OK. So - unless you live under a rock, you've by now listened to Podcast 108 featuring Grant Cardone. If you listen between the lines, and you don't have to dig too dip, Grant has nothing particularly nice to say about the no money down strategy. He makes this point of view known elsewhere as well...
Since you absolutely can't argue with Grant's success, and he absolutely must be taken very seriously, where does this leave Ben Leybovich and @Brandon Turner who are notorious on BiggerPockets for nothing short of nothing down?!
Grant is not so much trying to create income in RE, but to change the face value of earned income in his businesses to RE income, which is not only taxed lower, but Grant feels is more stable. To him, RE is not a stepping stone - it is the destination. All good by me...
Now - consider myself. I've built a portfolio of multifamily which has allowed\s me not to work for a living. I pursued the nothing down strategy because it was the only option - I am not smart enough to start businesses and unfortunately, while I was quite good at playing the fiddle, because of the MS diagnosis I was unable to pursue that career (not that it would have been a career capable of generating any serous revenue anyhow).
Jump to today - my partners and I are currently negotiating on a 90-unit out of state. This means a couple of interesting things:
1. This deal, if it grows through, will make me, and the investors, some respectable money.
2. I have partners, without whom I could not do this kind of a deal at this point. Both of these guys have more money and units than I do today (though this is not going to last).
Both of them, I'd like to believe, take me seriously... Why - because I've done a lot of ****, and I've learned enough to not do even more ****. They think I am not stupid.
Guess what - I got smart doing nothing down deals...
3. I've been using OPM for 8 years now, and if this deal comes through, I'll be floating a PPM of $1,000,000+; I will raise $1 mil from investors who agree with my partners in that I'm not stupid and know what I am doing.
Guess what - I got smart doing nothing down deals...
To me - nothing down is not a destination. It is a stepping stone. I am going to turn 40 in March. I have a portfolio (all bought with nothing down) that has allowed me to do vastly better financially than any music student I went to college with. It has allowed me not to work and focus on learning RE, and it has bought a margin of financial safety for my family which is better than any of my friends...even those earning high incomes...
And now, I have put myself in position to do much bigger projects, which, after a few years, will begin to cash out big. At the end of this road, I will be able to retire with free and clear A Class RE with the money I parlay from my syndication pay days...
All of it was teed up by having the audacity to not listen Grant Cardone and go for it in the only way that I could - No-Money-Down!
I've built a small business in RE. Now, I am growing that business into an empire by re-investing the dividends from the business I already have. There is some money I can throw around now, but mostly knowledge is the biggest dividend.
Thus - while no one can disagree with success, I'll take a stand. I disagree with Grant Cardone - No-Money-Down does work. However, in this strategy RE is not the final destination, but a stepping stone to bigger and better things. I am the poster child of this...
hi Ben I'm from pittsburgh, I'm just starting, my idea is to find abandoned homes here, contact the owners, do a land contract, get my name on the deed, no money down, fix and flip first to generate some cash then fox and rent. Would I just use an assignment contact to get this going?
@Ben Leybovich That was a long journey just to say you agree, but...
...and, it was worth the trip. Well said.
I'm like you in that my entire REI is, wa, and shall forever be based successfully on No Money Down.
Grant is 100% correct in all of his statements leading to his success, however, not in any negative inferences to NMD. After all, it isn't the concept...it all comes down to the plan.
@Joseph Zenewicz - land contract does not transfer legal title, and as such your name would not go on the deed.
Well Ben, I read most of that and when it began feeling like a justification to the NMD systems I stopped reading, because t doesn't need to be justified due to any podcast by anyone. Not everyone goes that route, it's how I started s well, so I'd say it works, but it's not easy.
Joseph, stay away from land contracts an no, you can not assign any financing contract to some other buyer without the specific consent of that seller/lender.
No, I didn't listen to Grant's podcast. I can assure everyone, just because I did something or someone else did something does not mean hat as done can be replicated, that's an assumption newbies make, "If he can do it, I can do it" not true at all. But that's not saying no money down deals are impossible.
