The Caveat No One Discusses When It Comes to No Money Down Real Estate

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I don’t do much air travel these days. I am not part of corporate America where travel is part and parcel, nor am I too much of a recreational traveler, with two young children and all. I am sure this will change as Aaron and Isabella become older, but for now it is not often that you’ll see me on an airplane. The last two times I traveled through the air was to look at apartments. Today, however, is different.

I am indeed writing this on a plane – traveling from Phoenix to Dayton, with a layover in Denver; I am on my way back home. This is off-topic, but when they redesigned the seating on these planes, did they have humans in mind, or creatures with no legs, arms or elbows?! This is freaking ridiculous… seriously!

Anyhow, I am coming back to Ohio having spent a few days visiting my friend (and yours) Serge Shukhat in Arizona. If you’ve spent at least a month on BP, you should have heard of Serge. This is Serge:


While Serge is nothing spectacular to look at, specifically next to me, he is indeed a very smart guy. Just in case you’ve not made the connection, his latest podcast is here.

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Why I Came to Arizona

As you know, I spent the last couple of weeks remodeling my house, and as Patrisha would put it – daddy needs a break!

I was talking to Serge about a month ago, and he says to me, “Why don’t you come out? You’ll stay at our mountain house with us. My daughter thinks you are the coolest, and she’ll be tickled if you are here for her birthday party. We’ll go to the pool, and I can tell everyone you’re my bro. We’ll take the Tesla and go cruising for chicks in the country club parking lot. It’ll be great; you’ll love it…”

I am blessed to not be tied down to a 9-5 job, which gives me fair amount of flexibility. And it’s not like tenants automatically stop paying rent if I leave town for a week or two. The only boss I answer to is my wife, and Patrisha was on board. Thank you, baby!

Related: No Money Down Real Estate: The Untold Dangers Every Investor Should Know

In Arizona

Tell me, why in the hell does everyone say Arizona is nothing but sand and cactus? In the valley, sure. But an hour into the mountains is nothing but luscious greenery and wildlife everywhere. Here’s a shot from the 7th green at one of Phil Mickelson’s courses, Payson:


And here’s the shot from the country club dining room:

photo (2)

Gorgeous indeed! And about 20 degrees cooler than in Phoenix!


This was what I told Serge when he picked me up at the airport. In fact, we also agreed not to talk politics. Let me tell you – that plan went to hell in a hand-basket within 10 minutes in the car.

But it wasn’t totally our fault. You see, passive cash flow in real estate is only passive up to a point, and while both Serge and I prefer it the way we have it to any other way of generating income, it’s not like it keeps coming if we ignore it…

Things happen on a daily basis when you own units, and when things happen, Brandon Turner gets on the roof to fix it, while Serge and I pay other people to do it for us. The bottom line, however, is that one way or another, problems get tended to and resolved.

Ben, get to the point please!

My good friend Brandon Turner and I are both “no money down” guys. We spend our days telling people that lack of money is not guarantee of failure, and you should get your hustle on and figure things out. We tell you that it’s possible to buy property with NMD, and that while it’s not the best way to do things, it’s a way to get into the game and let things evolve from there.

But understand this:

Being under-capitalized when owning rental property can and will kill you if you’re not careful!

It’s one thing to buy something with no money down. It’s something else entirely to manage tenants with no float in the bank. Serge, for example, spent $18,000 on R&M and CapEx in the month of July. I spent $7,000. Brandon Turner spent nothing, but that’s only ’cause he is slumming his Waldos over there in Aberdeen. And Brian Burke spent whatever his spreadsheet says he should, ’cause that’s how he rolls; while Burke’s spreadsheet seems to tell the universe how to behave, the rest of our spreadsheets simply reflect the pain that the universe causes us.

