The 3 Things That Make No Money Down Real Estate Dangerous

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Is no money down a safe way to invest in real estate?

This question comes up regularly, and the answer is tricky. The common wisdom is that there are two camps — those who unequivocally believe NMD is nonsense, and those who swear by it and say it’s the greatest thing since sliced bread.

The answer, as you might imagine, is something in the middle. No money down could be very dangerous. But it could also be very advantageous. So the answer is maybe.

Let’s talk about it.

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The 3 Things That Make No Money Down Dangerous

There are three things I need to discuss within this subheading, and they are quality of asset if owner-financing is involved, cash flow, and equity.


Quality of Asset if Owner-financing is Involved

A lot of times NMD is accomplished, at least in part, by means of the owner involving himself in the financing of the property. While this is not always true, a fair number of times the owner is willing to do this because he is unable to sell for all cash, and in order to move the property, the owner facilitates a portion or all of the financing.

In this case, you have to ask yourself, why was the property unable to sell for all cash? Could it be that there is something wrong with the way the marketplace perceives this asset?

Again, this is not always the case. Sometimes, it just makes sense for the owner to carry a note, and sometimes it just is what it is, and there is nothing wrong with the asset being sold with financing attached. But if this is how you are looking to achieve no money down in your deal, be careful and underwrite the deal well!

Remedy: Understand no money down is a mode of acquisition, nothing more. If you start out with a bad deal, the fact that you can finance 100 percent of it won’t make the deal any better. You’ve got to start with a good deal!

Insufficient Cash Flow

One aspect of no money down that is always pointed to as dangerous is the compressed cash flow. It’s true — this is a danger. If, for example, you are buying a $400,000 asset, typically you’d put $100,000 down and finance $300,000 — this would be 25% down. At 6% interest rate and a 20-year amortization, this $300,000 note would cost you about $2,150/month.

Related: No Money Down Real Estate: The Question’s Not Whether it Works, But Whether It’s a Good Idea

If, on the other hand, you found a way to finance the entire $400,000 purchase price, then your monthly debt service would go up from $2,150 to $2,865 — a delta of $715/month. This, of course, means that your cash flow would come down by the same delta of $715/month.

Now, if you ain’t got $100,000 in the bank, this equation is pretty simple. Either you finance 100% of the purchase, or you don’t do the deal.

But, beyond this, a couple of questions here:

  1. Is it better to keep $100,000 in the bank in exchange for compressing cash flow by $715/month? Or would you rather pay the $100,000 to buy $715/month of cash flow?
  2. Even if that sounds like a good idea, is this safe to do?

The answer to the first question is a matter of personal preference. I, for one, believe in creating cash flow, not buying it, so I have an organic dislike of the notion of trading huge sums of money for a little cash flow.

But having said this, I don’t like skinny margins any more than the next guy. So, if this additional debt is going to cost you $715, the question is, how do you create that much more cash flow in the deal so you offset the additional debt service?

In essence, what I am saying is this — I know that had I put down $100,000, I’d end up with $715/month more cash flow. But can I create that cash flow via value add and end up with the same cash flow without having dropped $100,000?

And the answer is — YES, or I don’t buy. I am not interested in being a retail investor. I am not interested in buying cash flow. I am more sophisticated than this — I create something out of nothing, and if it’s not possible to do, then the deal is not good enough!


Related: Why Investing With No Money Down Might Be a Terrible Idea (& What You Should Do Instead)

Insufficient Equity

This is the other argument against 100% financing of property, and the same logic applies to this as did to cash flow. If you want to buy equity, then do it by all means. I prefer to create it. This means that if I am paying $200,000 for an asset, it is only because I believe the intrinsic value to be $275,000 — it might take 3-12 months to get it unlocked, but it’s there. But in this case, I certainly don’t feel that paying $200,000 and financing 100% of it leaves me in a no equity position.


It is more important than anything else to be safe in real estate. One way to accomplish this safety is to buy it, and another way is to create it. Finding an asset that lends itself to what I do is akin to finding a needle in a haystack. But when you find one, you don’t need a down payment to make it work or to make it safe.

