Why You Need Money with No Money Down Deals: The Ugly Truth

Each night my phone would ring. I was not that popular, so I knew exactly who was on the other line. Even though I had no intention of answering the phone, my heart would start to beat faster and I got a real uneasy feeling in my gut. The mortgage company was calling wondering why I missed my payment last month. On paper, I was a millionaire and I was not even 30 years old. The problem was, I could not spend my net worth to make those mortgage payments. Each time I had a property go vacant, I was selling them to relieve pressure, and this was in the best buyer's market I had ever seen. I knew that buying property during this time would make me rich, but I was stuck on the selling side, like so many others.

It did not take long before I rebounded and caught the tail end of that buying cycle. I was able to pick up a handful of properties that are making me a lot of money now, but looking back I really wish I was better prepared. I like to blame my age and lack of experience, but the reality is I was way too aggressive. I was making a lot of money and I was reinvesting just as fast. I owned too many houses for the reserves I kept. When I started to have problems, like higher tenant turnover, the small amount of money in my bank was not enough to cover them. Businesses live and die on cash flow. Profit is good too, but you can make money and go out of business. There is nothing more important to your survival as a business than your cash.

Because the company I work for offers no down payment financing, we get calls and applications from people without money all the time. It is a constant struggle to help people understand that the big benefit of no money down is having the ability to do more and larger deals, and not necessarily doing a deal you cannot afford to do. Cash in your pocket is the most powerful asset on the balance sheet, which is why our company is successful. We enable investors to retain their cash. The savvy investor understands this, so they are willing to spend a little more when they can borrow more.

When a potential client pushes back thinking they should be able to borrower from us when they don't have reserves, I like to ask the question; "What happens when you go over your repair budget?" The next question I have is; "Hello?" because that side of the line went silent. The last thing we want is to foreclosure on someone for not having cash available to handle the unexpected.

Had I been more conservative on the front end, I would not have had to sell the properties that I did, and would have been in a position to buy more. My guess is that I would be making up $5,000 more per month than I am now, just on the additional rentals I could have purchased in the last down turn. That is an extremely costly mistake that I will not make again.