can I start investing with no money?!

[Growler]

Hi All,

I've been reading, researching, listening to podcasts, looking excitedly at listings in my target region, and ready to jump in to investing. Only one problem.... I don't have any money!

I have a decent income form my job, but cash flow is tight right now and certainly do not have a down payment for a property.

Is there any scenario where it is possible to get started without a down payment?
I could do a JV, but do not have a track record to attract JV money.

Any thoughts? ie, private loan for the full amount and then re-finance as soon as possible, or is this foolish?

Thanks kindly!

 

[Thomas Beyer]

Would you go to a dentist that advertises “second root canal free - no experience dentist looking for new customers” ?

Only on midnight TV can you learn how to make millions with no money and no experience.

What is your value add ?

You could make money as a deal finder ie get a small share of profit or an upfront fee.

Or make more money as an experienced repeat deal finder AND property manager.

Some related posts, incl 5 Ways to Make Money here http://myreinspace.com/threads/educational-rein-posts-by-thomas-beyer.10663/

 

[Growler]

Would you go to a dentist that advertise “second root canal free” - no experience dentist looking for new customers” ?

Only on midnight TV can you learn how to make millions with no money and no experience.

What is your value add ?

You could make money as a deal finder ie get a small share of profit or an upfront fee.

I hear you and thank you for your response.

I'm truly not looking for the "infomercial" route to long-term financial security, but rather a foot in the door to earn my own way.

What value does "qualifying room" hold? I've heard of some investors that try to find partners who can qualify for mortgages. What would be the potential reward for that end of a partnership as a percentage of the deal?

 

[Thomas Beyer]

I hear you and thank you for your response.

I'm truly not looking for the "infomercial" route to long-term financial security, but rather a foot in the door to earn my own way.

What value does "qualifying room" hold? I've heard of some investors that try to find partners who can qualify for mortgages. What would be the potential reward for that end of a partnership as a percentage of the deal?

See my posts here such as green, red and blue money http://myreinspace.com/threads/educational-rein-posts-by-thomas-beyer.10663/


Thomas Beyer, Asset Manager, Investor, Community Improver, Author, Father, Mentor www.prestprop.com

 

[MarkOnaba]

Hi All,

I've been reading, researching, listening to podcasts, looking excitedly at listings in my target region, and ready to jump in to investing. Only one problem.... I don't have any money!

I have a decent income form my job, but cash flow is tight right now and certainly do not have a down payment for a property.

Is there any scenario where it is possible to get started without a down payment?
I could do a JV, but do not have a track record to attract JV money.

Any thoughts? ie, private loan for the full amount and then re-finance as soon as possible, or is this foolish?

Thanks kindly!

I've been investing in real estate for the last 11 years and from my "limited" experience there are SEVERAL scenarios that would allow you to get in without down payment. There are tons of resources on the REIN website and all over the internet that you can use... I've done a few creative deals and read or heard about many others that have done well for many seasoned investors.

I don't know what your current situation is, or where you are located, but as an example, I have a friend that is trying to get rid of his condo in Edmonton and would carry the financing as long as the buyer would ultimately refinance the property so he can move on. This is a no money down deal.

Another friend of mine in Toronto (during the boom) would find property owners with free and clear houses, offer them an attractive purchase price if they financed it for a year... then he would move his family in and get to work on upgrading the house throughout the year. He would then put the house up for sale after a year and sell it for a lot more than he was buying from the previous owner... all without qualifying for a mortgage... I'm not sure how he negotiated the down payment though.

My wife and I once partnered with another couple that couldn't sell their house because they didn't have any equity in it. We established the "purchase price" to be what they owed on the property and set up a 50/50 JV. We took control of the house and rented it out. Over the years the mortgage has been paid down and we got a little cash flow from it. We didn't put up any funds or qualify for a mortgage.

