Ben Leybovich says that making down-payments is not smart – thoughts?

52 Replies

Ben's latest article suggested this and he thought it would be a good forum post to check out what other people think.  

Check out his article, it's a good read.  http://www.biggerpockets.com/renewsblog/2014/09/02...

Send out your thoughts / strategies!

Ben told to me to ping you @Brandon Turner

Control $120,000 with $0 OR control $120,000 with $24,000.  This is news?  Will there be film at eleven?

We don't need no stinkin down payments. Give me a 125% LTV anyday!

I think it's smart if you can find those type of deals. I'm all in!

Originally posted by @Bob Bowling:

Control $120,000 with $0 OR control $120,000 with $24,000.  This is news?  Will there be film at eleven?

We don't need no stinkin down payments. Give me a 125% LTV anyday!

Wait! Wait! Wait! 5 second rule...I'm changing my vote.  I just realized I'll be about $115 a month negative cash flow from financing the $24,000.......Whew!

It all depends on the market/deal/strategy. If a properly will cash flow at 100% financed, any down payment will increase the cash flow per month. The downside is that the capital is tied up and not available for other deals, or whatever else you would want to use it for. 

So if I could buy a property that would perform well at $0, would I? Definitely. Is it realistic and repeatable in my market? Not very likely 

My .02

As a newer member... I'm not seeing it clearly.

How are you getting this 100% financed? If I start calling lenders right now to buy a duplex for $180,000.00 with 0.00 down; I'm under the impression there will be laughter.

This topic is really appealing to me, but it does not seem realistic for someone who is just starting out with no enough contacts to pull up money from in order to finance the deals.

Medium aldeausaPavel Reyes Valdes, Reyes IT and Trading, LLC | [email protected] | 5022964839 | http://www.louisvillehouseseller.com | KY Agent # 76010

Come on Ben, is this bait to something else? I think it might be. Didn't read the link, just the comments here and I can assume.

Reality, Ben is correct that if a deal can cover 100% financing and provide cash flow, have at it! How rare are such deals......they are rare. How do you finance them? Seller financing and private funds combined to an acceptable solution for both lenders. Which is actually another trick for your cash investor if they are in a second position.

Some use creative accounting to convince the investor and seller that they are covered, even toss in additional collateral for the perception of security. Be careful as if that balloon pops you will be the one examined as to predatory practices and stretching the norm in your presentations which looks a lot like fraud. Not saying Ben is doing anything wrong, I don't know, I don't want to know, my comments are to what I know is already out there and saying there is no easy, new way to approach the business, it's all been done before or at least tried.

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

Originally posted by @Bob Bowling:
Originally posted by @Bob Bowling:

Control $120,000 with $0 OR control $120,000 with $24,000.  This is news?  Will there be film at eleven?

We don't need no stinkin down payments. Give me a 125% LTV anyday!

Wait! Wait! Wait! 5 second rule...I'm changing my vote.  I just realized I'll be about $115 a month negative cash flow from financing the $24,000.......Whew!

 Whoa whoa!  Let's slow down, I'm gonna change my mind again. 1.  I have $24, 000 in 2014 money.  If I give it up I will get about $115 cash flow in FUTURE dollars.  I won't even break even til after 17 years.  How can you even call that cash flow when it's my own money coming back to me!!!  Geez, I almost outsmarted myself!  Gimme 100% financing please.

O'k, but who is lending at 100% financing?  I have talked to a few lenders and the best I could find was 90% on property and 90% for rehab, and the process was agonizingly long.  Point me in the right direction.

I'm actually attempting to use this strategy (or a variation thereof) myself.

The idea is to buy a place below market value for cash and do whatever work needs to be done to get the place ready to rent. The goal is to spend no more than 75% of the post-repair ARV total on purchase, closing costs, repairs, and carrying costs.

So, to stick with the $120k example, let's say I buy it for 75k + $2.5k closing costs, spend 10k on repairs, and have $2.5k in carrying costs. I've got $90k in, so now with a 75% LTV mortgage I can get all of my initial capital back, rinse, and repeat. I'm essentially flipping the property to myself.

