Is there way too much encouragement of no money down investing?

139 Replies

I constantly see new posts from members saying things like

  • Got a sweet deal, but no money. What do I do?
  • How do I find private money?
  • How do I fund my deal if I have bad credit & no income etc?
  • I want to get started but have no money, What do I do?
  • I want to flip houses but I don't have any money. What do I do?

Do you think that there is way too much encouragement and content out there that promotes no money down investing? I find the majority of the no money down content to be very unrealistic.

Thoughts?

Personally I think so. Too many people put an emphasis on using "other people's money" without explaining that the people doing it successfully have cash reserves and/or lots of experience otherwise. I cringe every time I see someone say "I have $1,000. How do I get started?" Even if that person does find a deal, and get some people to put up the cash, it would only take one bad tenant to drive them to bankruptcy.

If you have cash reserves and some experience, then it is ok, in my opinion, to use other people's money to leverage yourself, but without a proper foundation, you are building a house of cards by using other people's money.

@James Wise I absolutely think that there's too much promotion of the "no money down" investing. Look, I get that some people have made that work for them as a beginning strategy, but those people probably worked their butts off, now it seems like so many see it as the quick, easy way to fix all their financial problems. From my perspective, there is no quick fix in REI, it's a long-term strategy and realistically requires a certain amount of liquidity to get started in.

I always recommend that people should do their first few deals with their own money. Once they get a SUCCESSFUL track record in place, then you can start using OPM confidently. 

Originally posted by @Andrew B. :

Personally I think so. Too many people put an emphasis on using "other people's money" without explaining that the people doing it successfully have cash reserves and/or lots of experience otherwise. I cringe every time I see someone say "I have $1,000. How do I get started?" Even if that person does find a deal, and get some people to put up the cash, it would only take one bad tenant to drive them to bankruptcy.

If you have cash reserves and some experience, then it is ok, in my opinion, to use other people's money to leverage yourself, but without a proper foundation, you are building a house of cards by using other people's money.

 Agree. What is often missed or just ignored is that raising funds in itself is an incredibly challenging job. It requires an incredible amount of sales & marketing skills above & beyond solid real estate skills to actually make the deals profitable. Everyone seems to push around this notion that people will beat down your door to throw money at your deal........Lol dude in what world is that practical? You've literally got to be a master salesman & marketer to raise money.

No.  I think the problem stems from a lack of understanding of what a "no money down" deal is by those that think it's a great way to solve the problems of:

1 - I have no money

2 - I have no experience

3 - I have no knowledge

4 - I have no time

5 - I have no desire to put the time, effort, and money into getting my own - 

     a - Money

     b - experience

     c - knowledge

     d - time

Originally posted by @Kevin S. :

@James Wise I absolutely think that there's too much promotion of the "no money down" investing. Look, I get that some people have made that work for them as a beginning strategy, but those people probably worked their butts off, now it seems like so many see it as the quick, easy way to fix all their financial problems. From my perspective, there is no quick fix in REI, it's a long-term strategy and realistically requires a certain amount of liquidity to get started in.

 Yup yup. Biggest thing missing from the no money down conversation is one needs to be a master salesman & marketer to raise funds.......This is of course on top of being a master investor with a huge amount of skill & infrastructure.

@James Wise

Yes.  People think no money down means there are no other expenses because they don't differentiate between down payment and the myriad other costs that come with buying and keeping a property.

As the others have said, it only takes one bad tenant to bankrupt the person with no cash reserves although I will say if someone is totally committed to success, they will find a way.  Seems I read a thread a while back about how you got started buying properties with credit cards or something like that and now you've got a thriving business.  

Of course, that's a lot different than "no money down" which to me means "I'm not going to take any risk and if something goes south, it's on somebody else to take the hit."  What you did was actually, "I'm putting everything I have, plus some, into this and it's GOING to work."  

I salute the investors who say "Burn the boats, we're not turning back".

Stephanie

Absolutely! It is a huge problem in my opinion. I see it in the deals being sent to me everyday. I get over a dozen flippers wanting a loan and they have no money. Every "investor" on Facebook is asking for 100% and get angry when they're told it's not out there.