We also bought our primary residence creatively... The previous owners had owned it for about 6 months before he lost his job and couldn't afford the house. They put it up for sell in December and didn't get any bites. We looked at the house, liked it and got creative. We took over ALL the costs of the house (mortgage, insurance, repairs, taxes etc) for a minimum 2 years, they would have paid a significant mortgage penalty if they sold it when they had it on the market. We also wrote in our agreement that the mortgage pay down would be ours. After 2 years, the house had appreciated an extra $100k. We bought the house with a private lender then refinanced a couple of months later with a major bank. Total down payment needed - $5,000 plus private lender fees which were covered with refinance fees.

These are just examples... However, with any strategy that you use, you need to get educated and you have to make sure it ultimately serves you. Assessing risk is something most entrepreneurs suck at (until you learn a few hard lessons, then your riskometer gets REALLY fine tuned ) and therefore make assumptions (i.e. nice proformas) and get into deals that they shouldn't. Just because a property is cheap and/or easy to get into doesn't mean you should pursue it.

Always keep in mind that the majority of truly awesome deals typically don't require any creativity... we TYPICALLY (not always) get creative with deals that have some underlying factor (RISK) that prevents them from being sold at retail to the general market.

 

[Tina Myrvang]

Always think WIN/WIN
What's in it for you and what's in it for them.

 

[Cory Sperle]

This question gets asked a lot, and you answered many of your own questions in your first post. Don't JV or offer to until you have bought/held/sold several projects to prove a track record, yes this will take several years. Do you own any property now including a primary residence?

What I did when I started in real estate almost 20 years ago:
- Saved and saved until I had a down payment and bought a suited home with 5% down and became a landlord.
- Moved and bought another house and converted the first to a full rental
- used equity on both to buy a third, and invested with family on another one
- eventually sold most and bought two apartment buildings. Sold the buildings years later and acquired a track record.

In my experience education is great, but action requires baby steps to get to big results later. It can happen right off the bat, but I don't know anyone who has done it personally. There is tremendous risk and landmines everywhere that you can really only pick up over a long time investment horizon.

 

[Thomas Beyer]

If you like real estate there are many JOBS in that space as a realtor, a property manager, a leasing agent, a mortgage broker, a lawyer, or in trades, such as a plumber, painter, roofer, architect, framer, city planner or project manager.

These are all worthwhile professions but I would not call them investing. They all require training and expertise, too, though.

If you invest you need FIVE to SEVEN things: cash, access to a mortgage, time, desire, endurance ( or perseverance), salesmanship (or EQ or people skills) and expertise, ideally all 7. As Cory and I stated, in time, you can ask for money or for mortgage co-qualification as you will eventually run out of your own money. Using OPM ( other people’s money )is quite common in real estate.

Aller Anfang ist schwer. All beginnings are hard. REIN teaches you a lot and is probably the best education and real estate incubation environment in Canada. You still need the other five to seven as a successful investor.


See also my earlier links on
How to get started
Blue, green and red money
JVs
Five ways to make money

 

[Cory Sperle]

Some sound advice here . I'm amazed still at many would be investors, and incredibly one experienced 'expert' touting the benefits of 'no money down and no bank qualifying' that I just saw today and it just makes my head spin. Cash is essential in real estate period and real estate should not be attempted to be bought without it.

 

[Sherilynn]

There are potential JV partners who may invest with you even if you have no experience. Those would normally be family members if they have 100% confidence you will protect their investment and do your absolute best to make some money for them.

There is also the possibility of buying with zero down if you get an insured mortgage and borrow your down payment. If you have good credit, this may be possible. You could buy a duplex or fourplex and live in one of the units, and it would qualify as an owner-occupied purchase so you may take advantage of these programs. Then at some point you could buy another personal residence (or another duplex or fourplex), potentially with low money down if you are going to live in a unit, and convert the first to a full rental. (This was part of our strategy getting started.)

Yes, it is possible to buy with zero down using creative strategies, but these strategies are advanced and not recommended for new investors. That being said, it sounds like it could be a good idea for you to become educated on these strategies, and Barry McGuire happens to be conducting a course in Red Deer in April.

 

[Sherilynn]

Some sound advice here . I'm amazed still at many would be investors, and incredibly one experienced 'expert' touting the benefits of 'no money down and no bank qualifying' that I just saw today and it just makes my head spin. Cash is essential in real estate period and real estate should not be attempted to be bought without it.

