No Money Down Strategies: How We’ve Purchased 80 Units in 5 Years

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Hey there, BP! Over the last 5 years, we have done lots of deals, mostly with no money out of our own pocket. We bought over 80 units and did a bunch of fix and flips over that time, all with none of our own money.

During that time we developed 3 strategies that really worked well for us. We developed these because they create a win-win situation with our investors, allowing us both to meet our goals. I shot a video to share the strategies with you today. I hope you enjoy!

Related: How I Bought an 18-Unit Apartment With No Money Out of Pocket

I am hoping we can get some chatter going on the topic! What creative financing strategies are you using in your business? Would you consider any of the methods I described?

Please leave a comment!

About Author

Matt Faircloth

In 2005, Matt founded The DeRosa Group along with his wife, Elizabeth. At the time, the two person company owned and managed two assets – a single family home and a duplex. Over the last nine years, they have grown the company to a 12 person team owning and managing over five million dollars in residential and commercial assets throughout the central NJ and Philadelphia area. One of DeRosa’s mantras is “to make money while making a difference.”

58 Comments

  1. Brian Larson

    Love the video Matt.thanks for posting.

    Questions
    – On the flip loan, what kind of rate do you usually pay and any points?
    – On the rental rehabs, what do you pay rate wise for that year?
    – Lastly, do you secire their loans against the propertybeing flipped/rented?

    Good luck adding more to your portfolio, awesome stuff
    Brian

    • Matt Faircloth

      Hey Brian,
      I pay between 8 and 10 percent, no points. Same rate on the rehabs and the flips. I always give a lien on the deal they are lending on. I have heard that borrowers sometimes “cross collateralize” meaning that the lien goes on another address, we’ve never had to do that.

      Glad you enjoyed the video!

      Matt

  2. Andrew Johnson

    Thanks so much for posting this video. Very well done. You have definitely inspired me and I love how you’ve gone about building your business. Everyone loves win-win situations and the strategies you outline make perfect sense. Thanks again and take care!

  3. Vincent Crane

    Thanks for posting Matt,

    What you’ve accomplished is amazing and that’s the type of path I’d love to take as well. How did you go from your first house and duplex to then scaling the business and attracting private money? I’d really like to know how you got started.

    • Matt Faircloth

      Hey Vincent,
      Thanks for reading. In a nutshell we started with a SFH that I was living in and renting two rooms to friends as our first deal. Next was a duplex in Philly. Then we did a 1031 exchange sale of the duplex to (2) four unit buildings. Once we did that we had a track record and were able to enroll more friends and family to come in with us.

      My wife and I wrote a some articles on BP telling many of our “getting started” stories so check those out too! Also listen to BP Podcast # 88, that’s us!

      Matt

    • Matt Faircloth

      Hi Patrick,
      I developed a track record first on my own money and money from immediate family. I did that for 5 years, which established a solid track record. You can establish a track record yourself either by working as an “apprentice” with another investor or by starting small and building up from there.
      I hope that helps!!
      Matt

  4. Danny N.

    Matt, Great info!

    Question(s):

    with regard to obtaining bank financing for some of your deals,do you pay yourself a W2 Income as proof of your income or do you use the flip and cashflow proceeds as proof?

    thx

    • Matt Faircloth

      Hey Danny,
      We do both at this point. I have a W2 from my company both to make myself bankable and to avoid self employment tax. The flips help show income also. If you are just getting started you will need to show income some how so you may need to keep the W2 for a bit or have a spouse that has one. Or enroll someone to be a “sponsor” that has a W2 and is willing to guarantee the loans along with you.
      Matt

  5. Darrell Wild

    Good report Matt. Only problem I see is that PERSONAL GUARANTEE. A PG is the poison bankers use to cover their butt till the kart pennies is paid. The problem is when the national economy tanks the bank takes all the assets and whatever you have gained as well. If you do not know what will happen to the economy for the next 25 years, you are at high risk.
    I believe the Crowdfunding laws allow smaller investors to join together to purchase properties with non-recourse financing such as FHA 221d4 or Fanny Mae. Understand the big developers NEVER provide personal liability. Also your banker NEVER provided personal liability when they take the depositors money.
    Also large projects pay large amounts of real estate taxes and some pay sales tax and room tax. Municipalities will offer to provide you with TAX INCREMENTAL FINANCING as part of the required equity. If you buy a large project and find Tha site will allow more development on the site, the separation on that land provides FREE land for the addition development as more equity. I like hotels are they also pay room tax that can be shared with me as developer as a incentive to improve the property.
    These type properties need front end equity for architectural plans, feasibility studies, environmental studies etc. usually about $50,000 for a project that can create $5,000,000 in free equity and 20,000,000 non-recourse mortgage.