I want to be like Burke – lala – lala – I want to be like Burke. 🙂

Here’s What I Spent On

  • Flooded basement in an SFR required replacement of existing sump-pump and addition of a secondary pump on a different circuit. Also, new gas furnace had to be installed.
  • Clogged bathtub and toilet drains in an apartment required lifting the toilet in order to auger. Unfortunately, one of those mistakes that happen to everyone once in a while happened. My handyman called me 2 days after the plumber was in the unit to tell me that he was standing in 3 inches of water. Turns out the plumber didn’t screw the toilet supply line on tight enough, and with the tenant being gone for 2 days, 3 inches of water accumulated on the floor. Water spilled out through the doorways into the hallway and one of the bedrooms. I’ve been with this plumber for a decade, and he’s saved my rear on more than one occasions, so – whatever… But this proves that Mr. Murphy is alive and well!
  • Bees apparently decided that underneath the vinyl siding is a good place to build an infestation. I was informed by my handyman literally with one foot in the airport.
  • One AC unit in an SFR needed replaced.
  • And then there were the usual R&M issues. All and all, July cost me about $7k.

Related: Investing With No Money Down: Are You Ready for the Terrible Truth?

Here’s What Serge Spent On

  • 4 AC units needed replaced.
  • 2 fan motors in the AC units needed replaced.
  • One roof on an SFR needed replaced.
  • There was much more, but when I asked Serge to itemize things for me, he said I was giving him a headache… ask him yourself, if you want. 🙂

The Moral of This Story

While buying real estate can be done with no money down, owning said real estate is indeed a cash-intensive proposition, and being under-capitalized will bring you down very quickly. I can teach you 50 ways of how to buy a duplex with nothing down, but when that furnace or water heater needs replaced, you’ll need money! It takes time and a certain magnitude to achieve a paradigm shift that lets you survive the worst. Until then, all bets are off…

This is the part nobody talks about ’cause it it’s not sexy.

So, What – No Money, No Real Estate?

Not quite – there are two caveats. One caveat is that if you don’t have money, but you have access to money through either a line of credit, a partner or a lender, this may be enough to get you started. And secondly, if your back is to the wall and you are without better options, jumping in and hoping to get lucky is something all of us have done at one time or another.

Understand, some get lucky, while others do not. And even if it works out for you, getting lucky is certainly not a viable strategy for building a sustainable portfolio!

Our BP baby, Scott Trench, just published an article about how house-hacking a duplex is the best option for a guy earning $50,000 and with $10k in the bank. Scott, is the dude in your article you? If so, are you feeling lucky? I hope you have a better January through December for the next 5 years than Serge and I had in July — ’cause if not, I’ll be buying your (I mean, Joe’s) duplex for $150,000 from the bank and renting one side back to you for $1,800. 🙂

Investors: What are your thoughts on no money down real estate? What’s the worst unexpected repair your rentals have thrown at you lately?

Let’s discuss – be sure to leave a comment below.

About Author

Ben Leybovich

Ben Leybovich has been investing in multifamily real estate since 2006. His area of expertise is creative finance. Ben works extensively with private as well as institutional financing. Ben the author of the Cash Flow Freedom University and creator of a cash flow analysis software CFFU Cash Flow Analyzer.


  1. Scott Trench

    Haha thanks for the shout-out Ben.

    Cash is a key to homeowning, and that spills over to house-hacking as well. I’m sure it becomes even more critical as you progress to more and more units down the line. That’s the reason why I have a nice graph in my article outlining “cash outlays” and indicate the massive differences in cash outlays for homeowners/house-hackers vs renters over time.

    You’re right, prior to buying my place, I had more than $10,000 – I saved up at least $20,000 before putting down $12,500. That $7,500 was my buffer against your “July”. Was it enough? I think so. If not, luckily I’ve had 8 more months to earn money from my job and collect rents from my tenants.

    The real question is, “how much is enough?”

    You spent $7K on your properties in July – was that just one property or several? What’s an acceptable buffer for a small duplex where you live in part of it?

    Being a real estate investing baby, I don’t know the answer to that question. All I can say is that I now won’t sleep well without at least $15,000 set aside in cash for any emergencies. That is my “emergency fund” which will also go towards problems with the duplex should they arise.

    What’s the correct level of capitalization?

    • Ben Leybovich

      I knew you’d love it, Scott…baby 🙂

      No – $7k was across my portfolio. All of it came out of the reserves. $3k more coming out next month (that I know of). Currently I hold $500/door across the portfolio, and I may need to up that.