100% comes with a hefty cost when it is available. Do you want to give up 25-30% of your profit and control of the deal. 

The seminar promoters are guilty of creating this frenzy of misinformation and 100% or no money down propaganda. It's on the radio now from Than Merrill and others. 

@James Wise

Those are my favorite posts!! What I don’t understand is the people that post posts like that. People with no money have zero business buying a house.

Let’s say you do find something turnkey, no money down and you’ve got no money. Get it rented, stove dies, water heater, furnace, etc etc... how will you fix or repair?

Even if it’s your primary residence you still have the possibility of those same repairs, and even more of a responsibility if it’s a tenant occupied house.

10000%. There’s too much of that and too many people pushing for high leverage. High leverage will always bite you in the *** eventually. 

Idk about other people, but I’m more cautious with my investor money than with my own. If I lose my money, whatever it’s gone I can make it back. If I lose my investor money, I lose my reputation. That’s not something I’m willing to do. My investor money only goes to home run deals. It took a long long time to build a track record and trust to access my different sources of funds.

I know newbies don't want to hear it, but investing in RE is risky. You need deep pockets. Save up and start small. Don't take these insane HML & Private money loans that have terms that will cause you to fail in one way or another.

Originally posted by @James Wise :

I constantly see new posts from members saying things like

  • Got a sweet deal, but no money. What do I do?
  • How do I find private money?
  • How do I fund my deal if I have bad credit & no income etc?
  • I want to get started but have no money, What do I do?
  • I want to flip houses but I don't have any money. What do I do?

Do you think that there is way too much encouragement and content out there that promotes no money down investing? I find the majority of the no money down content to be very unrealistic.

Thoughts?

James I really wanted to comment on threads like this that I see all the time but being so new to the forums and with only 1 rental property under my belt I felt it wasn't my place.   I was hoping I wouldn't see a lot of the same circumstances that I see all the time in the car business in here, but I do.  "I've never paid any bill on time ever and have managed to save $600...can you put me in that E-Class for $400 a month"??

I want to yell but don't.  

You NEED money to do this folks, as a profession obviously, as a supplemental income / retirement plan definitely, and as a casual hobby I would still say probably.   Stop with the discourse about your spirit and ambition and gumption and force of will and get off your *** and get to Burger King in the evenings and stack some cash for a year while you learn all you can and then get going.

There is no shame in starting with zero and doing anything you can to save capital to get started.

There is no dignity in whining about "No investor taking a shot with you" because you watch videos and have "Drive".

Originally posted by @Stephanie P. :

@James Wise

Yes.  People think no money down means there are no other expenses because they don't differentiate between down payment and the myriad other costs that come with buying and keeping a property.

As the others have said, it only takes one bad tenant to bankrupt the person with no cash reserves although I will say if someone is totally committed to success, they will find a way.  Seems I read a thread a while back about how you got started buying properties with credit cards or something like that and now you've got a thriving business.  

Of course, that's a lot different than "no money down" which to me means "I'm not going to take any risk and if something goes south, it's on somebody else to take the hit."  What you did was actually, "I'm putting everything I have, plus some, into this and it's GOING to work."  

I salute the investors who say "Burn the boats, we're not turning back".

Stephanie

 Well said, Stephanie.

It's propaganda to sell education. Really, it comes down to wholesaling/contract assignment, which is really just a work-around to getting a sales license. After that, it takes money. Because it is possible for certain people in certain circumstances, the people who want to sell education use those cases to "prove" their worth. If you are clever enough and can make a go if it - bravo. But that is a far cry from the pitch that "its so easy everyone can do it". Uh huh. Anyone can be president too.

RE is not easy. It is familiar, it is accessible, but it is not easy. Wholesaling is doable, but it doesn't just happen by waking up in the morning and deciding to do it. Getting a zero down loan is doable, but not usually for people with no money or credit in the first place.

So yes, I think there is too much of that going around. I am glad BP is here to help people see there is more to the story.

I'm busted broke as a toilet that an elephant just sat on but I got the hustle and the drive and I just know the world would change for me tomorrow if I could catch a break in real estate...

