No Money Down Real Estate: Is It a Good Idea for You?

I’ve noticed that while everyone seems to want to know HOW to buy without money, hardly anyone wonders whether that’s a good idea in the first place. Personally, I believe that just because you can do something doesn’t mean that you should, and as it relates to buying with no money down (NMD), this is a conversation that must be had. So let’s talk!

Some Say No Money Down is Not Investing

Many of my friends will tell you that no money down, by its very definition, is not investing. They say that investing is a function of putting capital to work to produce more capital, and the notion of getting into the game without any money is simply not investing.

While this logic has merit, specifically as it relates to paper markets, I cannot agree to it simply based on my own experiences. The real estate market is inefficient, and one of the utilities of an inefficient market is that it is possible to diverge from the accepted norms. While it may be true that NMD doesn’t conform to the classical definition of investing, if there were a place to do it, it’s the real estate market!

And then there’s my experience. Yes, many of my friends have more properties than I do, and yes, many have more money. But the fact is that my life, be as it may, is quite a bit more comfortable than vast majority of people, and my ceiling is nowhere near being reached. And since I had nothing when I started, and therefore had to do all of my deals with no money down, I simply disagree with the assessment that if you have no money, you have no business in real estate.

For sure, without money you have to work harder for less, and it will take you a much longer time to accumulate either cash flow or wealth, but it’s possible.

And on the other hand, mind you, I have seen more than once or twice folks invest a lot of money and lose big. This is to say that when investing wrongly into the wrong asset, having money is not any kind of savior!

In short, in real estate, having money is not a guarantee of success — and not having money is not a guarantee of failure!

So Should You Invest in Rentals if You Have No Money in the Bank?

And the answer is it depends!

I am going to try and underscore some of the basics here. This is not a good idea for everyone across the board. There are some attributes that must be present in you if you are going to try and embark on this NMD journey. If you are missing some, success is still possible but will be more difficult. Here we go.

What Is a Better Option for You?

I have to lead with this simply because if NMD is the only thing you can do, then it’s the best thing you can do, period. Beggars can’t be choosers. A small piece of the pie is better than no desert. What other cliche can you think of? They are all true!

This was me, by the way — a classically trained fiddle player who was given a diagnosis of Multiple Sclerosis and told the wheelchair was in a not-so-distant future. Talk about starting with nothing. I decided real estate — which required brains, tenacity, and money — was the best avenue because I had two out of the three. Indeed, I had the brains, and I wasn’t going to quit because I couldn’t, and I figured not having money was the most easy to overcome problem. I was right!

Look, real estate is an inefficient market, which means that anything goes. If you’ve identified rentals as the best way for you to try and secure your family’s financial circumstance, then in the absence of any better solutions, do it! Which brings me to the first caveat…

What’s Your “Why”?

I respect real estate — a lot!

My balance sheet gets bigger every month because my tenants pay my notes for me. And then there’s cash flow. And then there’s the fact that my effective tax rate is in single digits — it’s not an accident.

I’ve got no money in my real estate. Everything is 100 percent financed.

Sure, it’s a cliche, but it happens to be the only constant in real estate — I wanted to give up many times. Guys, I’ve been at this for over a decade, and the nonsense I’ve seen people do. Low-lives. Freaking losers. Scum of the Earth. I don’t like real estate. Let me say that again — I do not like real estate, and I wish I didn’t have to do it.

But nobody I know who succeeds in real estate, specifically NMD real estate, does so because it’s easy. This is a full-contact sport, and you’ll see things that will make you doubt humanity. If you don’t have a clearly defined reason for why you should take the punches and get up, then, well, you won’t get up. So, what is your “why”?

How’s Your Credit?

I know you don’t have any money in the bank, but how’s your credit? It takes money to buy rentals, and if you don’t have money, you’ll have to borrow. Why would someone lend to you — can you be trusted to make the payments? Is your credit good?

Understand, 100 percent financing is most often achieved with a blend of different types of money, which often involves long and short-term money. Remember, short-term money has to be paid back, and most often this is done with a refinance of some sort. How’s your credit? Can you go to a bank and do a refinance?

Understand, when underwriting a deal, you must remember that how you get the money in is less important than how you get the money out. And getting the money out oftentimes involves credit. So, how’s your credit?

But at the end of the day, while credit is important, bad credit can be overcome, while bad math cannot, which brings me to the next point…

Are You Good With Math?

Seriously, this is going to be a short paragraph. Stay out of real estate unless you’ve got the math down. We tell stories with numbers when it comes to rental properties, and when doing nothing down deals, the margins are slimmer and there is much less room for error. You must be able to read and interpret numbers well, period.

Do Cost Benefit Analysis

Lots of people are turned off to trying anything new for fear of making a mistake. It doesn’t help that I am honest with folks about the risks involved, especially when 100 percent leverage is used. I do what I can to forewarn folks against rash decisions!

Having said that, there is a cost to doing nothing and a risk associated with that. For example, if you have no money in the bank, two kids, and a dead-end job, there certainly is downside to doing nothing! The risk of simply remaining on the same trajectory is that you will end up in a place that you won’t like or be proud of.

So is the risk of doing nothing greater than the risk of doing something? Is the risk of trying, making a mistake, and losing money greater than doing nothing and ending up with nothing without ever having given yourself a chance at achieving something better?

If you are in a good job with growth potential, retirement accounts, and benefits, you have something good to potentially look forward to — and something to lose. In this case, it comes down to who you are and whether you think it’s a good idea to continue working for “the man.” But at the end of the day, you have something good going, which should give you a moment of pause relative to getting into real estate and introducing additional risk into the equation. It may still be worth it, but you have to think carefully.

On the other hand, if you’ve got nothing good going on, why even bother thinking? You’ve got nothing to lose! Get into real estate any way you can, and don’t think twice about no money down — if you learn how to do it right (and I can help with that), NMD can work well!

Conclusion

Everyone wants to know how to buy with no money down, but few people ever wonder if it’s something that is a good idea in the first place. In some cases, absolutely — while other times it may be a terrible idea. Hopefully, this article has given you a few things to consider.

Investors: Do you choose to invest with no money down? Why or why not? What are your thoughts on this discussion?

Leave a comment below, and let’s talk.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.