      You, I think, are still having a mental block understanding CapEx. Scott – it’s fixed expense. If you have a duplex, and your furnace goes out on one side and water heater in the other, you’re out $4,000. And if that happens 3 months after you close, then in order to be capitalized for it, you must hold $4,000/3 each of the 3 months. Will you? Hell no…you know it!

      Thus, you need a float as soon as possible. And the thing is – you figure that cause it’s only 2 doors you won’t be hit with too much at once. But, remember – entirety of your income is represented by those two doors. How long will it take you to re-capitalize after an event like this…?

      You keep talking about appreciation…that’s if you can stand long enough…:)

  2. karen rittenhouse

    Oh my gosh. You hit one of my triggers. Too many get-rich-quick profits out there talking about how easy this “passive income” dream is and how you don’t even need your own money to do it.

    Like you, we spend thousands every month maintaining our hold properties – we have a lot of them and we’re glad – but it is very expensive to own real estate. Buyer beware! Until everything you have is free-and-clear, you need great cash flow.

    Buying is the easy part – holding can bite you in the behind.

  3. Brian Gibbons

    I love Ben soooo much, but I am a Real Estate Entrepreneur, not an Investor.

    Owning and repairing is like a Martian.

    Controlling property with leases and options and and buying on sub2, repairing, and reselling, and flipping lease option contracts are all like a Venetian.

    Owning private mortgages and lending money, and NOT owning – managing property is what I do on Venus.

    Owning properties and being on title subjects you to LAW SUITS. Yuk! Sure your tenants pay down your mortgage. The road to financial independence….Hmmmm. Just a dream if you are broke, pay check to pay check. better have an ASSET PROTECTION plan in case some attorney does an asset search on you, and sees what properties you own can be attached in a law suit. Like a FLP where you own little but control everything.

    I would advise new BROKE people to learn about solving a problem for a home seller and making chunk cash out of it, and keeping you day job until cashed up, like 6 months reserves per property cashed up.

    So if I had $10K, pure rookie,

    what about being a private lender to rehabber, get a note and a mortgage, get 10% in 3 months, do that 4 times a year? double your money in 2 years? better than owning a rental?

    Buy No money down, TEMPORARILY, but not OWNING LONG TERM, but flipping, is the way to get cashed up, then down the road, own.

    Yes Ben I love you soooo much, but I am a Venetian, and you are from Mars. 🙂

  4. Thomas Phelan on

    Here’s my tale of woe and it came after I had completed probably fifty fix and flips.

    My partner and I bought a 75-year-old brick house that an adult son had inherited from his mother. He lived in the house and did a Rube Goldberg job of renovation but quickly went into default, foreclosure and was gone. We purchased the house for $125,000 with $25,000 – $30,000 in repairs. We calculated the ARV would be $200,000.

    We had the house inspected where the Inspector opened the faucets, flushed the toilets etc. and said everything was okay.

    We upgraded everything including a full kitchen and two baths and we created a new bath in an unused pantry.

    Our final figure for repairs came in around $45,000 so we were in for $170,000. We listed the house at $219,000 with a 6% commission. About 30-dates went by and we accepted an offer of $205,000 and after the usual costs netted about $190,000 leaving us a $20,000 profit. The Buyers, a family of five, mom and dad and three teenagers moved in after they had a house inspection where the Inspector opened the faucets, flushed the toilets etc. and said everything was okay.

    Ah, but everything was not okay, the first time Mom did a load of laundry, had the dishwasher going and two of the teenagers taking showers … yep, the sewer backed up and I mean badly.

    We dug a 6′ hole surrounding the exit pipe that made a 45-degree turn and disappeared. Several attempts to snake the sewer pipes failed so we finally called in a Camera man and … yep, the sewer line was broken and filled with tree roots and at the joint where it broke one section had risen about 6″. This explained why just a faucet opening and toilet flush has passed muster but not when a big demand was put of the sewer system.

    What to do? When the house was built 75 years ago there were only vacant lots surrounding it so the easiest route to take was the shortest route to the main line hook up. Unfortunately that vacant lot was no longer vacant; there was a house and garage sitting on it. Naively I asked the City Building Department if I could get the neighbor to allow me to jack hammer his garage floor and replace it, could I rerun the pipe system along the existing route. The Building Inspector let a wide grin unfurl on his lips and he answered with relish, “Nope, you have to run a new sewer line from your back yard up you driveway and then a block over to where there is a hook up.”

