4 ways to buy real estate $0 down - invest with no money down

Hello YouTube and welcome back. I'm Christian, this is Cody, and we are back at the Robin Hood Village Resort. We're actually in the bar room.

This is my basement.

Yeah, Cody lives directly upstairs. Because I mentioned that you live here, Google's probably gonna flag this as an ad for housing, which is a bummer. However, we are here. Welcome to the Robin Hood. I don't actually know that we've shown an image of the bar, so this is the bar. The Nordstroms used to own this. And Bill Gates used to come here for his Macallan 18. Uh, you're in a piece of history with us today as we talk about 4 different ways to buy deals, $0 out of pocket.

Now the one that most people know about, and this is the conventional route— thank you for your service— is your VA loan. You can buy real estate with a VA loan, zero money down. I've had a lot of buddies do this, folks that were in the military or are in the military right now working at JBLM. Now they've gotten moved around the states, but they bought duplexes, fourplexes, zero money down with a VA loan. Now there's a lot of people out there that say, well, it's too competitive to do that. They were doing it during the height of COVID when it got super hypercompetitive with low rates. You can do this and there's going to be different requirements. You can actually use some of the rental income to qualify for that loan if you've served, but you're going to have to have 2 years of actual management history, or you're going to have to have a professional property manager. But if you have a professional property manager, you sign a PM contract, you can use a portion of the rental income to help you qualify. Again, thank you for your service. But now let's talk about getting really creative.

Yeah, going to the creative finance side. I'm going to keep probably the most simple iteration I can think of. We do a lot of seller financing. If you guys follow this channel at all, we're buying this seller financed.

I mean, we're seller financing the resort. We've seller financed all the apartments.

Mm-hmm.

It's pretty ridiculous.

We've done one deal together that wasn't seller financed.

Yeah, it was one deal, but we also bought it without a bank, and we also bought it zero money down.

Yeah, well, actually, that's a good one for an example later. We'll talk about that in practical application. However, simplest iteration that I can think of, seller financing, you find someone who has no debt on the property, they 100% seller finance it.

Okay, but that's not super common, so what's more typical?

Okay, so if you're not just getting a first position where they finance 100%, most of them will ask you for some sort of down payment. Now, if they don't know you or trust you, you're typically going to look at 25% to 50%. That's a lot.

Yes.

And so people who try to sell seller financing to the other party is like, hey, you're going to get some tax benefits, interest on your money.

Yeah, that's dumb.

That's not why people seller finance. Are those benefits? Absolutely. Is that a reason to do it? Usually not. You can usually reinvest the cash and get a higher return. The reason someone will seller finance is because you have a relationship and they want to specifically sell the property to someone they know and trust and help you out.

So let's say you need to put a little bit of money down. What are the two forms of money? You've got, you got your deal, and then what are the two pieces to put it together?

So you can either bring in money as additional debt or as equity, which is ownership in the deal.

We try not to give up as much equity because if you can just 100% leverage and get it to cash flow, it's a little cash flow tight today. However, you can own it 100% down the road. And that is what we want to do. We want to own as much real estate as possible with the least amount of headaches, meaning we don't need 1,000 doors with 10% ownership. We want to have 100% ownership of maybe 100 or 1,000 doors. We may get there, which by the way is why we don't syndicate.

That's, uh, we're not going to go into it, but that's a way that you can buy stuff $0 out of pocket. However, you don't own a lot of it. We're after equity in the real estate.

Now back to the actual zero down thing, because that's how I started. I had $3,000 in my name. However, I didn't actually use it. I borrowed the down payment in second lien position. So you got your first mortgage with the seller, and my first deal, it was 90% of the deal. I needed the other 10%, and so I borrowed that 10% plus a little bit extra for closing costs and all that, and I put that in second lien position. Now that's going to come from a really good deal. You're not just going to be able to get a second on everything you buy. It's going to come from trust, and if you don't have trust because you're just getting started, like my myself. I didn't have trust with that person. I'd done a deal before. I had a stellar opportunity, and it was a 30-year fully amortized mortgage, no balloon, on a seller-financed 12-plex. That's hard to get. So if you can get really good terms, they're going to be more likely to almost loan-to-own model, where they lend to you, and if you fail, they get to own it. So that's a— that's the way that I got started with my first 30 units, is I got a huge seller finance piece, and then I got some private investor smaller investors to fund the down payment. But if you can't get that because they want more skin in the game or they just want to be a part of the deal, what's the other route?

