Starting off with no-money / going into first deal with nothing down.

Grand Rapids, Michigan
Starting Out
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Starting off with no-money / going into first deal with nothing down.

Samuel Olivas
New to Real Estate · Muskegon MI · Member since 2024 · 7 posts · 3 votes

This is my first post on biggerpockets.com & I would like start by saying how useful all the free resources and information has been on here. I currently live & am looking to invest in Michigan. Ive always wanted to invest in real estate but I struggled to take the leap because I didn't have the amount of capital that I hear many people say they need. So for the last 2 years, I have let this idea stay just that, an idea. This year, I decided I'm going to do whatever it takes to own my first investment property by the end of the year. I said to myself "im gonna get into my first duplex...and im gonna do it with as little money as possible". This seems like an impossible task in today market but I decided to do my research on creative financing anyways. I knew that in Michigan (and im sure across many states as well), you can purchase your first home with only 3% down on a conventional loan, or 3.5% down with a FHA loan. I knew that I could probably cover these cost on a sub 185k home, but that still left closing cost and other unknown expenses to come. So I did some more digging. Turns out, there is a a loan called the MISHDA Loan in Michigan. This loan "grants you" 10k towards down payments & closing cost. This means if I purchase a home at the right price, I came come into this deal with little to no money down to start off. Now it is a loan so this means you will have to pay it back when the loan is payed off or when you sell the property, but regardless it could my ticket into owning my first rental property. I should also say my main interest is purchase a duplex & house hack.

Now that my backstory is out of the way..

What are pros & cons to using this "creative" method to finance the property?

What are some things I need to look out for with a loan like this? 

When renting a duplex, what have been some of the best way you have found tenants & what is your process to screen them? 

Does anyone have experience using a side of their duplex as a STR & if so, what did you learn?

Thanks again for everyone that took the time to read this & answer my questions!

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Jaron WallingPro Member
Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
2y

@Samuel Olivas From personal experience you can't have your cake and eat it too. 

"What are pros & cons to using this "creative" method to finance the property?" - Risk. What about leaking roofs or accidents you can't predict? What about tenants that stop paying rent 3 months into a lease? Unless you find a great deal you'll have very little, zero, or even negative equity from day 1. I advise against using a $0 down loan. Without any skin in the game the downside far out weighs upside. Smart investors never put them self's into a position like that. There are exit strategies (long and short) baked into every property. With nothing down, no value add, or no strategy you can't exit quickly if something bad happens. 

"What are some things I need to look out for with a loan like this?" - In my opinion I would avoid this loan. REI requires $$$ and it's stated over and over again for a reason. No skin (money, time, skills) in the game can lead to a disaster; lose property, cost you money, start over.

"When renting a duplex, what have been some of the best way you have found tenants & what is your process to screen them?" - Focus on the market research, numbers, and location. If you buy property in a nicer location quality tenants will find you! Avoid the war zones. Read and learn about screening tenants before you ever make an online listing > the rest is LEARNED FROM EXPERIENCE. 

"Does anyone have experience using a side of their duplex as a STR & if so, what did you learn?" - You're running a small business. It's much more hands on depending on demand. Know the market and determine if it's saturated or an opportunity. You're buying nice furniture, chasing 5-star reviews, and probably handling all the PM. It's completely different than a LTR.  



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  • Jaron WallingPro Member
    Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
    2y

    @Samuel Olivas From personal experience you can't have your cake and eat it too. 

    "What are pros & cons to using this "creative" method to finance the property?" - Risk. What about leaking roofs or accidents you can't predict? What about tenants that stop paying rent 3 months into a lease? Unless you find a great deal you'll have very little, zero, or even negative equity from day 1. I advise against using a $0 down loan. Without any skin in the game the downside far out weighs upside. Smart investors never put them self's into a position like that. There are exit strategies (long and short) baked into every property. With nothing down, no value add, or no strategy you can't exit quickly if something bad happens. 

