

I am indeed writing this on a plane – traveling from Phoenix to Dayton, with a layover in Denver; I am on my way back home. This is off-topic, but when they redesigned the seating on these planes, did they have humans in mind, or creatures with no legs, arms or elbows?! This is freaking ridiculous… seriously!

Anyhow, I am coming back to Ohio having spent a few days visiting my friend (and yours) Serge Shukhat in Arizona. If you’ve spent at least a month on BP, you should have heard of Serge. This is Serge:

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While Serge is nothing spectacular to look at, specifically next to me, he is indeed a very smart guy. Just in case you’ve not made the connection, his latest podcast is here.

Why I Came to Arizona

As you know, I spent the last couple of weeks remodeling my house, and as Patrisha would put it – daddy needs a break!

I was talking to Serge about a month ago, and he says to me, “Why don’t you come out? You’ll stay at our mountain house with us. My daughter thinks you are the coolest, and she’ll be tickled if you are here for her birthday party. We’ll go to the pool, and I can tell everyone you’re my bro. We’ll take the Tesla and go cruising for chicks in the country club parking lot. It’ll be great; you’ll love it…”

I am blessed to not be tied down to a 9-5 job, which gives me fair amount of flexibility. And it’s not like tenants automatically stop paying rent if I leave town for a week or two. The only boss I answer to is my wife, and Patrisha was on board. Thank you, baby!

Related: No Money Down Real Estate: The Untold Dangers Every Investor Should Know

In Arizona

Tell me, why in the hell does everyone say Arizona is nothing but sand and cactus? In the valley, sure. But an hour into the mountains is nothing but luscious greenery and wildlife everywhere. Here’s a shot from the 7th green at one of Phil Mickelson’s courses, Payson:

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And here’s the shot from the country club dining room:

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Gorgeous indeed! And about 20 degrees cooler than in Phoenix!

NO REAL ESTATE TALK!

This was what I told Serge when he picked me up at the airport. In fact, we also agreed not to talk politics. Let me tell you – that plan went to hell in a hand-basket within 10 minutes in the car.

But it wasn’t totally our fault. You see, passive cash flow in real estate is only passive up to a point, and while both Serge and I prefer it the way we have it to any other way of generating income, it’s not like it keeps coming if we ignore it…

Things happen on a daily basis when you own units, and when things happen, Brandon Turner gets on the roof to fix it, while Serge and I pay other people to do it for us. The bottom line, however, is that one way or another, problems get tended to and resolved.

Ben, get to the point please!

My good friend Brandon Turner and I are both “no money down” guys. We spend our days telling people that lack of money is not guarantee of failure, and you should get your hustle on and figure things out. We tell you that it’s possible to buy property with NMD, and that while it’s not the best way to do things, it’s a way to get into the game and let things evolve from there.

But understand this:

Being under-capitalized when owning rental property can and will kill you if you’re not careful!

It’s one thing to buy something with no money down. It’s something else entirely to manage tenants with no float in the bank. Serge, for example, spent $18,000 on R&M and CapEx in the month of July. I spent $7,000. Brandon Turner spent nothing, but that’s only ’cause he is slumming his Waldos over there in Aberdeen. And Brian Burke spent whatever his spreadsheet says he should, ’cause that’s how he rolls; while Burke’s spreadsheet seems to tell the universe how to behave, the rest of our spreadsheets simply reflect the pain that the universe causes us.

I want to be like Burke – lala – lala – I want to be like Burke. 🙂

Here’s What I Spent On

  • Flooded basement in an SFR required replacement of existing sump-pump and addition of a secondary pump on a different circuit. Also, new gas furnace had to be installed.
  • Clogged bathtub and toilet drains in an apartment required lifting the toilet in order to auger. Unfortunately, one of those mistakes that happen to everyone once in a while happened. My handyman called me 2 days after the plumber was in the unit to tell me that he was standing in 3 inches of water. Turns out the plumber didn’t screw the toilet supply line on tight enough, and with the tenant being gone for 2 days, 3 inches of water accumulated on the floor. Water spilled out through the doorways into the hallway and one of the bedrooms. I’ve been with this plumber for a decade, and he’s saved my rear on more than one occasions, so – whatever… But this proves that Mr. Murphy is alive and well!
  • Bees apparently decided that underneath the vinyl siding is a good place to build an infestation. I was informed by my handyman literally with one foot in the airport.
  • One AC unit in an SFR needed replaced.
  • And then there were the usual R&M issues. All and all, July cost me about $7k.

Related: Investing With No Money Down: Are You Ready for the Terrible Truth?

Here’s What Serge Spent On

  • 4 AC units needed replaced.
  • 2 fan motors in the AC units needed replaced.
  • One roof on an SFR needed replaced.
  • There was much more, but when I asked Serge to itemize things for me, he said I was giving him a headache… ask him yourself, if you want. 🙂

The Moral of This Story

While buying real estate can be done with no money down, owning said real estate is indeed a cash-intensive proposition, and being under-capitalized will bring you down very quickly. I can teach you 50 ways of how to buy a duplex with nothing down, but when that furnace or water heater needs replaced, you’ll need money! It takes time and a certain magnitude to achieve a paradigm shift that lets you survive the worst. Until then, all bets are off…

This is the part nobody talks about ’cause it it’s not sexy.

So, What – No Money, No Real Estate?

Not quite – there are two caveats. One caveat is that if you don’t have money, but you have access to money through either a line of credit, a partner or a lender, this may be enough to get you started. And secondly, if your back is to the wall and you are without better options, jumping in and hoping to get lucky is something all of us have done at one time or another.

Understand, some get lucky, while others do not. And even if it works out for you, getting lucky is certainly not a viable strategy for building a sustainable portfolio!

Our BP baby, Scott Trench, just published an article about how house-hacking a duplex is the best option for a guy earning $50,000 and with $10k in the bank. Scott, is the dude in your article you? If so, are you feeling lucky? I hope you have a better January through December for the next 5 years than Serge and I had in July — ’cause if not, I’ll be buying your (I mean, Joe’s) duplex for $150,000 from the bank and renting one side back to you for $1,800. 🙂

Investors: What are your thoughts on no money down real estate? What’s the worst unexpected repair your rentals have thrown at you lately?

Let’s discuss – be sure to leave a comment below.

I don’t do much air travel these days. I am not part of corporate America where travel is part and parcel, nor am I too much of a recreational traveler, […]