Buying through Agreements for Sale (AFS) with little to no money down and no bank qualification is a viable purchase strategy. However, as I've said many times, it is an advanced strategy and I do not recommend it be used by new investors.

It works for me because I have a fairly substantial and reasonably profitable portfolio and can therefore weather the storm if the worst should happen with a property or two. But when I first learned these creative strategies 10 years ago, I didn't dare use them because I didn't have enough of a safety net. I kept those strategies in my investor toolkit for when timing was right for me, meaning when my overall portfolio could withstand/absorb the additional risk.

 

[Alvaro Sanchez]

Hi All,

I've been reading, researching, listening to podcasts, looking excitedly at listings in my target region, and ready to jump in to investing. Only one problem.... I don't have any money!

I have a decent income form my job, but cash flow is tight right now and certainly do not have a down payment for a property.

Is there any scenario where it is possible to get started without a down payment?
I could do a JV, but do not have a track record to attract JV money.

Any thoughts? ie, private loan for the full amount and then re-finance as soon as possible, or is this foolish?

Thanks kindly!

You might need to clean up your house first - decent income with no cash flow not a good sign - Save some cash and keep learning as much as you can.

 

[Vine Group]

Hello,

Private lenders generally go to 80% LTV and sometimes 90% LTV. Without any additional collateral, 100% LTV is unlikely.

Best course of action is likely a JV. The great thing about REIN is that there are plenty of other people on the opposite side who may have the funds for JV’s. Just a matter of networking and checking out monthly events.

 

[Cory Sperle]

I can think of almost no scenario where 100% financing makes sense. Your basing projections on either being able to refinance at a higher value or finding a seller who is willing to pay more. Creative financing is also often very expensive and usually not that long term so when the terms run out and you have to pay it in a down market your in serious trouble. I spoke to a 40+ year Investor the other day who told me even 75% LTV is too much if things slow down even slightly. The sure fire recipe for success is low to moderate leverage, large reserves, and a long term investment horizon.

 

[Sherilynn]

I can think of almost no scenario where 100% financing makes sense. Your basing projections on either being able to refinance at a higher value or finding a seller who is willing to pay more. Creative financing is also often very expensive and usually not that long term so when the terms run out and you have to pay it in a down market your in serious trouble. I spoke to a 40+ year Investor the other day who told me even 75% LTV is too much if things slow down even slightly. The sure fire recipe for success is low to moderate leverage, large reserves, and a long term investment horizon.

When I can buy a cashflowing property at or below market value, with little to no money down and $8k or more in annual mortgage paydown on a 4 year term, why wouldn't I want to do that? At the end of 4 years, I would have $32k in equity even if the property value stayed flat. So the worst case scenario is that I either refinance and pay less than a 20% down payment, or I renew the AFS term (the possibility of renewal is standard in our agreements).

Or perhaps I buy 10 cashflowing properties at zero down and sell a few in 4 years, and then effectively transfer the equity from the sold properties to the retained properties. Even with taking realtors' commissions into account, I should have enough 'free' equity to have a few properties with 80% LTV.

And it certainly isn't "very expensive" if the property cashflows.

As I've said, AFS is an advanced strategy and not for new investors, but there are many investors who have successfully used this strategy for years.

 

[Cory Sperle]

Well lets just agree to disagree on this one. As Thomas mentioned at the start, no money down and no experience only exists on midnight TV. I simply don't believe that anyone can consistently purchase 100% levered property over a long time period and never get stung, and it's simply bad advice to encourage others to do the same, especially novices.

 

[bb2]

There are potential JV partners who may invest with you even if you have no experience. Those would normally be family members if they have 100% confidence you will protect their investment and do your absolute best to make some money for them.

There is also the possibility of buying with zero down if you get an insured mortgage and borrow your down payment. If you have good credit, this may be possible. You could buy a duplex or fourplex and live in one of the units, and it would qualify as an owner-occupied purchase so you may take advantage of these programs. Then at some point you could buy another personal residence (or another duplex or fourplex), potentially with low money down if you are going to live in a unit, and convert the first to a full rental. (This was part of our strategy getting started.)