    The cost, a mere $17,000, my partner and I felt morally obligated to pay the $17,000 and in the end walked away with only $3,000 to divide between us.
    Moral of the story, there are times when spending $250 or more to have a camera run through the sewer system is well justified, especially if it is an older house or one that has been abandoned for years. $250 is cheap when compared to $17,000.

    P.S. My partner and I never lost on a fix and flip property but this on sure came close.

  5. Sonia Spangenberg

    As a newbie Entrepreneur, it is great to hear each of the commentaries and perspectives. I have to admit, I kinda like Brian’s take on this the best. We are doing some rehabs to produce cash to purchase rentals. So I’m thinking…starting out, instead of retail sales of all our rehabs, start doing a few (to see how it works) with lease purchase sales. That might be a smart option. Still get a chunk of cash, although smaller, but then get longer term cash flow of a rental PLUS interest payments, and no toilets, management fees or midnight calls…..Hmmm. Am I missing something?

  6. David Krulac

    One year I have a fire, a flood and an explosion, none of which was on my spread sheet, maybe on somebody else’s. Last year I had a huge fall on a house, another fire, a 5 figure vandalism and a $50,000+ freeze damage, not counting the 6 figure real estate tax bills which were on my spreadsheet, but I wish they were on somebody else’s. Most of the 6 figure real estate tax bill was used to send other people’s kid to public school. Free education just isn’t free.

    • Ben Leybovich

      Josh – I wanted to and almost did. But, I only had 1 hour on the way there and back. You’re too busy to adjust to that type of time-frame… I figured it’d be disrespectful.

      Never mind – I am guessing I’ll be coming out for the next BP event? Yes?

  7. Anthony Gayden

    July must be hell month for all landlords. I thought I was alone. $750 repairing an air conditioner, $300 fixing a water leak on my 4 plex in Phoenix, my property in Tucson got hit by a hail storm breaking every skylight in all 4 units and 1 front window costing me $500 to repair. Oh and the water leak caused my water bill for my building in Phoenix to literally be double costing me $250.

    You can’t do this landlord thing without money. That is a fact.

  8. Bob Ebaugh

    Try owning in Florida…or anywhere a hurricane might hit. We still have all your problems, plus since our small portfolio of 15 doors is all within a 5 mile radius we could get hurt pretty bad if the big one comes our way. Same as an earthquake in California. Gotta have that reserve to get things back in order.

  9. Yonah Sturmwind

    So after reading all of these issues my question is, how much would you set aside as a reserve before purchasing a property? The issues here run the gamut from a few hundred dollars to tens of thousands of dollars, which makes it difficult for newbie to assume any amount. Obviously different amounts are necessary for different assets but do you have a general suggestion of how much to keep for a rainy day?

      • Bob Ebaugh

        20K? I think the answer depends a lot on how many rentals you own? And further what your cash flow looks like. Outside of hurricanes and earthquakes that I already mentioned, there is a likely limit to a monthly exposure that is related to and is lower per unit the more rentals you own. Ie. they won’t all need a new roof or AC in the same month. If you put 1% per month for the entire value of the portfolio in the bank every month is very different than if you have no money down and make .05% using OPM. We keep about 5K per door minimum, pretty much equal to our hurricane deductibles in total and feel pretty safe. If the hurricane exposure wasn’t there, we’d go even lower. But we have only maybe 5% leverage. There isn’t a one number answer, but might be a formula that’s unique to every investor.

  10. Vania Castillo

    Thank you for making this very important point Ben!

    It seems you guys had a blast there and as for Brandon…… Let him alone 🙂 He is a very honest, responsible, caring landlord, working with his own hands to provide quality housing for his tenant and even putting his life on the line if he has to. Did you hear the story when he put on his rubber boots and went to carry his tenant out to safety in a flooded apartment with a power line down? That is pretty heroic, don’t you think?

  11. Jerry W.

    Having money available for unexpected things is very important. One thing I have tried to do is be proactive. When I see something I know will be a problem at some point in the future, I try to start setting money aside for it before it breaks. It doesn’t always work, but it helps. On occasion though I must raid those accounts for a truly unexpected expense. This year was my year to try to head off roofing expenses. I had 2 that really needed done, and got both done. Maybe I could have gone a bit longer but I had the money and did it now. I have all the materials to do another one if time allows this summer.