I haven't actually done this yet, so I'm speaking from theory not experience.  I bought my first investment property this spring.  I'm cash flow positive in a neighborhood that should see fairly rapid appreciation for the next couple of years.  The problem is that I didn't do something like the above, so I've got a ton of cash tied up in the house until I can refinance post-appreciation.  I realized I had to figure out a new strategy or I'd be stuck at 2-3 properties for a long time.

Now, if I'm off on what Ben was thinking and someone has a line on 100% financing, please let me know, because that would be way easier.  I could buy a place a month and keep my day job. :)

I think it might be more realistic to put 20-25% down on a very good buy that needs work. Put a little love into the property thru a construction loan from a reputable local bank. Then, refinance and pull your cash back out. This only works if the buy is good, and you're able to control your expenses on the construction. My first property was a FHA 203K loan, which I would never do again. My 4th will be done leveraging this technique.

So, in essence, it's the same as no $ down.

isn't the no-money-down approach what got us in trouble in the first place ;-)

@Ben McDermott  @Ben Leybovich  

It wasn't the no money down that got us in trouble.  Financing 100% of the value and expecting that 100% equity will become 120% in the space of 3 years for no explicable reason...

Financing 100% of the purchase and financing 100% of the value are not at all the same thing :)

Do you have documented proof this tactic has been done? LTV 125% No local bank will do such a thing with out collateral

@Ben Leybovich is saying there is a difference between value and price. He is saying that you finance 100% of the purchase not 100% of the value. So if you purchase a house for 75,000 that is worth 100,000 75% LTV is 75,000. Plus Ben likes to finance things creatively by using multiple sources of money.

Originally posted by @George Frick:

As a newer member... I'm not seeing it clearly.

How are you getting this 100% financed? If I start calling lenders right now to buy a duplex for $180,000.00 with 0.00 down; I'm under the impression there will be laughter.

 There are a lot of ways George  that is true you might get laughter if you call traditional lenders, but some ways you can are:

- seller carry / seller financing

- Buy at 75-80% of market value from auction/TD sale/etc with 20% down then cash out refinance back out all of your down payment and contributed funds after initial closing with regards to residential

- on Multi's you can create cash flow and buildings make a multiple of that net cash flow. For instance 8 Cap sells for 12.5x of NOI (net operating income) so if you can increase NOI by increasing income or decreasing expenses you can increase the value and lenders will lend you based on that new value with sufficient documentation and time allowing you to pull all of your money out of the "deal," and in essence you have an "infinite," return or 0% money in the deal.

- etc

Medium new american funding logo  Albert Bui, New American Funding | [email protected] | 949‑514‑5106 | http://albertbui.com | CA Lender # 345453, WA Lender # 345453, TX Lender # 345453, TN Lender # 345453

Originally posted by @Ben Ciborek:

@Ben Leybovich is saying there is a difference between value and price. He is saying that you finance 100% of the purchase not 100% of the value. So if you purchase a house for 75,000 that is worth 100,000 75% LTV is 75,000. Plus Ben likes to finance things creatively by using multiple sources of money.

Yeah its funny because as I read the comments its apparent that the interpretation of "LTV," depends on what you're using for price/value.

100% of 80 cents is a lot different than 100% of 100 cents and sometimes it gets misconstrued as the bank providing 100% financing based on current market value while the writer meant 100% of acquisition and rehab but, 75% of ARV -after repair value.

Medium new american funding logo  Albert Bui, New American Funding | [email protected] | 949‑514‑5106 | http://albertbui.com | CA Lender # 345453, WA Lender # 345453, TX Lender # 345453, TN Lender # 345453


- Buy at 75-80% of market value from auction/TD sale/etc with 20% down then cash out refinance back out all of your down payment and contributed funds after initial closing with regards to residential

- on Multi's you can create cash flow and buildings make a multiple of that net cash flow. For instance 8 Cap sells for 12.5x of NOI (net operating income) so if you can increase NOI by increasing income or decreasing expenses you can increase the value and lenders will lend you based on that new value with sufficient documentation and time allowing you to pull all of your money out of the "deal," and in essence you have an "infinite," return or 0% money in the deal.

Personally I don't see either of these as 'nothing down'. In fact you directly state '20% down'. These are fine and dandy and are additional techniques that can be used to free up/get back/pull out money, but I don't think it is accurate to call these nothing down tactics when they clearly require something down. 

Semantics really- the strategy outlined by Albert achieves the same result of maximum leverage. It's just a timing difference.

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