Rental Property Investor · Woodbridge, VA · Member since 2008 · 543 posts · 121 votes
Ok everyone, what is your best no-money-down strategy?
I haven't done one in a long time. I find that most no money down deals are just not good deals or good properties in the first place. Also, it seems much harder to do now post 2008 financial bubble.
Tell me your stories, strategies, and philosophies on the subject.
Dawn, it happens and is for real, but rarely do they just walk away without money, unless there is another really good motivating factor. You also need to be in a position to pay that loan off quickly if the deal blows up and the lender calls it due.
4 big things you need to be in RE, capital/money, credit, reputation and knowledge. If you lack one, the other aspects must make up the difference. While I have all these, I could go at it with any one aspect. I just mentioned the credit and other asset approach examples, if you have cash it makes life much easier as Don mentioned. You still need knowledge and must be trusted.
Anyone reading this thread thinking they will be able to go at a deal with no money and no credit will need to have tons of knowledge, and thinking along those lines probably means they don't. I suppose some really slick salesman type might talk themselves into something, but they usually fail as they overload and can't perform. Anyone letting you into a deal also must trust you.
I've done many no money deals, one was a purchase over 850k and the seller paid me and kicked in additional cash for a development, never would have happened by anyone with less than exceptional skills, knowledge and with a personal reputation. That's why I get upset with gurus, saying or suggesting anyone can do RE right out of the box, just doesn't work that way unless there are some very good skill sets available to them. And due to that, so many get involved and excited and take the easiest route following some "program" and usually fail.
If you have money you can hire experts and managers. Credit alone can open doors if you have some business knowledge. Without money and credit, you better be really sharp and have a good reputation to stay in the game.
I purchased a small apartment complex in mansfield, Ohio. The sellers were don't waters and lived out of the area. It was poorly managed and the occupancy was low as well. Anyway I bought the property on a land contract, no down, no job verafication, no credit check, I walked away from the closing table with 5k check and had my mortgage payments deferred for 3 months as well. Only to pay the water/sewer, trash, mowing, well property expenses. Got the property leased up in roughly one month.
I purchased a small apartment complex in mansfield, Ohio. The sellers were don't waters and lived out of the area. It was poorly managed and the occupancy was low as well. Anyway I bought the property on a land contract, no down, no job verification, no credit check, I walked away from the closing table with 5k check and had my mortgage payments deferred for 3 months as well. Only to pay the water/sewer, trash, mowing, well property expenses. Got the property leased up in roughly one month.
I love Ohio and Land Contracts!
Could you please discuss the following?
1. How did you find the deal?
2. What was important to the seller in the negotiation?
3. How did you get the $5K and 3 months deferral?
4. Did you use a leasing agent?
5. What is the positive cash flow? Are there any vacancies currently? Is there any way to decrease current expenses and increase rents soon?
This is a great example of a dont wanter seller and a creative REI.
A colleague of mine at my local REA presented his 0% down, 0% interest purchase in the "Deal of the Month". He purchased a 14 unit apartment complex in Merritt Island, FL. It was brought to him by a Realtor (was not listed in the MLS but on Loopnet.com) He paid $760,000 with seller financing - 10% down with zero interest for first 100 payments. He found a private money investor that paid for the 10% down. He is splitting the total profit between his private lender in a 50/50 deal. 0% down, 0 % interest.
I just posted a snippet of what I'm trying to setup, here is the jist:
I find an investor, usually a friend or family.
This is for buy and hold, with potential appreciation.
They put down 100% of the purchase price and closing costs.
They get 50% of rent off the top.
The remaining 50% goes to me and I am responsible for all expenses.
Upon a sale, the investor gets his investment back first. I get back any repair/improvement costs, and the rest is 50/50.
Of course, according to the 50% rule, I would not make any money per month and only on the sale assuming appreciation; but if there is a vacancy, the investor doesnt get anything, so we split that risk.