Sure it would. Because in your fantasy world, there are no other major structural reasons you're down in the economic hole you're in.

I think the biggest problem is that so many people don't have a basic understanding of financial concepts (like how interest works), let alone REI. They see finances and RE as some kind of black magic that, if they can just learn the right way to say "abbra-cadabbra," will make them rich...next month.

I have all the respect in the world for folks who approach REI with humility and a desire to learn and truly understand how you can make money in RE.

The fantasy of "no money down" does make me cringe on a daily basis when I see it in the forums. Too often it's just code for "lazy." It's our job to help the newbies along and show them the blueprints for success. The posers fall away soon enough.

Originally posted by @Doug Pintarch :
Originally posted by @James Wise:

I constantly see new posts from members saying things like

  • Got a sweet deal, but no money. What do I do?
  • How do I find private money?
  • How do I fund my deal if I have bad credit & no income etc?
  • I want to get started but have no money, What do I do?
  • I want to flip houses but I don't have any money. What do I do?

Do you think that there is way too much encouragement and content out there that promotes no money down investing? I find the majority of the no money down content to be very unrealistic.

Thoughts?

James I really wanted to comment on threads like this that I see all the time but being so new to the forums and with only 1 rental property under my belt I felt it wasn't my place.   I was hoping I wouldn't see a lot of the same circumstances that I see all the time in the car business in here, but I do.  "I've never paid any bill on time ever and have managed to save $600...can you put me in that E-Class for $400 a month"??

I want to yell but don't.  

You NEED money to do this folks, as a profession obviously, as a supplemental income / retirement plan definitely, and as a casual hobby I would still say probably.   Stop with the discourse about your spirit and ambition and gumption and force of will and get off your *** and get to Burger King in the evenings and stack some cash for a year while you learn all you can and then get going.

There is no shame in starting with zero and doing anything you can to save capital to get started.

There is no dignity in whining about "No investor taking a shot with you" because you watch videos and have "Drive".

 That's good advice. As a matter of fact I know there's at least 20 or so threads here on BP where I've told people they need to go out & drive for Uber in their spare time while stacking cash for their next down payment on a rental property.

I think there is a belief that investing in real estate is easy, that it requires little or no money, you can use OPM, and you can get rich fast.  All of them are not true.  Has someone out there done it and become successful sure but that is rare and not the norm. 

The truth is.

- Investing is hard and it takes a lot of work and practice to understand your business. 

- It requires money and it requires your own money. 

- For OPM think it as borrowing from a bank vs borrowing from people.  

- Everyone I know who got rich fast in real estate 05-08 lost it all shortly after. They didn't know what they were doing and didn't understand leverage and risk.  Bull markets make amateurs think they are pros.  

I would actually like to see more stories in BP about people sharing their struggles and the difficulty vs just the wins.  Based on my interactions with investor clients, I would say 70% of them have no idea what they are doing but think they do. That is scary to me.

I think the biggest reason that "No Money Down" is pushed so hard is because it sales!  No Money Down draws in all of the people that will pay someone to show them how to do something with no money, no effort, no experience. People do not want to pay 10k for someone to show them how to be successful while also needing 100k to do it. It is so counterproductive it is embarrassing.

Originally posted by @Nate Marshall :

Absolutely! It is a huge problem in my opinion. I see it in the deals being sent to me everyday. I get over a dozen flippers wanting a loan and they have no money. Every "investor" on Facebook is asking for 100% and get angry when they're told it's not out there.

100% comes with a hefty cost when it is available. Do you want to give up 25-30% of your profit and control of the deal. 

The seminar promoters are guilty of creating this frenzy of misinformation and 100% or no money down propaganda. It's on the radio now from Than Merrill and others. 

 You'd have to be a madman to loan some schmo 100% of the money needed to do a deal. That fact that he needs 100% of the money is a big indicator that he's not good with money.

Sometimes newbies come on with barely a pipe dream. "I quit my job, have no cash and I am living in my parents house and I want to own 50,000 units." Half the responses are "you got this, go for it". I am all about positive encouragement, but cheering someone on when they are not ready can actually be dangerous.

