How I Built A $3 Million Real Estate Portfolio With Little To No Money

When I was 20 years old, I set a goal of owning my first home by the time I turned 21. I was able to achieve that goal through a lot of hard work and by practicing delayed gratification (basically saving all of my money for this purchase). I knew that if I could take action and get the first property under my belt, the next property would be easy.

I purchased my first home in March of 2007 and the next month I was ready to purchase more. I loved the fact that I could do just about anything I wanted to this property, and that I had an opportunity to add value. My only hurdle with acquiring more properties was that I didn't have any more money saved up, and while I wasn't exactly living paycheck to paycheck, I didn't see how I could continue to acquire properties with the income I was bringing in.

Being the creative problem solver I am, I brainstormed the ways that I could build a real estate portfolio with little to no money, and this post is how I did it.

I used several different creative strategies to acquire rental properties. My number one goal in the beginning was to purchase as many properties as I could with little to no money down, and I was able to acquire the first 13 units with none of my own capital. These strategies are easily duplicatable for everyone.

The strategies are outlined in order and with detail below:

Partnership with my parents

Zero down owner occupied loan

Owner occupy using 100% of my commission as the down

B-R-R-R strategy

Line of credit as down

Conventional loan using 20-25% down

Partnership with my parents....

The first real investment purchase, and the next property that I purchased after my primary residence, was an off market duplex that I bought with my parents in 2008.

As a super independent kid, this was a tough strategy for me. I had to get over the idea that I needed my parents to help me get started, and instead I focused on the fact that my parents needed me to help them invest. They had never owned investment real estate, and had no clue how to deal with tenants or repairs. They had the capital, and wanted a return but they would have never invested had they not had me to take care of everything. Once I put things in that perspective, I decided it was a good opportunity for both of us.

Our deal was that they contribute the required 25% down payment, and I would take care of everything from the property management to the repairs and financial decisions. We would split the cash flow 50/50 and at the time of sale, they would earn a 5% return on their invested capital first, and the rest of the profit would be split 50/50.

This property has worked out really well for us. My parents have never had to worry about anything, I've raised the rents over the years so the property cash flows $691 per month and it's worth $150,000 more than what we purchased it for 9 years ago.

Zero down owner occupied loan...

In 2008 I met the love of my life. He happened to be in construction and could fix anything, which fit perfectly into my real estate portfolio building plan.

He also happened to be super open minded, and when I jokingly said he needed to buy a house to eventually turn into a rental before we got married, he agreed!

It was 2009 and the prices had come down considerably. We found him a great single story home built in 2001 that would make a perfect rental. There is a special loan called the USDA loan for owner occupants who are buying in "rural areas." I told him that he should buy in this area so that when this house is rented, he would have a higher return. We still own this home today and it has been one of our easiest rentals.

Owner occupy using commission as the down payment

In 2009 I became a licensed real estate agent so that I could have access to the multiple listing service, and so that I could get into properties and buy them representing myself.

Because I was an agent, I was able to use all of the commission I earned as the down payment for a new property. I found a great duplex that needed some work and decided to make an owner occupied FHA 3% down offer.

Overnight we went from having three units as a couple to five units. Better yet, our new mortgage payment was around $400 when we included the rental income from the other side. We were paying $1400 for the mortgage at his house, so we were saving $1000 per month.

A little over one year later, I had helped a lot of people invest in real estate and was making a great income from doing that. However, since we hadn't bought anything else, I felt like we had some catching up to do.

I bought a custom home on 9.5 acres at the foreclosure auction in February 2011 with the original plan of flipping it, but my husband called dibs. I was able to get a 40% discount by buying it at the foreclosure auction, and after moving out of the duplex we got $800 per month in cash flow. The new payment on our new home was $2000, though with the cash flow from the rentals it was really more like $1000 per month for a beautiful new home with lots of equity.

B-R-R-R Strategy

It wasn't until 2012 that we purchased more rentals. We had been so busy with building homes for sale, my real estate business, and flipping that we just didn't have much time to look.

Our next two properties were purchased within 2 1/2 weeks of each other.

The first property was a duplex that had been on the market for some time. It had some issues, though I knew it was under-rented and under-valued. I called my hard money lender who had been lending us money at the foreclosure auction and for flips, and asked if he could loan us the money to buy it.

I didn't know anything about the B-R-R-R Strategy (stands for buy, rehab, rent, refinance), though as a former loan officer my hard money lender shared that he would be willing to loan me 100% of the purchase price and the construction funds if I believed it would be worth a lot more after it was fixed up, and if I would be willing to bring money to the refinance table if it did not appraise. As collateral, he also wanted to take a second mortgage on our primary residence.

It was a big risk, and I took it. I purchased the duplex for $130,000 and put about $12,000 into it and quickly re-rented it for $2000 per month. After new tenants moved in and the work was done, I applied for a refinance.