    • Matt Faircloth

      Hey Darrell,

      You are right, the PG does become a problem, if the deal goes south. I buy rental deals that pay rent at or soon after closing, and the rental amount covers with enough spread to absorb market changes if they come up. The rates are typically locked on the loan for 5 years or more also, which allows for some principal reduction and rent increases to cover the pending rate increases coming down the pipe.
      Matt

    • Jon Kepler

      In my opinion, it is quite incorrect to say that big developers never provide personal guarantees. Donald Trump and Harry Macklowe have both done it. Yes, it ended up costing them. Nevertheless, personal guarantees are common and almost everybody signs them sooner or later.

  6. Charles Williams

    Nice job on video Matt. I do the same thing on my Buy and Holds. What interest rate are you paying your investors and number of points for the loans? We are currently paying 6-8% and no points right now.

    Thanks, Charlie -VA

    • Matt Faircloth

      Hey Charlie,
      Glad you liked it. Those are GREAT rates! If you run out of deals for your lenders send them my way, LOL. We pay between 8 and 10%, we used to pay more but there are more and more people getting into providing private loans so the space has gotten more competitive.
      Matt

  7. Brandon Stevens

    Nicely done Matt,

    We stopped investing for a couple years after we got shut out of the secondary market before a few trips to the local REI couple found me with a number of local bankers offering portfolio loans. We’ve since picked up 6 properties in the last two years doing pretty much the same thing, using hard money including rehab cost to gather 20% equity in the risk than refinancing it with the bank. The process is pretty seamless at this point and while my hard money rates a little high (12% for 6 months) as long as I get the property rented within 30-60days the cash flow has no problem covering that for the remainder of the term. That being said I’m looking into just opening up an equity line around 100k on one of my properties to just do the same thing without the hard money…do you have an opinion on this??

    • Matt Faircloth

      Hey Brandon,
      Glad to hear you are moving the needle! Good work.
      You can keep doing what you’ve been doing and do well, but if you have access to equity in one of your properties that could be unlocked with an equity line, do it! There is no better lender to use than yourself. You could even mark up the interest rate and charge the deal a higher rate that what you are paying on the line, if that makes sense. Meaning borrow from the line at 4% and lend it to the deal at 10%. That way the deal saves in costs versus hard money and you make a tax advantaged profit on the deal (the interest gain should be taxed as passive income).
      I hope that helps!
      Matt

      • Thomas Coburn

        Hi again, Matt. Tommy in Seattle. GREAT video! Very inspirational and gives me a bigger goal to aspire towards.

        So I understand this… you’re saying I can use a HELOC to fund a rehab/fix/flip. Then, markup the interest rate to basically create not only ‘free’ money, but a profit for actually using it? Am I understanding this correctly?

        For hard money, I’m currently paying 12% plus 2pts for 6 months. Plus an extra point past 6 months. And it’s 80% of the purchase price, not the ARV. I have to fund the rehab out-of-pocket. My first deal I spent $70K on the rehab and was out of pocket $110K for 8 months. Really crimped ability to invest in other deals. Would LOVE to be in a better position on the next one.

        Thanks for explaining.

        • Matt Faircloth

          Hey Tom good to hear from you. Yes you described it perfectly. If you can get a HELOC you can be your own bank. I wouldn’t charge yourself the same rate as your hard money lender, give your flip some breathing room.
          Matt

      • Vonetta Booker

        Hi, Matt–this is great stuff, I really enjoyed your video. I’m currently renting out my first property (which was meant to be a flip but didn’t sell in time, so I rented & refinanced to cover carrying costs). As a result, I can’t do more deals as I’d like because most of my money is currently tied up in this property. I refinanced at 75% of the ARV–will a lender let you do a HELOC on the remaining 25%?

  8. Elizabeth Blazina

    Hi Matt,

    Great video! You mentioned a bit about your portfolio loans… rate lock for 5 years, but could you tell me the specifics of how these are structured? And what do you plan after the 5 years?

    Love what you and Elizabeth are doing .

    Best ,
    Liz

    • Matt Faircloth

      Hey Liz (love that name, LOL),

      Glad you liked the video. The loan is a blanket mortgage meaning it covers all the properties with one big loan, not a bunch of individual ones. The loan will have clauses that allows us to sell one property and keep the rest in the loan. The loan terms typically go like this:
      70-75% LTV
      4 to 5% interest (today’s rates)
      15 to 20 year term (meaning the loan expires after this)
      25 year amortization
      5 year rate adjustments, based on some market indicator (LIBOR, 5 year treasury, MTE) plus a markup for the banks’s profit. (it would be worded like “Libor plus 225 basis points)

      After 5 years we will probably just take the rate increase and keep landlording . People get freaked out about rate increases but remember that you are paying the loan down each month. When the rate increases on a 25 year loan in 5 years, it’s now a 20 year loan so the balance is less even though the rate is higher.
      I hope that helps!
      Matt

      • Thomas Coburn

        Hi Matt – Learned something else! Never heard of a ‘blanket loan’.

        So… this type of loan really converts the portfolio into a true multi-unit, like a apartment building, correct?

        What is your opinion of the risk of say vacancies in a portfolio of SFRs vs, say, and apartment building? Just curious about your thinking.

        Thanks a lot!

