How to Buy a 41 Unit $0 Down and Make $400K profit

19 Replies

When people think of buying a house or an apartment building with no money down, they are thinking of using OPM - other people's money. So they raise capital - investor capital so that the principal in the deal doesn't have to bring money to the table (hence "no money down").

But if you raise money and you use that money as downpayment, for me - it's not a true no money down deal isn't it?

I've been told that doing a "true no money down deal" with apartment buildings is impossible. Well...it is possible and I can show you how I've done it.

I've acquired a 41-unit building because the owner asked my company to take over the property management. He makes good money outside of real estate investing and after seeing my success in turning around tough buildings even in tough neighborhoods, he came to the conclusion that he won't do a real estate deal unless me and my team are involved.

So we did a land contract where I take over the property - truly $0 down. I was thinking originally that I would need to raise $200,000 to improve the property. But, through efficient property management and financial discipline, we improved the property's operation so it produces enough cashflow, which we then used to improve the apartment unit finishes. We made them look a lot better than before, we applied for higher section 8 rents and got approved for them.

We increased the average rents from $589 to $695 per month. We got 6 offers on the property when we put it out for sale and after closing & selling costs and we will net over $400,000.

$400,000 is not a bad profit in less than 12 months.

$400,000 is not a bad profit on a truly no money down deal.

You might be thinking: well Mike, it's easy for you to say, but I can't do what you did. And you're right. Maybe you can't do what I just did.

But I hope you learn the PRINCIPLE behind this real-life example. 

The principle is this: you can use your expertise, experience, or skill (or even other people's expertise, experience, or skill) in lieu of cash as the downpayment. 

By doing this, even if you have $1 in your bank account, you can invest in real estate. You just need to be creative and hustle!

What about the experienced apartment investors out there? Have you acquired a building truly no money down? Share with BP Nation how you did it. I can't be the only one who can do this, right?

DISCLAIMER: I am NOT saying that you should buy a building no money down. In a lot of cases, buying a building no money down actually does NOT make sense as you can be overleveraged and the property will not cashflow. But in the above property where all it needs is better management and low cost of doing value-add, a no money down deal where we use our management and renovation expertise as our downpayment - makes a lot of sense.

I'm also a survivor, or close to it, 16 unit, $400k all in.

Bank did 100% financing and took seller CD for 20% collateral instead of down payment. Rolled in all closing costs, except appraisal. We can call it 1%.

After rolling cashflow into remodels I've increased rent from $5100 to  $9000 per month.

It's been a fun 3 years.

Originally posted by @Blake Garcia :

I'm also a survivor, or close to it, 16 unit, $400k all in.

Bank did 100% financing and took seller CD for 20% collateral instead of down payment. Rolled in all closing costs, except appraisal. We can call it 1%.

After rolling cashflow into remodels I've increased rent from $5100 to  $9000 per month.

It's been a fun 3 years.

That's great man! I am sure the increase in value must be even bigger. How much is the 16 unit now if you get it appraised?

Originally posted by @Yonah Weiss :

Great story @Michael Ealy. This is one for the book :)  Could you describe how the 'land contract' that you mentioned worked? 

 Land contract is simply the owner is giving me equitable interest in the property in exchange for a downpayment (in this case it is $0) and a monthly payment (in this case it is his mortgage payment). We agree on our purchase price that gives him a little bit of profit and anything over that is my profit to keep.

So to the seller, he makes money with no hassles and no headaches. With us, we make money on a building with no money down.

Of course the above is not the legal definition of a land contract but you get the idea.

My broker is working on a loan sizer and trying to get it to 1,000,000 value for a non recourse cash out. This would payoff original loan and cash out in the 350- 400 range after original debt. Then it's time to go shopping again.

@Michael Ealy , thanks for sharing the post. Being a real estate investor, you have to think outside the box to be creative. In order to get the things you want out of life with lack of resources, your creativity will be the X factor whether you get over the hump or not. I personally have not done and no money down deals in MFR, but in SFR I have. Sounds like you had a good situation there with the seller. You were able to build rapport and trust with the seller as being a known performer. I think it can be done, if you stick around in the game long enough. Favor tends to go your way. But for anyone who is looking to do their first deal, may not have the experience or creativity to put it together, which shouldn't stop them from moving forward. The newbie should figure out ways they can partner with experienced syndicators who can help them with a no money down situation.

Originally posted by @Blake Garcia :

My broker is working on a loan sizer and trying to get it to 1,000,000 value for a non recourse cash out. This would payoff original loan and cash out in the 350- 400 range after original debt. Then it's time to go shopping again.

 That's awesome man! So you're going to make close to $600K if you sell with almost double the cashflow for a 16-unit building you acquired for no money down and you can make that money in just 3 years.

Congrats! Don't you love multi family investing?

@Michael Ealy

Exactly, I'm going to refi and hold to avoid the taxes, but it was a great first multi family deal. (Off market through a relationship) I never did that well on houses. Even in rural areas there's a need for good owners and housing. People overlook them, but there's a great opportunity in small communities.

@Sean Kosmann

A little backround on mine. I met the seller through a previous property purchase. He was older with several businesses. His secretaries had to run the books. Leases were ancient. Nothing was remodeled that wasn't from insurance claims.

It started off as a partial owner finance. I went to borrow down payment from bank as a separate loan. Because neither bank nor seller wanted a 2nd place loan the bank took over the deal. 