Yes, it is possible to buy with zero down using creative strategies, but these strategies are advanced and not recommended for new investors. That being said, it sounds like it could be a good idea for you to become educated on these strategies, and Barry McGuire happens to be conducting a course in Red Deer in April.

I agree with Sherilynn. There are ways to buy with little or no money down but they are advanced so get educated. If that is your only option consider taking Barry’s course. I took it a few years ago and would highly recommend it.


Sent from my iPad using myREINspace

 

[Cory Sperle]

Just because you can doesn't mean you should. Buying with no money down is certainly not anyone's only option, as saving for a reasonable down payment is doable for anyone! If you are unable to save for a down payment you certainly shouldn't be buying real estate. One is also much more motivated to succeed if you have your own skin in the deal.

 

[Matt Crowley]

Going in with no money is a great way to go out feet first.

Most touting AFS are predatory buyers taking advantage of someone else's inexperience. It's not creative if your unethical, your just unethical. Using someone else's paydown and calling it your cash flow... uhh.... they should just sell the place, listing it properly with a skilled Realtor. You are taking their money and calling it yours.

Great skill in anything takes patience. There is nothing special about real estate over any other form of investment or business.

Starting out in real estate, you need to make cash. Buying and holding property with a do nothing and wait is not going to make you much money at all. You need to be much more transactional / merchant. So have a 3-5 year hold period and exit. You have limited sources of capital (everyone runs out at some point), so need to execute the value-add plan and get out.

50%/50% JV's are a rip off, you should NEVER give someone that much of your profit. Totally ridiculous. You can get the best RE direct investors in the world for less than 30% of profits, and you usually get your money back + a preferred returns. Don't let jokers tell you otherwise.

 

[Sherilynn]

Most touting AFS are predatory buyers taking advantage of someone else's inexperience. It's not creative if your unethical, your just unethical. Using someone else's paydown and calling it your cash flow... uhh.... they should just sell the place, listing it properly with a skilled Realtor. You are taking their money and calling it yours.

It would seem you know little about the AFS strategy and the investors who regularly use it. (I have a two-part article in the next two REIN Life magazines in case anyone is interested in reading a bit more on AFS and other strategies.)

AFS purchasers are - more often than not - solution providers.

In an AFS, the seller has reasons for not selling the conventional way:

• perhaps they have no equity and therefore cannot afford a realtor because they would need to pay commissions out of their pocket
  
• since most people selling without a realtor either will take longer to sell or will achieve a lower sale price, a standard FSBO (for sale by owner) may also not be viable
• perhaps they simply don't want the hassle of selling themselves or through a realtor. (I have one AFS seller to whom this applies.)
• if the property needs a lot of work, then it could be incredibly difficult to sell, especially in a flat market
• in some cases, the mortgage prepayment penalty is prohibitively high
  
• if the seller is behind on payments or facing the possibility of foreclosure, waiting for a conventional sale to close may not be an option
• and if one or more of the above apply, then the stress of not knowing when the property will sell and for what price could be overwhelming.

So telling people they should avoid creative methods and always use a realtor when that may be impossible in their situation may be rather obtuse.

By selling via AFS, the seller has the peace of mind of knowing the property is sold and we close whenever they like. We always pay a fair price, sometimes full market value. (I'm sure readers will agree all buyers are hoping to pay less than full market value.)

On occasion, I have paid prices higher than sellers would net by selling through a realtor. In one case it was because the seller was willing to leave the bulk of her equity in the deal (meaning I didn't have to pay all her equity right away). This means that - while I enjoyed the privilege of paying less interest because her equity meant the mortgage balance wasn't as high - the seller was fairly compensated for this in the form of a higher sale price. And all remaining sellers' equity is paid to the seller on or before the time title transfers at an agreed date.

Of course there is the occasional person who would take advantage of desperate or uninformed people, but that applies to a small minority and happens in absolutely every industry.

Making blanket statements that paint all creative investors with such a negative brush comes across as not only uninformed but also unprofessional.