        • Matt Faircloth

          Hey Tom,
          It’s similar in a way as the properties now all contribute to the same debt payment. It’s different because you can still sell one or two of the buildings if the loan docs allow for it, and I always make sure they do.

          The comparison of SFHS to apartments an investments is a big convo, more than we can get into here! I should write an article on that actually! Breifly, I have found that there is no better investment than a single family that’s leased out to a good long term tenant that pays on time and takes care of the place. They pay all utilities, cut the grass and shovel the snoe, you can’t beat it. That being said if they move out or decide to start trashing the place you can loose a lot of money very quickly. Apartments allow you to spread the risk around and are way easier to manage and maintain. They cash flow easily but you have to watch expenses and capital expenditures adding up over time.
          I hope that helps!
          Matt

  9. Joe Thompson

    Matt,
    Thanks for the video. It was great to hear someone that is making it happen. We have been able to acquire properties with private lenders, but have yet to find the magic in getting them refinanced. I have been working on one loan for 5 months… ugh
    I am hoping to take what I learn from the loan process and make it work on 4 of our properties.

    Thanks again

    • Matt Faircloth

      Hey Joe,
      Good to hear from you. I had one bank take that long on a refi. It was a grind but we got it done. I find that when I can access the underwriter directly I can truly expedite. The only banks I can do that with are small community banks that are around the property being refinanced.
      I will say that once you get the first deal done with the bank it should get easier to do the next one. They may be raking you across the coals up front and will streamline your application next time.
      Matt

  10. Danny N.

    Hey Matt,

    thx for response. I like that idea of paying yourself w2 to remain “bankable”. I know there are ways to buy properties with owner financing / no money down/low money down, but it seems to me its “easier” to go the conventional way and obtain bank financing.

  11. Andreas Sakellaris

    Hey Matt,
    Great job explain this strategy.
    Question:
    1. What is typical to pay a Limited Partner on a deal, if they put up ALL the money (No Bank $) and we find and manage the deal? and if it needs rehabbed first, how does that influence the partnership? I have interested lenders that want to grow a portfolio with me for the longer hall…5-10 years +
    1a. What would a fair split be for the same above, accept the lender puts up down money, and then he or we borrow the rest from a bank.?
    2. How and what do you consider about if a partner wants out?
    3. How do I handle one lender that is happy with 6-7%, and another that needs 10%, but both want to invest in group funding deals?

    Thanks again, you kick a$$!

    Dre Sak

    • Matt Faircloth

      Hey Dre,
      Ok let me give you questions a crack…

      1. It really depends on the cash flow projections from the deal compared to what your investors what to get. If you can produce 15% on the invested money including construction, acquisition, lease out, etc… and your investor is ok with a 10% return, you can give them 66% ownership to achieve that. Bear in mind that when I project rental returns I don’t look at IRR which takes thinks like mortgage pay-down and appreciation into consideration, all I consider is actual cash flow coming across the table on a monthly basis.
      2. You have to figure out the buy out options before you go in and define them in the operating agreement. Most of the time you can get them out through a refinance or a sale if you structure the deal right.
      3. Make the first investor that wants 6 to 7% a private lender and give them a mortgage on the deal. Tell them it’s a fixed rate of return. Then take the next guy that wants 10% and put him in as strait equity (no preferred return or anything like that, he gets paid when the deal starts cash flowing).

      Thanks for watching again Dre!

      Matt

    • Matt Faircloth

      Make sure that the value you are adding in the rehab will increase value to have some built in equity. If you are looking to refi them out a few years from now consider that rates will be higher then, probably around 6%. Make sure your deal still makes sense at more expensive money in the future when you to refi.
      Matt

    • Matt Faircloth

      Hi Ayodeji,
      I prefer to use private equity on deals like that. I am using private lenders on a large rehab right now and I am getting nervous because the rehab is taking a while. Those high interest payments add up over time!
      Matt

  12. NormaJean Cupp

    Hi Matt,

    I appreciate your answers/time/insight. My question is regarding wholesaling- 1) any strategies/tips to share? My business partner and I are considering that avenue but are somewhat leery of the process. One company told us to incorporate for each deal as lenders are not comfortable with assignments being mentioned in the offer “this deal between NJ and/or assigns”. Another told us to use our personal names versus our company name. 2) Guidance on how to handle these deals re: company/personal names.

    Thank you. NormaJean

    • Matt Faircloth

      Hi NormaJean,
      It’s good to hear from you. I am not much of a wholesaler so I may not be the best advise giver on that topic! I have seen deals done where you would create an LLC, put a deal under contract with that LLC, and then sell the LLC to a buyer. That avoids title transfer tax and some other fees that come up in an actual transfer of property. I am doing a deal like that myself right now actually. That being said it may become cumbersome and hard to scale. I hope that helps!
      Matt

    • Matt Faircloth

      Hi David,
      Thanks for the comment. We actually have an LP or an LLP for each partnership. Each investor is part owner of the company so it’s required to have each entity separate. I don’t believe in holding each property in a separate LLC tho, that’s overkill.
      Take care,
      Matt

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