On the flip side, I have seen new investors complain that more experienced investors are negative and their mindset is antiquated. They don't want to hear any of the bad stuff and they can't hold up to adversity. Good luck surviving in this business if you cannot even weather a few comments and learn something from it.

My favorite posts are when people say, "Here is my plan, tell me why it won't work." That is someone who understands critical feedback is a key to success. It like when Apple or Tesla pays hackers to find problems in their code. You want to find problems, not ignore them. That is how you get better.


I always feel a little hypocritical as I am often the "Debbie Downer" in those "I have no money, credit, or job posts" as I do use no money down, but tend to tell others why they shouldn't.  

I owned 3 rentals prior to my twins' birth 3 years ago when I was a controller for a manufacturer and my husband a teacher.  I opted to leave full time managerial accounting to be able to spend more time with my kids.  I realized rentals were a way to do this as I take a fixed monthly draw and leave the remaining cashflow in an account for future needs (CAPX, taxes, future repairs, ect).  I have not put 20% cash down on any of my rentals.  I own 10 units (9 properties) + my home.    My rule of thumb as far as reserves is, through cash or credit (excluding credit cards), if I had to, could I come up with $20k (in say 3 days).  I have retirement savings as does my husband, but I ignore them for purposes of real estate outside of loan applications.

Anyway, if I can come up with cash in a hurry I am ok with no money down, but those that ask me about how to get into real estate with no money don't even know where they would get the money to pay for a car repair or medical bill.  Ironically, my more successful friends are often too busy working harder to look at ways to earn money smarter.

Originally posted by @James Wise :
Originally posted by @Doug Pintarch:
Originally posted by @James Wise:

I constantly see new posts from members saying things like

  • Got a sweet deal, but no money. What do I do?
  • How do I find private money?
  • How do I fund my deal if I have bad credit & no income etc?
  • I want to get started but have no money, What do I do?
  • I want to flip houses but I don't have any money. What do I do?

Do you think that there is way too much encouragement and content out there that promotes no money down investing? I find the majority of the no money down content to be very unrealistic.

Thoughts?

James I really wanted to comment on threads like this that I see all the time but being so new to the forums and with only 1 rental property under my belt I felt it wasn't my place.   I was hoping I wouldn't see a lot of the same circumstances that I see all the time in the car business in here, but I do.  "I've never paid any bill on time ever and have managed to save $600...can you put me in that E-Class for $400 a month"??

I want to yell but don't.  

You NEED money to do this folks, as a profession obviously, as a supplemental income / retirement plan definitely, and as a casual hobby I would still say probably.   Stop with the discourse about your spirit and ambition and gumption and force of will and get off your *** and get to Burger King in the evenings and stack some cash for a year while you learn all you can and then get going.

There is no shame in starting with zero and doing anything you can to save capital to get started.

There is no dignity in whining about "No investor taking a shot with you" because you watch videos and have "Drive".

 That's good advice. As a matter of fact I know there's at least 20 or so threads here on BP where I've told people they need to go out & drive for Uber in their spare time while stacking cash for their next down payment on a rental property.

You have indeed.  I've read at lease 10 of them and smiled.

Originally posted by @Joe Splitrock :

Sometimes newbies come on with barely a pipe dream. "I quit my job, have no cash and I am living in my parents house and I want to own 50,000 units." Half the responses are "you got this, go for it". I am all about positive encouragement, but cheering someone on when they are not ready can actually be dangerous.

On the flip side, I have seen new investors complain that more experienced investors are negative and their mindset is antiquated. They don't want to hear any of the bad stuff and they can't hold up to adversity. Good luck surviving in this business if you cannot even weather a few comments and learn something from it.

My favorite posts are when people say, "Here is my plan, tell me why it won't work." That is someone who understands critical feedback is a key to success. It like when Apple or Tesla pays hackers to find problems in their code. You want to find problems, not ignore them. That is how you get better.


 YES.  If your skin is that thin this isn't going to work out well when banks toss you and your cockamamie ideas out into the street.  Be a dog walker...they'll always lick your face and make you feel good!