Zero Down, does it really exist?

23 Replies

I heard on a BP podcast that there was bank in Alaska (lending locally) who lends on appraised value of a property, rather than the purchase price. Do these type of banks really exist? Where they will cover 100% of cost/purchase as long as it below a certain percentage of appraised value? Are there lenders out there who might come close? There is a property I am looking at very closely that has a lot of margin but will be a rental purchase. Shooting my shot here

I don't know about that, but I do know that some investors get hard-money that doesn't source the down payment, then borrow the down payment. That's a common 'zero down' strategy.

Really, the only way to find out is to call banks in your area. If anybody does offer something like that, the smaller the institution the better. Small institutions have an incentive to create those programs; the long term relationship is more important to them than the interest on the loan. They can also reasonably mitigate their risk with hyper-specific market knowledge.

If your deal is that good, why not just partner with someone who has the money? Equity is generally more expensive than debt, but more valuable than a lost deal. 

@Naz Hossain

Sometimes investors buy a property then refinance it based on the tax assessment. Sometimes they can get all their money back if there’s enough margin between purchase price and tax assessment. That’s similar to what you’re talking about but not the same.

There’s also the rural development loan but that doesn’t apply in Anchorage.

I am fairly new to this game and I have gotten close, but never to zero. I have always had to pay for the administrative costs like inspections and loan fees.  I have achieved zero out of pocket a few times through leveraging one property to purchase another, never having to touch my personal savings, but he actual cost was just past on to renters and I increase my debts.  

I am in escrow on a deal that I plan to use hard money for 12 months at 8% to fund it from scratch.  Then refi after 12 to 18 months (6 month extension) to obtain conventional financing and even pull out some cash to fund other deals.  This is achieved by a property that has a built in 500K equity that the owner (70s) does not believe/understand/ or care for.  I can grow another 500K equity on top of it through rent raise.  That is a 1M increase in 1 year (almost guaranteed).   This is a 1.6M (minimum) 10 unit property that the seller has agreed to sell for 1.1M.  All because he has no survivors, in his 70s, just wants to live in a house free of property management, does not want to pay city sewer connections, and does not believe in the current market. It just one of those deals.

In essence, it is possible but highly unlikely unless you stumble upon something similar to the above.  Other than that, if anyone finds a lender willing to go above an beyond for the average deal, I would love to hear more.  I am always open to new and innovative ways to raise money outside of the norm.

Originally posted by @Shera Linares:

@Willie A. James III

Wouldn't "borrowing" the down payment be another HML essentially? I'm looking for ways to fund a down payment myself.

Shera, well yes, you would be financing the entire purchase with debt. Hard money is borrowing against an asset (a 'hard' asset, thus the name). What I suggested, is that some investors use personal or business credit to fund down payments. Still debt but unsecured(not secured by an asset, rather the borrowers credit).Some lenders don't source down payments.

In the above example, Sam is also borrowing. The equity in the property is enough to secure the loan needed for the entire renovation. He is still borrowing, it just happens that the equity in the property is so high that that he doesn't have to use his own cash to secure the loan.

Besides debt financing, the only other way to finance is to give up equity. For example find someone with enough cash to secure and/or renovate a property, then pay them from proceeds of a sale or new loan.

Every "zero-down" strategy is either debt financing or equity financing. I find looking at things through that lens helps clarify what's going on. 

Well put. I think that is the big hurdle for some to get over. But you hit the nail right on. It's a matter of leveraging and manipulating credit and debt to acquire the property without having to put much, if any, out of your earned income from W2 or savings.

This seems to be the only way I have figured... so far. May be our collective minds might see more avenues.

@Justin Gottuso

Actually, that deal just evolved. After intense friendly negotiations, and the help of the sellers CPA, it is now a conventional loan with the usual 30yr amortized rate. This was finally accomplished by offering a 10k increase to allow time for conventional and see if a septic inspection was needed. I agreed to pay for the septic cert and if it did not pass, we would go back to hard money and 1.1M as originally agreed.

As for how the deal came about, I was conducting a formal inspection on an 8 unit a few blocks away on a property under escrow. I asked the agent I'm working with to cold call the other apartments near by. After about 100 calls, this one came up. An older guy who was a golf course developer. He built this 10plex himself around 1990 and retired about 20 yrs ago and moved into one unit with his mom. Well, his mon passes, his wife passed, his sister passed. He has no kids.

Here's the kicker, he had an appraisal from over 3 years ago for 1.2M and he said it has to be worth that. I ran over to look at the property immediately, it was an A+ condition. But I negotiated anyway, knowing it was worth at least 1.6M at the moment. He was stuck at 1.15M cash as is with no inspection. He had this unrealistic fear it would not pass inspection. After 24 hours, and me frantically searching for financing, securing hard money, I went back to negotiate and got him to agree to 1.1M. He just wanted to cash out and live the rest of his days. But I still pursued conventional financing and we finally settled on this agreement.