Might search for my NMD deal, the seller paid all closing costs, 100% of the price and kicked in cash for the development and my admin fees! But it takes expertise, knowledge, confidence, social skills and organizational expertise when you get into 800K deals. There is no whizbang system, each deal stands on its own, they are hard to duplicate due to the circumstances and the situation a hand, learn to identify the possibilities. :)
Your point is very important. You see people in BP toting different strategies. I like your point, end versus stepping stone!
We got started in no -money down personal properties to 20% down investment properties. We couldn't have started where we are now because we didn't have the capital or background!
The one thing I like to say about BP. Is the only two things we all agree on is 1) helping others and 2) investing in real estate. Beyond that everyone has their own, niche, story and philosphony.
Learn from others and create your own :)
Thanks for a great post!
@Ben Leybovich Grant is on a different planet than I am so I'm going to keep plugging away. I try to buy with as little cash in the deal as possible but still have a minimum cash flow target. I have bought two SFH's in the last 6 months for cash then renovated to rent. On both deals, the amount of cash I had in the deal equaled 80% or less of the appraised value so I got a mortgage equal to what I had in the deals after the renovations. These deals required cash but when the dust settled, I had all my cash back, equity, and cash flow. I haven't learned to do this on a grand scale yet but then again I have a lot to learn.
@Joe Villeneuve - I don't disagree with Grant that too much leverage is not a good way to retire. Therefore, I really do view nothing down as a stepping stone...
Having said this, I get richer every month. My balances are being paid off every month. Not to mention that if I didn't become a master of nothing down, my options would have been exactly nota...
It served a purpose. Doing something in lieu of doing nothing. Learning to be creative as all hell, and patient to take action only on the best deals.
I do agree with Grant. I'm not against NMD down but do not see it as investing in RE. Investing in RE is about wealth creation and preservation. When you invest with no money down you generally have nothing to preserve. With no skin in the game there is generally very little to no real cash flow if your calculating it correctly over the long term. Certainly there is no room for property management. As such, your simply creating yourself a very low paid job. Like the immigrants that buy a 7-11 and have to work it 14 hours a day to clear $30k a year. Maybe not bad for them but I would hardly call it an investment. As I tell @Ben Leybovich , why not cut to the chase and just become a property manager? The $100 per property managed will be more than your no money down deal without any of the risk and you are already a PM by default. I don't see "owning" RE as some sort of great privilege. Others want to tell all their friends that they are an "investor". To each his own.
I met a NMD investor recently with a small group of his followers at a local bar. He was bragging how he purchased a portfolio of D class junk from an old man for what amounted to retail value with NMD. He shared how much he would cash flow and how he was now a big time "investor" and created infinite ROI. The group was literally in awe as to how he pulled it off and feverishly taking notes. I felt sorry for him. He purchased nothing but perpetual liabilities with no chance of refi and has instantly become a property manager with no compensation. But at least he is now an "investor." That story will not end well for anyone except the old man that passed along his junk and converted it to real passive income, albeit probably short term.
Now, there is a time and place for no money down investing. At the bottom of a cycle when RE is out of favor like 2009-2011 I would have said buy everything you can regardless of how you buy it. No money down is very viable if you are buying equity. Buying a $100k property for $60k with no money down can be a strategy and you are creating some wealth. Buying someones junk that he can't sell in an arms length MLS transaction with NMD to hope to make $25 a month self managing ... now that is some nonsense. Just think about why your seller is willing to finance you his property instead of selling it outright. Show me a property in today's market that can cash flow anything material after paying 100% debt? Show me a seller today that will sell you his property for 50% of retail AND provide seller financing. How many units will you need to own AND manage to actually cash flow anything material and sustainable? Just save your money and buy a 7-11 if you want a low paying job that bad. Call yourself an investor and be done with it.