Investors: What are your thoughts on the risks of no money down real estate? Is this a route that you’d be willing to take?

Leave your comments below.

About Author

Ben Leybovich

Ben has been investing in multifamily residential real estate for over a decade. An expert in creative financing, he has been a guest on numerous real estate-related podcasts, including the BiggerPockets Podcast. He was also featured on the cover of REI Wealth Monthly and is a public speaker at events across the country. Most recently, he invested $20 million along with a partner into 215 units spread over two apartment communities in Phoenix. Ben is the creator of Cash Flow Freedom University and the author of House Hacking. Learn more about him at


  1. Good article and “Finding an asset that lends itself to what I do is akin to finding a needle in a haystack. But when you find one, you don’t need a down payment to make it work or to make it safe.” is step 1, fighting off the zillion other “Investors” who have the same modus operandi and will fight you for that property is step 2.

    It has been said 80% of adult working Americans cannot qualify for a mortgage, even sub prime yet 100% of Realtors® chase, and have chased for decades, the 20% that do qualify for a mortgage leaving 80% out in the cold.

    I seek the 80% that don’t qualify for a mortgage, at least not now and have perhaps a 500 FICO score that was crushed by a divorce, bad business deal, bankruptcy etc. but still have stable jobs with strong incomes and some money available. These are my Tenant/Buyers.

    Conversely, my Sellers are people living in “Upside Down” or “Underwater” homes, e.g. comps show the house is worth $300,000 but the mortgage is $300,000 or more. The Sellers are motivated due to a job transfer to another city or state, a divorce etc. and must move now, sometimes they have already moved and the home is vacant. These people have few choices and most are emotionally and financially painful; “Jingle mail” where they mail in the house keys to the Lender and walk away allowing their home to be foreclosed and ruining their credit for many years and possibly facing taxes due because of Debt Relief, or they can be convinced to a “Short Sale” by their local Realtors® and if successful again ruining their credit for many years and possibly facing taxes due because of Debt Relief, or they can become absentee landlords responsible for maintenance and repairs, or they can work with me to find them a Tenant/Buyer where the Owners sell their home for the amount of the mortgage balance, incur no negative monthly payments, and maintain their good credit which is very important if they are seeking a new mortgage for another property, and they won’t face any taxes due to Debt Relief.

    How, you ask? I match Tenant/Buyer payments to the existing P.I.T.I. and the Tenant/Buyer pays for all of the repairs and maintenance. In a few years the Tenant/Buyer’s credit will have improved, the value of the home will have gone up and the mortgage balance down thereby allowing the Tenant/Buyer to procure a new mortgage and cash the prior Owners mortgage out.

    Is my method a 100% ideal solution, e.g. an “All cash deal”? No, but it is better than jingle mail or a short sale that guarantees ruined credit and possible taxes due.

    Will a Realtor® discuss my option to a Seller who is upside down or underwater? Rarely, because my option does not include Realtor® commissions or cover expensive closing costs that will demand that a Seller come to the closing table with a lot of cash. Realtors® have no incentive to suggest alternatives that do not generate income for them.

    If you would like to learn more just ask. How well can it work, a couple employing the method I use has closed on $95 million of real estate in Arizona.

    • Even though my credit score is north of 800, etc.,in other words, I have no trouble qualifying for a conventional loan, I have searched for such a Tenant/Buyer deal for myself for my own reasons. In my experience, sellers are unwilling to accept an offer to “sell their home for the amount of the mortgage balance” nor “match Tenant/Buyer payments to the existing P.I.T.I.”

  2. In 2010 they were giving 110% loan. Problem was negative 5k per month on a drug store. 25 yr loan, but after 25 yrs if they do not renew, you are stuck with building, land value little. So needed to put 17% dn to get 5% COC, happy with that decision.

      • what I said is if you get 100% loan, and income is less than mortgage, bad idea. To get income, need to put down. Calculate for a 3.80 million loan @ 6.11 % 25 yrs fix, pymt is 24,741 per month, but income is 23,500, no good. But if you invest 800k, reduce loan, pytj 19,531. Cash flow 3,969. so return about 6%,pretty much what I did. Hope this clears it up.