The reality is I would still save about 30K on financing and refinancing costs, so the added 10K is way worth it.

@Sam Yin

SO cool! Way to go!! So it’s under contract now? For how much, $1.2m?

Your agent called 100 places for you?! Did they charge you for their time or just part of the lifestyle of a realtor?

Do you work full time? Where are you getting your down payment and reserve money from? What are your goals with real estate?

@Justin Gottuso

Yes, it is under contract for 1.11M on conventional/1.1M on hard money. As for the calls, there is no charge, it part of the commercial real estate business. I established a good relationship with this agent. We closed on an 8plex a few months ago. I was in escrow on a 10 and 8 plex with him as well where I backed out after the inspection reports. We talk on the phone about 2times a week.

As for down payment on this particular deal, I have savings to cover. However, I'm in a 1031 on an SFR that should close prior so the savings will stay put.

I did not need reserves for this deal or the last 2 that were under contract. I did for thr first 8plex I purchased. I sent in a resume to the lender and based on my current portfolio and experience, they did not require reserves or professional management company.

I work full time at a job for 19yrs. I run a motorcycle business on the side for over 20 yrs. I buy and sell on OfferUp and Ebay occasionally. I also have a part time job teaching motorcycling at the local college, a few days a month. I have 3 young kids. When I came to America, I did not speak English and I failed most of my classes in school for the first 4 years until one day English clicked. Like I said before, if I can do it, anyone can.

As for my goals, it hard to say because it evolves with my knowledge of real estate. I am very new to this investment journey and I am learning daily. My original goal was just to have 5-7 small properties and pay them off quickly so it can support me in retirement and each kid can have one house to live and one to rent. My current goal is to learn more, rinse and repeat, try to build a personal portfolio of 100 units in the next 3 years and 500 units in partnerships in the next 5 years and generate at least 30K/month in cashflow.

I'm not sure it that will ever happen. But I'll keep trucking along. So far, in the last 12 months I acquired acquired 14 units and under contract on this 10unit. As of yesterday evening, I'm negotiating another 10unit using owner owner financing with 15% DP. It was on of the properties I backed out of a few months back. Now I'm asking the seller to drop 50k in price as well.

Don't get me wrong, I am very conscious of work life balance and I make sure my wife gets my personal attention and each kid get daddy time as well as entire family time, whether they want to or not. It's what this whole hustle is for. If at anytime i feel it has cause a negative rift or impact on my family, I would cut it all out. I am willing to throw it all away if it did not work for my wife an kids. I have cut back 80% on the motorcycle business and 80% of the college teaching to focus on real estate. I keep my full time job because it pays well and offer good benefits. My wife works full time and spend all her money on woman stuff and raising chickens and such, but it makes her happy.

To give you perspective, we were camping on the beach the last few weeks and the deals were done on the phone as my kids were boogie boarding. I take the summer off with my kids school schedule and we hit the road.

Hope you picked a few things out of it. From what I have read from others and from the podcasts, there are so many ways to make moves in this game. You just have to pick one, or two, and ask questions. There are no secrets. I learned all this from YouTube.

Originally posted by @Sam Yin :

@Justin Gottuso

Yes, it is under contract for 1.11M on conventional/1.1M on hard money. As for the calls, there is no charge, it part of the commercial real estate business. I established a good relationship with this agent. We closed on an 8plex a few months ago. I was in escrow on a 10 and 8 plex with him as well where I backed out after the inspection reports. We talk on the phone about 2times a week.

As for down payment on this particular deal, I have savings to cover. However, I'm in a 1031 on an SFR that should close prior so the savings will stay put.

I did not need reserves for this deal or the last 2 that were under contract. I did for thr first 8plex I purchased. I sent in a resume to the lender and based on my current portfolio and experience, they did not require reserves or professional management company.

I work full time at a job for 19yrs. I run a motorcycle business on the side for over 20 yrs. I buy and sell on OfferUp and Ebay occasionally. I also have a part time job teaching motorcycling at the local college, a few days a month. I have 3 young kids. When I came to America, I did not speak English and I failed most of my classes in school for the first 4 years until one day English clicked. Like I said before, if I can do it, anyone can.

As for my goals, it hard to say because it evolves with my knowledge of real estate. I am very new to this investment journey and I am learning daily. My original goal was just to have 5-7 small properties and pay them off quickly so it can support me in retirement and each kid can have one house to live and one to rent. My current goal is to learn more, rinse and repeat, try to build a personal portfolio of 100 units in the next 3 years and 500 units in partnerships in the next 5 years and generate at least 30K/month in cashflow.