I would appreciate any comments or criticisms about this model. I think it sounds really good for both sides of the table.
Ben, that's a solid and fair strategy if you know people who can front that much cash. If you're blessed with those kinds of friends then go to work my friend. I don't see a problem with it.
That plan would be a much better place for your family/friends money than the stock market. I think it's quiet equitable.
I'd just like to remind everyone that soliciting for funding can get you in trouble with the SEC. You can market to family and friends and be mostly safe but as soon as you start asking money of strangers you start getting into merky waters. Also, be careful about promising any returns. I think Ben is safe here because he's just spliting the profit not promising a rate of return.
Sounds like a great deal for the money guy, but it sounds like a $45k/yr job for you - unless you're doing multiples at a time. If you could turn one of these a month instead of one every four months - now that would be great.
- Subject To - yes, they are real and I've done several of them. Just do what you say you are going to do and don't mess up your seller's credit. If they already have bad credit, then you can actually improve their credit by making timely payments. Make sure you get a limited POA so you can talk to the bank if you need to. My experience is that you do not need to worry about the due on sale clause. If you keep the payments current the mortgage company has no reason to be looking at that property very closely.
- Owner Financing works sometimes, especially with older landlord investors who have been managing their own properties. They like the cash flow and want out of the management and are smart enough to know that they're only going to get 0.3% if they cash out and put the money in the bank. (You're not going to make this deal with the guy that wants to cash out and be a hard money lender, but most just want to go play golf).
- Lease/Option - don't do major property improvements before you exercise your option unless the whole deal is escrowed with an attorney.
- Lease at a low payment. I don't care if I ever own it if I get a few hundred a month off of it.
- Single Payment Due On Sale note for a rehab/flip. House needs a lot of work. You get the deed, give back a due on sale note with no payments. Rehab using your money or an equity partner's money. Sell the house and pay off the seller at that time. You can even sweeten the deal for the seller a little bit by getting them to wait a few months for their payments. If you're not paying interest, you can pay them a little more for the house than you otherwise could have.
- A recorded Option without actually taking the Deed up front could work for the above rehab/flip scenario as well.
- If you're trying make huge profits in your IRA, the Option is a great tool. Give the seller $100 for the Option out of your IRA. Your buddy does the rehab(but not a disqualified party and definitely not you). When it comes time to sell, they have to cure your option to get clear title. Your IRA demands $10-15k to clear the option...
just posted a snippet of what I'm trying to setup, here is the jist:
I find an investor, usually a friend or family.
This is for buy and hold, with potential appreciation.
They put down 100% of the purchase price and closing costs.
They get 50% of rent off the top.
The remaining 50% goes to me and I am responsible for all expenses.
Upon a sale, the investor gets his investment back first. I get back any repair/improvement costs, and the rest is 50/50.
Of course, according to the 50% rule, I would not make any money per month and only on the sale assuming appreciation; but if there is a vacancy, the investor doesnt get anything, so we split that risk.
I would appreciate any comments or criticisms about this model. I think it sounds really good for both sides of the table.
If you're only looking for appreciation in exchange for all your hard work and the risk of running over on expenses, then this would work in an appreciating market. It's a great deal for the money guy.
I might try to negotiate the deal a little different. Something like this maybe:
- Expenses are paid first.
- They get the next 30% based on gross rent
- You get the next 10% based on gross rent
- You split the remainder if any is left.
This would almost guarantee that you get some money each month in exchange for your work unless there was a bad month in expenses.
How are you negotiating capital improvements that may be needed during the course of the JV? If the house needs A/C or a roof you could get killed if this hasn't been addressed separately from standard maintenance type expenses.
Anyone else have some thoughts on this? I'd like to brainstorm this type of scenario a little more for my own purposes...
I would love to connect with you. I'm starting out in the Fredericksburg area and I'm looking for a no-money-down strategy as I don't have much cash to work with getting start rehabbing. I look forward to hearing from you.