Can you really buy investment properties with zero money down?

12 Replies

You hear all of these people (so called Gurus, self proclaimed obviously) talking about how when they got into investing they had no money and had to come out of pocket with zero cash in order to obtain their first property. Has anyone ever ACTUALLY done this though? I mean, between hard money, private money and gap loans it would seem like it's possible, but is it really? 

for flips you can do gap funding and a HML first.. for buy and hold you would need seller finance

all possible but not likely for someone with zero experince.

Real estate is a business business's need capital and capitalization to start up.. just like any other start up.

"Low and No Money Down..." is typically a parsing of words which - in my book - is lying.

Some methods of "no money down" include:

- Financing with a credit card. Uhm...that's money, right? And it has to be paid back?

- Hard Money Lenders. Uhm...that's money, right? And it has to be paid back?

- Private Lender. Uhm...that's money, right? And it has to be paid back?

- Family and friends. Uhm...that's money, right? And it has to be paid back?

These are all just methods of borrowing money.

Let's say a Seller accepts 100% owner financing. You start collecting rent and making monthly payments to purchase the property. No money down, right? Sure, but you've borrowed 100% of the purchase price (probably at or above market rate because you were desparate) and now you're dangerously over-leveraged. All it takes is one bad tenant to cause a two-month vacancy and $5,000 in damages and you are out of the game.

No money down is a fool's errand.

@Jeff Jennings I think some of this will boil down to how much you want to market, how much time you can spend, and how many frogs you want to kiss. Is it possible? Sure. Does it happen? Sure.

Will it happen to someone in their first month with zero dollars in marketing that has a couple of hours a week to work on it, and never had a conversation with an owner or HML before? Eh, not so sure.

I’d posit that me being “lazy” with 25% down has a much higher chance for a “successful” property acquisition in the next 30 days than someone going for 100% owner financing.

That said, I’ll never get an “infinite return” and there’s a darn good chance that me being “lazy” means I’m negotiating again retail prices on the MLS against the rest of the market.

Consequently, I could easily argue that your “deal quality” will be higher than mine.

So, in your shoes, I’d go at it for 90 days. Measure your efforts vs. results, see what happens. Now I think 90 days as a window is waaaaay too short but, hey, it’s a start 🤷🏻‍♂️

To me if I don't put any money into a deal and get my name on the title it is 100% funded.

Of course there is financing in my experiences.

By my definition that IS nothing down.

@Jeff Jennings Yes. Of the 16 properties that we purchased last year for buy and holds, 8 of them were “zero money down” properties.  Among the other 8 we had about 160k into them. 

Now my definition of “zero money down” means none of my own money stays in the deal after the deal has been rehabbed, a tenant placed, and it has been refinanced. If I am able to get all of my money back after all of that, then I consider it a “zero money down” property. Of course I used hard money lenders, private lenders, and credit lines to fund the purchase and rehab of the properties. I also needed to use my own money for carrying costs during the rehab. But ultimately I was able to get that money back out during the refinance.

Keep in mind though that these were not our first deals. We were only able to start doing these after we put together a system, a team, and gained experience and credibility over a couple of years.

Originally posted by @Shiloh Lundahl :

@Jeff Jennings Yes. Of the 16 properties that we purchased last year for buy and holds, 8 of them were “zero money down” properties.  Among the other 8 we had about 160k into them. 

Now my definition of “zero money down” means none of my own money stays in the deal after the deal has been rehabbed, a tenant placed, and it has been refinanced. If I am able to get all of my money back after all of that, then I consider it a “zero money down” property. Of course I used hard money lenders, private lenders, and credit lines to fund the purchase and rehab of the properties. I also needed to use my own money for carrying costs during the rehab. But ultimately I was able to get that money back out during the refinance.

Keep in mind though that these were not our first deals. We were only able to start doing these after we put together a system, a team, and gained experience and credibility over a couple of years.

your describing the BRRR method which is anything but NO money down..

as one moves into this business it does become possible to do deals with none of your own money.. happens every day.. but in the context of folks on BP that are generally speaking starting their journey.. they have neither the experience or knowledge how to do that.

When you get some velocity behind you then yes many business's in the real estate space the sponsor or owner of the company leading the charge may have NONE of their own money in the deals.. 

However when doing that the leverage also is so great that cash flow while maybe there is just not consiquential unless you can scale to 100 plus or more doors.

@Jay Hinrichs I was just responding to his question of whether there was anyone doing no money down deals. The answer is yes. We did several last year and we are in the process of doing some right now. 

Our properties are leveraged at about 80% though so you are correct the the cash flow is low - about $1600-1800 a month for each of us (my partner and I). But since we don’t need the cash flow, our focus is on the debt pay down every month and payout on the sale in 3-4 years. Our goal is 30-40k profit for each of us on each property we purchase.

If you go into real estate investing with no risk capital then you are setting yourself up to fail.  Real estate investing should be evaluated like any business.  All startup ventures require capital for various reasons.

Now when it comes to specific deals, it is possible to structure the actual acquisition and renovation with no out of pocket.  We typically see that done by utilizing a hard money lender along with a private lender or second lien holder for the closing costs.  

There are also private lenders in markets that will finance everything into a deal.  These lenders typically require some experience and may want a equity on the backend.  It just depends.  

In either case, an investor will still need capital for debt service and contingencies with the renovation at a minimum.

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