    "What are some things I need to look out for with a loan like this?" - In my opinion I would avoid this loan. REI requires $$$ and it's stated over and over again for a reason. No skin (money, time, skills) in the game can lead to a disaster; lose property, cost you money, start over.

    "When renting a duplex, what have been some of the best way you have found tenants & what is your process to screen them?" - Focus on the market research, numbers, and location. If you buy property in a nicer location quality tenants will find you! Avoid the war zones. Read and learn about screening tenants before you ever make an online listing > the rest is LEARNED FROM EXPERIENCE. 

    "Does anyone have experience using a side of their duplex as a STR & if so, what did you learn?" - You're running a small business. It's much more hands on depending on demand. Know the market and determine if it's saturated or an opportunity. You're buying nice furniture, chasing 5-star reviews, and probably handling all the PM. It's completely different than a LTR.  



    2Reply
  • Tanner Lewis
    Lender · Austin, TX · Member since 2021 · 447 posts · 441 votes
    2y

    Even with no/low money down options, I suggest having ample reserves in case you need to come to the table with cash for some reason. 

    2Reply
  • Jonathan GreeneBusiness Member
    Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
    2y

    Nothing that you said is a smart idea right now. It's possible, but not smart. No/low money down loans come with other negatives or they wouldn't be available. You have good responses above because you need ample reserves to buy also. What if the furnace breaks a day after closing? What about inspections? The people who generally get low to no money down deals have money, that's what allows them not to have to use it, collateral. I would focus more on going to meetups, saving money, and learning, before jumping too soon into something with a hard paydown vs. incoming income and no savings.

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  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    2y

    @Samuel Olivas MSHDA loans have income limits and believe area restrictions also.

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  • Samuel Olivas
    OP
    New to Real Estate · Muskegon MI · Member since 2024 · 7 posts · 3 votes
    2y
    Quote from @Jaron Walling:

    @Samuel Olivas From personal experience you can't have your cake and eat it too. 

    "What are pros & cons to using this "creative" method to finance the property?" - Risk. What about leaking roofs or accidents you can't predict? What about tenants that stop paying rent 3 months into a lease? Unless you find a great deal you'll have very little, zero, or even negative equity from day 1. I advise against using a $0 down loan. Without any skin in the game the downside far out weighs upside. Smart investors never put them self's into a position like that. There are exit strategies (long and short) baked into every property. With nothing down, no value add, or no strategy you can't exit quickly if something bad happens. 

    "What are some things I need to look out for with a loan like this?" - In my opinion I would avoid this loan. REI requires $$$ and it's stated over and over again for a reason. No skin (money, time, skills) in the game can lead to a disaster; lose property, cost you money, start over.

    "When renting a duplex, what have been some of the best way you have found tenants & what is your process to screen them?" - Focus on the market research, numbers, and location. If you buy property in a nicer location quality tenants will find you! Avoid the war zones. Read and learn about screening tenants before you ever make an online listing > the rest is LEARNED FROM EXPERIENCE. 

    "Does anyone have experience using a side of their duplex as a STR & if so, what did you learn?" - You're running a small business. It's much more hands on depending on demand. Know the market and determine if it's saturated or an opportunity. You're buying nice furniture, chasing 5-star reviews, and probably handling all the PM. It's completely different than a LTR.  



     I appreciate your comments. I feel like I should clarify that it isn't a "$0" loan, but a loan on top of the conventional loan that is payed back when the property is sold or payed off. Also that I do have $ saved, but would essentially all have to be used in down payments & closing cost. Regardless I understand what you are saying. It difficult since so much of what I heard has been that you learn from experience, but that you can't access this experience until you have 25k+ saved in the bank. Perhaps that is just how it goes. I truly appreciate the information. 

    1Reply
  • Samuel Olivas
    OP
    New to Real Estate · Muskegon MI · Member since 2024 · 7 posts · 3 votes
    2y
    Quote from @Tanner Lewis:

    Even with no/low money down options, I suggest having ample reserves in case you need to come to the table with cash for some reason. 