I'm not sure it that will ever happen. But I'll keep trucking along. So far, in the last 12 months I acquired acquired 14 units and under contract on this 10unit. As of yesterday evening, I'm negotiating another 10unit using owner owner financing with 15% DP. It was on of the properties I backed out of a few months back. Now I'm asking the seller to drop 50k in price as well.

Don't get me wrong, I am very conscious of work life balance and I make sure my wife gets my personal attention and each kid get daddy time as well as entire family time, whether they want to or not. It's what this whole hustle is for. If at anytime i feel it has cause a negative rift or impact on my family, I would cut it all out. I am willing to throw it all away if it did not work for my wife an kids. I have cut back 80% on the motorcycle business and 80% of the college teaching to focus on real estate. I keep my full time job because it pays well and offer good benefits. My wife works full time and spend all her money on woman stuff and raising chickens and such, but it makes her happy.

To give you perspective, we were camping on the beach the last few weeks and the deals were done on the phone as my kids were boogie boarding. I take the summer off with my kids school schedule and we hit the road.

Hope you picked a few things out of it. From what I have read from others and from the podcasts, there are so many ways to make moves in this game. You just have to pick one, or two, and ask questions. There are no secrets. I learned all this from YouTube.

Love your story and perspective @Sam Yin

@Sam Yin

Summers with my kids… that’s what I’m doing this for too :-)

I've also gotten 13 units in the past year earning $3k per month and in contract on an awesome BRRRR four unit that will cash flows very well after rehab.

I’d love to find some owner financing deals too.

Where do you live and invest?

@Justin Gottuso

I live in the Los Angeles area but I invest in any area that the numbers work. I started really local but it did not pan out so well in cash flow, but did have great equity growth for 1031s. I currently have a few SFRs in Ontario, and multi units in Upland. I am concentrating commercial residential in the high desert. I self manage currently but if I do anything over an hour away, it will be PM managed.

I'm exploring Indiana, Arizona, and Florida.

Sounds like you have been crushing it on the acquisitions as well. Great job!!! Best of luck on the BRRRRs, they are a great way for exponential growth. I want to get into that as well, if it presents itself.

@Naz Hossain there are rural housing/USDA loans in some parts of the country that are 0% down for owner occupants. You can also do this with hard money. I've bought properties with hard money loans of 100% of purchase price, and then refinanced into conventional loans immediately. Has to be a good deal and appraise for enough but saves you a lot of cash

@Sam Yin Great testimony and congratulations on all of your success, you have an amazing story that's inspiring. I'm from the L.A. area but now live in AZ. My dad is also an investor who still lives in L.a. I talked him into buying an investment property in AZ last October on a new build site that was shared with me and he's already received 100k+ in equity and it hasn't been a year yet. 

If you need some contacts/ resources in AZ let me know, I'd be happy to help! 

@Sam Yin

I’m from LA too. Born and raised in Claremont. Dad grew up in Claremont, mom grew up in Upland. My parents owned and managed a small portfolio in Pomona and Montclair. Now I’m in Columbus Ohio and they are in Raleigh North Carolina.

Glad to hear you’re getting great equity growth! Ohio has great cash flow too!

Keep crushing it!

Originally posted by @Naz Hossain :

I heard on a BP podcast that there was bank in Alaska (lending locally) who lends on appraised value of a property, rather than the purchase price. Do these type of banks really exist? Where they will cover 100% of cost/purchase as long as it below a certain percentage of appraised value? Are there lenders out there who might come close? There is a property I am looking at very closely that has a lot of margin but will be a rental purchase. Shooting my shot here

 I would recommend joining local real estate associations! Each bank has different requirements and products they offer. When you meet other investors, you can ask them since they will be more in tune with products the local banks offer.

Originally posted by @Shera Linares :

@Willie A. James III

Wouldn't "borrowing" the down payment be another HML essentially? I'm looking for ways to fund a down payment myself.

That would be one way of thinking for sure. The thing is a lot of lenders dont like being in second position on a construction project. Have you heard of the 80-20 loan?

@Naz Hossain I've heard of an 80-20 loan but haven't looked into what it is. I likely heard it on a podcast! I also know down payments can be funded through PML or business credit/credit cards/etc essentially being "zero" out of pocket for the investor when done correctly. 

Originally posted by @Shera Linares :

@Naz Hossain I've heard of an 80-20 loan but haven't looked into what it is. I likely heard it on a podcast! I also know down payments can be funded through PML or business credit/credit cards/etc essentially being "zero" out of pocket for the investor when done correctly. 

That is true! I've heard of 80-20 loans as well! My main concern was having a PML or HML lending on a second position. I know lenders dont really prefer that route and avoid it if possible. Hope that makes sense

I used a first-time buyer program to essentially finance the 3.5% down payment of my first property into a second mortgage, and no payments on that amount unless I sell or refinance. I just factored that into my numbers and since nothing came out of my pocket and I profit on the deal, that'd be zero down!

... But I'll never be a first time buyer again...