    • Ben Leybovich

      When you say you are putting money aside, in commercial space we have a name for it – Replacement Reserve, or CapEx Reserve. It’s the one thing experienced investors know to do while others do not, Jerry.

      I hold back $500/door per annum across my portfolio, which is why I do not have to tap money out of CF on months like July. Though, I might think about uping that…

      Just so you know, most brokers want you to believe that $250 – $300 is enough 🙂

  12. Amy A.

    A few years ago I had a small fire on the back wall of a building. No problem, that’s what insurance is for, right? However, they had me pay for repairs before they would inspect the work and reimburse me. So, what if I didn’t have the cash for repairs? I’m glad I didn’t have to find out!

  13. Sarah Shockley

    Very timely post – love hearing your thoughts, Ben.

    Every property I own is a foreclosure – someone else paid too much initially, and then when enough “July” months happened, they lost the property.

    I’m a small fish at this point, so each new purchase is very carefully considered to ensure I’m not overextending, and still have reserves for rainy days.

    • Ben Leybovich

      Sarah – you read my mind. In fact, next week’s article is going to be building on this. Why do you think that there are foreclosures in the first place?! You hit it on the head…schmucks running around thinking that if it looks on paper like it’s going to cash flow, it’s all fine and dandy – until a $20,000 roof leaks…lol

      Right on!

      • I would like to see a lively discussion of “Wholesalers” and what constitutes a truly “wholesale” deal.

        Every day I am inundated with emails boasting of red hot “wholesale” deals only to see the same tired property a week later with a “price reduction” and often a week later with another “price reduction”.

        Whose buying bloated, overpriced turkeys?

      • Philip LaRoche

        Ben and Sarah,

        This is so true. I use to be a boat repo guy when I lived in FL. It was one of the services my part time business offered. I found that many of the boats I took back for the company who contracted me was due to the owners not realizing the total cost of owning a boat. The purchase price was completely manageable for many of these people. Where they failed was to ensure that they could also cover the additional costs of ownership, like insurance, dockage, maintenance costs, taxes, FUEL, and then the unseen costs of breakdowns. I can see this happening in the RE world too.


        • Ben Leybovich

          Some of my friends have boats, Phil. Once in a while I think it would be nice, but every time my wife smacks me on top my head – thus far, I’ve come to my senses every time she smacks 🙂

  14. David Dalton

    Ben- crazy helpful article, thanks!

    I’m a Newb and have been scheming my first deal. The no money down stuff sounds so great, and I’m sure it’ll work out for me to do a deal that way, but especially it being my first deal, gotta have those reserves in place for those “Julys”! Wasn’t even on my radar man! Now I can see the daunting U boat that was lurking about, waiting to make my first deal a bust. Torpedoes Away!!!


    Excellent food for thought, and great advice,

    Much, much appreciated!

  15. Deanna Opgenort

    With only one property I have an “internal spreadsheet” for all the major items
    hot water heater past warranty date — $ in reserve
    Roof good for 10 more years, will estimate cost and start designated funding in 2-3 years
    Heater toward end of lifespan, $1200 to replace –$ in reserve
    Fridge & stove just replaced
    Dishwasher– May be failing. Replace in 1-2 months $250

  16. Nick Leamon

    Thanks Ben for another great article, you are always insightful and funny. One question though, does no one carry insurance on any of their properties? I have replace 2 roofs and had a leak that caused water damage, and got all of them repaired for $0 out of pocket, because i was able to find someone who would do the work for the amount the insurance company gave me. Now I carry a 1% deductible on all my homes, so maybe its overkill compared to what everyone else here on BP carries, but isn’t that why we pay the premiums so that we are protected against a 20K loss in 1 month?

    Now i understand A/C units, water heaters and appliances(I don’t include washer dryer, or fridge with any of my rentals so its really only the dishwasher) aren’t covered by insurance, but they are by home warranties (I don’t pay for home warranties but others might)

    Am I missing something?

    Unless all of your properties are $2M Ben, it which case the 1% deductible would be 20k 😛

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