@Bill Gulley - I agree. It's not easy. Nor is it the final destination. NMD investing is about getting your foot in the door. It's about having a chance. That's all...
LOL, yes, if you don't ask or suggest it, odds are you won't ever get it. OTH, I'm considering selling a property and I may only do so by carrying the note, folks like me are rather rare if you think door knocking or mailers will find us, it's a tax issue, I don't want the money at settlement, but I'm not doing it at 100% either. :)
@Bill Gulley - if he is any good, he'll come up with OPM for the down :)
I started buying notes & flipping houses (which is turning into some buy and hold too) with OPM and partners and it is a viable way in. I got a late start because I answered the call to go into ministry which if you want to make money and build a future that obviously is not the way to go. Now I can use real estate to provide for my family, develop passive income, retire and leave an inheritance while all the while still help in the ministry. I am someone that people know comes through on his word and can be counted on so people come to me with deals that work and they don't end up being the equivalent to a 7-11 job. I didn't have parents that were able to help me at all, and when I got married my father in law had a few bucks to invest so I put it to work for him. He is happy and I'm in business.
Great post Ben. This keeps those of us just starting out with little $ from being too discouraged!
@Serge S. - OK, I'll bite. You are right, NMD is a business, it's not investing. Syndication is a business. Turn-key operation is a business. Hell, 75% of people who win the REI game are in the "business" of REI. What your point? Are you suggesting that people don't do REI business because it's work? Are you saying they shouldn't acquire assets and allow others to pay off the debt to facilitate retirement with more dignity than their friends on SSI? That's just *** backwards, Serge!
And as to your point of management in lieu of ownership, let's think:
Let's assume you are right, and in order to generate $3,000/month of cash flow requires similar time commitment if doing management as well as ownership. I disagree with that, cause ownership takes far less time and energy than management, but let's just assume. This means that in both cases we are trading time for CF - fine.
However, trading time in this way and being the owner will over time build one's balance sheet. You get richer every night while you sleep - not because you manage other people's property, but because you mortgages are being amortized for you. Me too...
Thus, if you think that CF is fickle in principle, and what matters is building a bullet-proof balance sheet, the managing other people's property does nothing. I'd rather finance a property 100% and break even on it for 20 years, and build up some sort of a nest egg - presuming it's the right kind of property - not a $30,000 pig :)
I agree with you on most things, my friend, but on this you need to get off your high horse. People who are willing to hustle and educate themselves will do just fine for themselves using NMD to advance. Furthermore, for many, and I include myself among them, NMD is the best alternative and the only way to meaningfully advance their financial agenda.
@Serge S. REI is a business. If you don't treat it that way, you lose. It's when you don't treat it that way that you rationalize negative cash flow as investing.
I loved the podcast with Grant. You got my text right after I listened to it! It was motivational than a real estate strategy podcast though.
I, like you have built my 42 unit MF portfolio with no and low money down creative financing and agree that it has taught me more about REI had I had the money to go conventionally. Not only have I already done bigger deals than most buy and hold guys in my area I will continue to go bigger.
I've posted in many of the, "I have $100k in cash to invest, where do I start?" type threads with the message to put the money in the bank and forget you have it. Find a way to buy without it and you'll go way farther in this business!
I think the term NMD is misleading especially to new investors like myself. As Brandon Turner said on one of the podcast, even though it's NMD, he is bringing other values to the deal. NMD should be renamed to "None of My Money Down But Somebody's Money Down". With guys like Brandon, they are able to use OPM to make down payment, because they have enough experience and skills in REI, and they bring awesome deals to investors. From what I can tell successful NMD comes with track-record and experience. So noobies like myself will have a hard time starting NMD deals. And even if I could, I probably wouldn't go this route atm, because I know I will be making mistakes all over place with my little or no knowledge in REI. I rather make mistake with my own money at first to learn rather than playing with OPM and become liability.