        • Ben Leybovich

          But if you do that, it is essentially saying – the deal isn’t good enough unless I buy down some equity. 6% leveraged COC is not good enough, in that it’s not safe, unless there is significant value add which loads the back-end and drive the IRR…

          Essentially what you’ve done is what I teach people not to do. The deal must be good enough irrelative of financing. The deal must be extraordinarily good in order to facilitate 100% leverage.

  3. Kent Harris

    I have purchased 11 rental properties in the last 12 months. Since I specialize in Pre-foreclosures, Short sales, HUDs, and Bank REOs I get the houses for a very good price. A couple of houses I purchased out of pocket for just $5,000. The kicker is initially I had to come up with 30% down ($31,500 in one case) to purchase it and after doing the rehab got a $46,500 refund on one of the properties at closing. The rehab was $20,000 and I fronted that as well.

    If you don’t have the money to put down on Real Estate my suggestion is to line yourself up with some investors that don’t have time to look for Real Estate and scout for them. If you do this don’t get greedy, be up front with your fees and you will be making up to $5,000 per transaction. After 10 transactions ($50,000) you will have enough money to purchase a house on your own to flip. I lost $7,000 on my last flip because of foundation and a roof replacement. If your doing zero down Real Estate and that were to happen that would be your first and last flip you will ever do since your lender would take over your project and word would get out. In my case the lender got paid and I took the loss.

    I go against no money down people all the time and have never lost a bid, since I put down earnest money and have the credit to back up the transaction. A couple of times I had beat out 30 people bidding on the same property. When you tell a Banker 10 days to close and you will have certified funds at closing you usually will get the deal.

    • Ben Leybovich

      Kent – thanks for your comment!

      Now – Imagine that the 30% fown plus the $20,000 rehab is financed or bridged one way or another. Your deal may have to be a bit better so that you can force that value, turn around, and finance your (or in this case someone else’s) equity out at the agreeable to lender LTV. But, that’s one way to blend no money down 🙂

  4. Kent Harris

    Actually I do “no money down Real Estate” in a since. Having an equity line at the Bank at 3.75% interest only I borrowed the $31,500 and the $20,000 for the rehab put that on a credit card. Once the property closed I paid off the loan at the bank and the credit card. Never thought of it being considered “No money down Real Estate”. Since you not allowed a cash out on Real Estate before 12 months the Title company paid down on the equity line instead of writing me a check.

    The thing is the seller has no idea of how I came up with the money. They think I have cash in the Bank and just write a check. Fact of the matter is I have very little money in the bank and just borrow what is needed.

  5. Jacob Pereira

    Great article, as always. I certainly agree with you that a bad deal is a bad deal, regardless of how much you can finance, but I think it leaves out an important element; a mediocre deal can turn into a good deal if you get the right financing. I know that doesn’t exactly fit into the narrative of this particular article, but I think it’s important to point out.

  6. Michael Sadler on

    Great article and comments! Thanks for pointing out that the deal has to be great! I forgot that when I did my no money down deal that it was cash flowing. I had 50% share for JVing and bird-dogging the deal. There were still risks as it was a rent-to-own and the tenant could have defaulted. But I was not under any leverage, the investor that I was JVing with was; The share was just to source the cash flowing deal. Thanks again!

  7. PJ Muilenburg

    I like your phrasing that one can BUY equity or CREATE it, same for cash flow. I think to many investors take the easy way in and simply buy it. I like Brandon’s method of BRRR to create such equity and am really liking the game of finding and analyzing such deals.
    Thanks for the write up!

      • PJ Muilenburg

        Oh come on I know you know Brandon Turner! Wrote a book on the very topic of this article. BRRR is an acronym for one of his favorite strategies- Buy, Rehab, Rent, Refinance, Repeat (I guess I left off an ‘R’). It’s an old idea, just a new way to talk about it— but uses the same principles you were touting….create equity in a property by forced appreciation instead of buying it.

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