The appraiser valued the property at $230,000 which was more than what we needed to completely pay off our hard money lender. We had just acquired our 7th rental unit and everything at this point was purchased zero down.

While we were still working on the duplex, a single family home came available at the foreclosure auction. It was a small 1144 sf house built in 2003 that was vacant. I was hoping to work the same deal as the duplex that was just purchased less than 3 weeks ago, and my hard money lender gave me the green light.

I was the winning bidder using his cash at the auction at the high bid of $86,000. The house was vacant, but it did have some garbage and it needed some paint and cleaning. I told my assistant at the time to go ahead and list it for rent so that we can start getting some applications in while we were working on it.

That Sunday he called and said he had tenants that wanted to rent this house, and they would take it as is. I felt a little guilty having them move in with it being in that condition, though they wanted it so bad I said okay.

I immediately applied for the refinance and the new appraised value came in at $130,000 so within 30 days the refinance was completed and we had our 8th rental unit still all zero down!

Another year went by before the next property came available. This time it was two houses on one lot. It was a bank owned property and one of the houses was an old detached garage that was converted into a single family.

The main house needed a lot of work, it had 4 layers of roofing, and composition roofing was laid on top of cedar shake! The cigarette smoke was so bad that nicotine was literally running down the walls. It took roughly four coats of Kilz to cover the nicotine and mask the smoke smell.

We were able to purchase these two houses for $120,000 (due to the condition) and it took about $30,000 to fix them up. They were small so it was pretty simple but my husband did have to do a lot of the work, and we worked with the existing kitchens and baths so we were able to save some money.

Our hard money lender offered the same deal as the previous properties, so we bought this place zero down. I did forget to ask him to add in construction funds, so we ended up paying that out of pocket.

When all was said and done, we refinanced the two houses with a new appraised value of $220,000 and the appraiser really beat us up on value because we had just purchased them for such a good deal. I've had several appraisers do this, and it's just a part of the game.

Since the 75% loan to value ratio allowed us a max loan amount of $165,000 we paid off the $120,000 hard money loan and stacked the refinance costs. We could have done a cash out refinance on this property, putting the extra $45,000 in our pocket but instead we decided to keep the equity in the property.

While this wasn't exactly a zero down deal, it could have been and with the monthly cash flow on this property being $1011 each month our $30,000 out of pocket for repairs received a 40% cash on cash return.

Less than two years later we went to our local bank and got a $54,500 home equity line of credit against this property, which we planned on using to buy more properties...

The gap between the two houses purchased and the next property was two years. We had a lot going on between 2013 and 2015, and it mostly consisted of building houses and helping clients buy rentals rather than focusing on building our own portfolio. The market was also heating up so slam dunk deals became more rare.

Line of credit

In March of 2015 I was searching the Commercial MLS when I came across a strange listing for a triplex. It had very little information, though the price was insane at only $225,000. I did a quick drive by that day and immediately went home and wrote an offer. Sure, it was older and one unit was a converted garage, but the numbers seemed too good to pass up.

We decided to go ahead and use our Home Equity Line of Credit for the down payment, even though we had enough funds for the down, we figured an infinite return would be better and we could save our capital for another one.

I made sure that the cash flow would cover the new first mortgage on the triplex, and the payment on the line of credit, which it did and after factoring in two loan payments the property still provided over $600 per month in cash flow! We ended up paying off the line of credit in 4 months because we had so much excess cash, but it was great buying our 11th-13th rental units zero down!

Traditional conventional loans

It was a year between our triplex purchase and our next purchase. We ended up selling our custom home on 9.5 acres in order to build a new home, and in between we purchased a small home in town with a huge shop. I had the option of putting 5-25% down, and I decided to do 10% down to maximize my future returns.

This property will be a vacation/work travel rental. Our estimation is the average monthly income for the house as a short term rental will be $2,400 per month AND we'll be able to use the shop ourselves or rent that out separate. The monthly cash flow will be between $723 - $1,423.

Our next purchase was in December 2016 and while it was not purchased zero down, it likely could have been if we had researched a local hard money lender and utilized the B-R-R-R strategy. The reason why we did not do that was because this happened to be our first out of state investment purchase, and we wanted to make sure it went right.

We purchased a duplex in Greenwood, IN for $155,000 and completed a $19,000 renovation. We expect to rent each unit for $1150 a side, and we believe the property value will be around $225,000 - $235,000 which would make it pretty close to having the 25% equity required to be zero down.

The next purchase was in February 2017 and it was a duplex in Mount Vernon, WA. Details on this property here.

Conclusion..

While we had to get creative in the beginning to build our portfolio, the point is there are unlimited options on how to structure and strategize building a real estate portfolio with little to no money down.

I went over a lot of the financing details in this post, though I want to point out that my husband and I took turns getting loans on properties so that we could maximize the amount of loans we could get as a couple (which is currently 10 each or 20 total for conventional).

Our next projects are new construction where we will build duplexes and fourplexes zero down, so be ready for info on that strategy soon!