Recently I secured what many investors would consider the “White Whale” of real estate investing; I secured a true zero down deal on an 18 unit apartment building.
I have secured many tremendous deals over the years via creative negotiations and focusing on what was good for the seller. Truth be told I don’t know if I will ever find another deal like this one but I will continue to look for and create win-win transactions.
This article will focus on finding properties or apartments that could qualify for zero down deals. This is without a doubt the hardest part.
How to Purchase Real Estate With No (or Low) Money!
One of the biggest struggles that many new investors have is in coming up with the money to purchase their first real estate properties. Well, BiggerPockets can help with that too. The Book on Investing in Real Estate with No (and Low) Money Down can give you the tools you need to get started in real estate, even if you don’t have tons of cash lying around.
Why Seek Out Properties That Could Qualify as Zero Down Deals
First and foremost these deals are not listed in the MLS for every investor to fight over. Second, these deals need to be created out of unique situations, as very few sellers will gladly accept a zero down offer.
Let me set the stage for this opportunity:
The building was sold at the peak of the market in 2005 for $1.25M. The previous owner carried back an 800K 1st Mortgage since they owned it free and clear at the time of selling. The deal was on solid footing for 5 years but then payments started showing up late, taxes were not paid and the building started to deteriorate from lack of maintenance.
The original seller didn’t want the building back but after 18 months of trying to make a bad situation better it became clear they needed to foreclose and take the building back. This is where my network in my buying market kicked in.
Let me be clear — I owe a huge thank you to the network I have created over the last 10+ years.
While trying to get comps and secure possible property managers – the owner contacted an agent with whom I had past dealings. Through several phone calls it became clear the owner knew they had a problem and they didn’t want to own rentals any more, let alone turn a problem building around. The agent indicated that they had a buyer(me) who frequently bought distressed assets and turned them around and, if they were interested, the agent would pass on the property details to see if I was interested in purchasing the building and saving the original owner a bunch of hassle.
The property was an 18 unit building in an older but nice part of town. It is located near some freeway expansions that will make the location more valuable as time goes by. The building was in very bad shape: the units that were occupied needed a lot of work, 8 units were vacant and there were a least 2 tenants that needed to go immediately.
During my review of the property, I let it be known that I was interested but we had to be creative in structuring the deal as the property needed 50-75K in repair work immediately. Also it was clear that the owner wanted a deal that gave them close to the original loan balance and a significant down payment, as they were burned by the past experience. When I spoke to them they had not seen $1 in payment for almost 12 months and now they were on the hook for back taxes and all of the repair issues.
This deal had a lot of possibilities for creative deal structure but I will leave that for Part Two of our series. The key to this initial post is the importance of building a network. My network knows I like to buy distressed properties. The owner of this building knew they had a big problem and that I could be the solution if we structured a deal to make everyone happy. We’ll continue to explore how the deal went down over the next posts.
Part 2 will be about negotiations.