I like Grant's podcast. He didn't go into too much detail how he financed his properties, but it sounds like he had built couple of business prior to building his REI empire, and Grant used the profit generated from those business as down payment. So he is able to create a huge down payment for those multi-million dollars apartment deals because he has three of business running in the background to support it. I mean how many noobies out there can make down payment of 300k like he did?
And if people think Grant's way is the only way to become successful in REI, I ask you what about Ken McElroy? In Ken's Podcast, he mentions his multi-million dollars apartment deal with NMD. Is Ken's methodology incorrect since Grant said NMD doesn't work? That's what I love about REI. There are many different routes you can take to reach your destination. You just gotta figure out which route works best for you.
NMD is the foot in the door. I could not have started without NMD. I had no cash, so there was no choice. The first 11 properties that I bought were all essentially NMD. BUT, #12 was all cash. the end game for me is fewer properties, fewer headaches, and no debt.
Welcome. Have bought property in Pgh. as well. Take a listen to my Bigger Pockets Podcast #82.
Obviously there are tons of ways to be successful in real estate. There are certainly people who become successful using a NMD approach. However, as with any investment, the amount of leverage greatly increases the amount of risk. While NMD can still be a viable approach, more NMD investors will inevitably fail in the long term than those who start with decent equity in their properties. There were plenty of NMD RE investors in 2006 with net worths on paper of tens of millions, but when everything came crashing down, they went under because they lost both their equity & their cashflow simultaneously.
The two most successful RE investors I know both put substantial equity in their properties up front. The one has steadily built a $4mil portfolio of class A residential putting 20-25% down while maintaining his day job in commercial real estate and will have paid off his last mortgage in 5 years allowing him to retire on over $300K per year from 15 properties. The other buys class D properties all cash & has accumulated a few hundred properties which throw off 7-figures in cash every year. An added bonus of putting a lot of money down is that both of these guys have very few concerns on a day to day basis, and are just following long-term plans to build intergenerational wealth of which real estate is only one piece of the puzzle.
NMD may be the only way to go for some people just starting out with no capital, but it decreases the likelihood of success. It is similar to borrowing money from a paid off primary residence to invest in the stock market. Can some people do it successfully, sure, but the vast majority should keep the paid off home and find a less risky way to build wealth.
@Gregory Hiban The amount of leverage lessons the amount of risk. That's why the lender wants you to put cash in...and they don't give you 100% of the money you need. The loan to you is cash to them. They don't consider you to be at risk if they give you 100% funding in the loan.
When you have all cash in you are more at risk. You lose the house, you lose all your equity (cash in the "dead" form). When you are leveraged, and you lose the house, you lose only the amount of cash you put in.
The risk is in the cash...not the leverage.
I do live under a rock a mossy one at that. so did not listen to the podcast.
OP said that a statement was made that Multi family is bullet proof and you can't lose and he took exception to that statement.. I would also.. We have all seen nice properties get run down and those that owned them lost big time.. Just like any other asset you can and people do lose in Multi if you don't know how to run it.. Or your multi got over taken by the Ghetto ect.
but your example of the deal your doing is simply stating YOUR putting non of your money down.. But the deal requires actual cash equity that is coming in through your PPM.. Nothing new or original in that concept or way of structuring the deal and its far from No money down. Your leveraging your contacts with OPM there by putting you into the deal with NONE of your own cash...
Many of us in the business have done this,, do this , and will continue to do it.
In my mind true NMD is buying an asset with no partners and putting none of your own money into the deal.. which usually occurs in some sort of Sub too or owner finance deal. And these deals happen all the time and in all markets..
@Joe Villeneuve Leverage lessens risk? You only lose the cash you put in if you lose the property ... the more equity you have in a property, the more options you have when times get tough.
@Gregory Hiban Ask any lender that same question.
What options do you have with the equity if the reason you lost the property also prohibits your from qualifying for the mechanism required to tap into that so called "option".
If I refinance my equity (not all of it...I can only get up to 80% so I still have 20% equity) out, I have that cash before I need it.
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