From my perspective it's 100% bank financing. My loan amount is the full purchase price.

From Bank, it's 80% loan, 20% down payment held at bank as a CD in the seller's name which they can take back as collateral if I was to get upside down.

From Seller, it's a sale with 80% paid and 20% held as a CD to be released once I reach my 20% equity mark in my loan. I did dodge a personal guarantee between myself and seller to cover the possible loss of the CD.

At one point the price was lower, but I came back to the 400k price to do the owner finance. I still believe that I could've saved another 50k on this deal had I originally brought a down payment and financing of my own to the table. I was so amazed that it came together that I shut up and didn't push the limits.


Makes say more sense. Thanks for the background, I'm looking at a 8 unit right now, I think I'll get it for $400k, its cash flowing $30k currently. Need to run the numbers on the mortgage to see if its going to still make sense.

@Michael Ealy.  I've been reading a lot of your posts and comments lately and it is extremely informative.  Something I read recently is that key buying strategy for you is to buy below value, in emerging areas or where values are about to increase, then add value.  What are key ways you determine emerging areas or areas where values are about to increase?

That is a Great Method!

I was racking my head one day about a year ago and came up with an idea I know I have read in a book or seen in a YouTube video yet can't remember where yet.

"Remember -these #'s don't matter & are just an example-find a property in your price range"

for example:

say someone passes on and leaves a big building to his only ken left his nephew and the kid knows nothing about property management or the value and he never gets it appraised cause it will cost a grand or two..huh? right? probably happens all the time.

so here is where you come along and understand the buildings true value and you see right thru the old paint and clutter and see in your head what that bad boy would look like when done! so you get it appraised and pay for it in which you Do Not have to share with the seller.

say it's a $100,000 after you get appraisal...
you offer him a really low amount and he don't care because all he wants is a sports car anyway...
you offer $50,000 and he takes it...
then you go to a commercial lender with an LLC in hand and borrow 80% of the LTV or Loan to Value of the property because the bank requires you to 20% in yourself yet your putting it the free equity by getting such an amazing deal so it really is no money down and even better...you Got Paid To Buy It..!!!!
you walk out of the bank with 70-80 grand and go buy it for 50-60 grand and who cares if it's 10 or 20 grand, you got paid to buy it, lol

Originally posted by @Danny Randazzo :

@Michael Ealy how long did you spend building your relationship with the owner before he asked you to take over and manage?

 He knows me through my partner Nate for about 8 years and based on what he saw on how we turned around non performing buildings he became comfortable enough so he allowed us to control his building with no money down.

Originally posted by @Brent VanMatre :

That is a Great Method!

I was racking my head one day about a year ago and came up with an idea I know I have read in a book or seen in a YouTube video yet can't remember where yet.

"Remember -these #'s don't matter & are just an example-find a property in your price range"

for example:

say someone passes on and leaves a big building to his only ken left his nephew and the kid knows nothing about property management or the value and he never gets it appraised cause it will cost a grand or two..huh? right? probably happens all the time.

so here is where you come along and understand the buildings true value and you see right thru the old paint and clutter and see in your head what that bad boy would look like when done! so you get it appraised and pay for it in which you Do Not have to share with the seller.

say it's a $100,000 after you get appraisal...
you offer him a really low amount and he don't care because all he wants is a sports car anyway...
you offer $50,000 and he takes it...
then you go to a commercial lender with an LLC in hand and borrow 80% of the LTV or Loan to Value of the property because the bank requires you to 20% in yourself yet your putting it the free equity by getting such an amazing deal so it really is no money down and even better...you Got Paid To Buy It..!!!!
you walk out of the bank with 70-80 grand and go buy it for 50-60 grand and who cares if it's 10 or 20 grand, you got paid to buy it, lol

 Yup - it can happen but usually the bank will lend based on the purchase price not on the market value - specially if we're talking about houses. For commercial properties - banks are more flexible. 

For example, one hotel I acquired, the bank really likes the deal such that, usually, for hotels, lenders lend up to 65% of the hotel's purchase price. They lent me 75%. And then apartment syndicators get paid to acquire deals (they can charge their investors an acquisition fee). So, yes, you can get paid to buy a property - BUT, it happens more often in BIGGER deals but rarely on smaller deals.

@Michael Ealy

I've been reading a lot of your posts and comments lately and it is extremely informative. Something I read recently is that key buying strategy for you is to buy below value, in emerging areas or where values are about to increase, then add value. What are key ways you determine emerging areas or areas where values are about to increase?

Originally posted by @Brian Salazar :

@Michael Ealy

I've been reading a lot of your posts and comments lately and it is extremely informative. Something I read recently is that key buying strategy for you is to buy below value, in emerging areas or where values are about to increase, then add value. What are key ways you determine emerging areas or areas where values are about to increase?

 Brian,

It takes a lot of work to find that out.

But one way is to be aware of where the big employers are moving to or putting up a new factory or new branch or relocating their headquarters. 

Another way is to see in your area where the big developers are asking for development permits. They've done the market research as to which places are good to develop in. Then buy in those areas. It's like Burger King's approach. They just look at where McDonalds are being put up. McD did the market research and BK just short cut the process and follow.

Still another is to be involved in your city's politics (if you can and if you want to of course). Know the leaders and shakers in your community. Participate in your local chamber of commerce. Know your city's 5 year master plan. It will tell you which places are going to get infrastructure money - and you can deduce how it will impact the property values in those places.