     Completely understand, based on the other comments on this post, I can see a trend. As a lender, what is a safe amount of money to have saved in market where the average home price is 185K?

    0Reply
  • Samuel Olivas
    OP
    New to Real Estate · Muskegon MI · Member since 2024 · 7 posts · 3 votes
    2y
    Quote from @Jonathan Greene:

    Nothing that you said is a smart idea right now. It's possible, but not smart. No/low money down loans come with other negatives or they wouldn't be available. You have good responses above because you need ample reserves to buy also. What if the furnace breaks a day after closing? What about inspections? The people who generally get low to no money down deals have money, that's what allows them not to have to use it, collateral. I would focus more on going to meetups, saving money, and learning, before jumping too soon into something with a hard paydown vs. incoming income and no savings.

     Great points, thanks for the comments. I do find encouraging the "its possible, but not smart" comment. I feel like we have all seen ways or at least heard stories of people coming into real estate with little money & some creative maneuvering to make it happen. I agree on waiting for a bit to find some local meetups & learn from some investors in my market to see what has worked for them. appreciate it!

    1Reply
  • Samuel Olivas
    OP
    New to Real Estate · Muskegon MI · Member since 2024 · 7 posts · 3 votes
    2y
    Quote from @Drew Sygit:

    @Samuel Olivas MSHDA loans have income limits and believe area restrictions also.


     I wasn't aware of the income limitations & area restrictions, thanks for the information!

    0Reply
  • Tanner Lewis
    Lender · Austin, TX · Member since 2021 · 447 posts · 441 votes
    2y
    Quote from @Samuel Olivas:
    Quote from @Tanner Lewis:

    Even with no/low money down options, I suggest having ample reserves in case you need to come to the table with cash for some reason. 


     Completely understand, based on the other comments on this post, I can see a trend. As a lender, what is a safe amount of money to have saved in market where the average home price is 185K?


    It really depends what loan product you choose. I would do a minimum of 6 months of PITIA payments saved (mortgage payment + insurance + tax + HOA) and put aside $15k for closing costs (it should cost less but to be safe). If you are doing a loan where you need a down payment, I suggest putting aside that amount as well.

    2Reply
  • Travis TimmonsPro Member
    Rental Property Investor · Ellsworth, ME · Member since 2021 · 1k+ posts · 2k+ votes
    2y

    It's just hard when there is no margin for error. You win the real estate game by never being a forced buyer or forced seller. There are a lot of scenarios here that put you in the position of being a forced seller. 

    If you are young and have not collected kids, dogs, and commitments, I'd suggest putting your head down, delaying gratification, working your a$$ off (get a second job, drive for uber, deliver pizzas, buy a pressure washer and knock on doors asking to pressure wash driveways, etc.), living off of next to nothing, and looking up in 12 months to re-evaluate. I'd also suggest a single family home house hack in a better neighborhood and renting by the room short or mid term. It's going to be less comfortable and more work, but a SFH in a good location is going to appreciate much better than a duplex in a less desirable location.

    2Reply
  • Kristine Ann
    Investor · WNY/CNY/Adirondacks, New York State · Member since 2024 · 151 posts · 133 votes
    2y

    I disagree with a lot of the answers here. This is your first property and you plan to live there?  I actually think if you can get 0% down loan and the monthly payment is very affordable, you should consider it. I am against being too leveraged and moving to acquire properties too quickly, but we are talking about your primary residence.  I bought my first home with a 100% financing 20 years ago.  It would have otherwise been impossible to save the down payment.  

    What is important is that the total monthly payment is very affordable.  It's also important that you have some cash reserves and enough income to fix at least two or three $1000 breakages in the first year.

    1Reply
  • Jaron WallingPro Member
    Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
    2y

    @Travis Timmons "You win the real estate game by never being a forced buyer or forced seller." - mic drop. 
    @Samuel Olivas Save more $$$ and get into a stronger buying position. Every step is easier. 

    1Reply
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