Well, if they want to get more skin in the game, you can actually give equity in the property. If you give a piece of ownership to someone, like in debt, their worst case scenario is they foreclose on you, right?

Yeah.

When you're giving equity, there's nothing to foreclose. They already own it. They're actually a piece of the deal. One of the cool things with this is there's not monthly payments traditionally. You're not going to have monthly payments towards one of the equity partners. There's going to be deferred payment at either a refinance or a buyout, anything that you've negotiated in there, you pay them. The cool thing is you can do more expensive money when you don't have to pay for it out of cash flow today. If we're improving a property and it's going to be worth significantly more in the future, I can borrow at a higher interest rate with deferred payments in the form of a buyout.

But we're not just banking on it going like crazy. You have to be able to project it. It can't just be, oh, if the market does this, we'll be here. It has to be feasible on today's numbers.

You have to know what you're doing using hyper-conservative numbers. If everything went wrong in the future, it should be worth X, which is enough to cash them out. If you can answer that—

why we're super excited about the resort, because if everything went wrong— granted, this is our, you know, this is our biggest deal ever, we're putting a million dollars down on this— if everything went wrong, meaning we didn't collect a dime on this, Let's really hope that doesn't happen. We could still fund it out of cash flow from our real estate. So we're being super conservative because how do you buy it is one thing, how do you never lose it is way more important because we don't want to lose $1 million. Turns out you can only do that so many times when you're only worth a couple million and then you're out.

Mm-hmm. Couple rules when you bring in equity, by the way, you bring in an equity partner. The goal is not to have a bajillion partners. We don't want to have a whole group of people with a lot of questions and a whole lot of extra moving parts.

We don't want to do a fund, you know, none of that.

We want to work with people that we trust, experienced investors who we can put very simply in the deal with very simple documentation. You put your money in at this point, we have an option to buy you out at a fixed price in the future. Very, very simple. Don't bring a ton of people into your deals. Find a few people you want to work with.

Yeah, let's give an example of that because we did the, the Pheasant Street Apartments with—

oh, excellent.

We did, we bought a nice block of duplexes. And you guys know that we love bigger buildings, but these duplexes are really pretty, and we just bought a whole block of them, and we bought it for a whopping $0 out of pocket. How could someone repeat that?

Well, on this particular deal, it was a $90,000 down capital raise. The seller wanted 10% down, $900,000 purchase. We found someone who wanted to double their money in real estate every 5 years. They've had successful projects, unsuccessful projects. They just wanted to work with an experienced operator, which happened to be Cody and I. We own a lot in that market already. We had a lot of momentum. There was the trust that we can do what we said we wanted to do. We just write a buyout for, hey, you provide the down payment, we'll do all the work, negotiate the deal, all the management. We have the stellar price on a stellar contract on a great piece of real estate. The collateral, if we fail, our equity transfers to him.

Now, do you have to get that all in writing? Oh yeah. And you need to have a really good attorney who can get that. You know, you need to get it all set up beforehand. You're not doing that after the fact. Napkin math. Mm-hmm.

But the great thing is, to do something like that, do you need a great lawyer? Yes. Ultimately though, it's a few paragraphs added to your operating agreement that spell out, here is the buyout, here are the stipulations, and here's what happens if the buyout doesn't happen. It's very simple. It needs to be done right.

So I can use first names because no one will know, because a lot of these, these names out there. But how do we find Isaac?

We found Isaac— I actually was running a call center, and it was someone I connected with who who had just sold a property. We were collecting some data on sales comps in the area. We met for coffee, just because I wanted to hear his story. He was an interesting guy. There was no objective for, I mean, he just sold his real estate, so there's nothing for me to buy. I had no idea what his capital position was. He just said he was trying to work on what he's gonna do with his taxes for his property and wanted to meet up and learn what we're doing. Got coffee with him one time, and when we found this deal, He was just the first person I thought of. I'm like, the structure that we want matches exactly what he voiced to us we wanted. So instead of going to someone saying, hey, can you send me money? Or grooming people— I hate that word, by the way, but I hear it all the time. How do you groom investors? Yeah, we don't. The phone call goes exactly like this: hey, I appreciate coffee last time. Based on our last conversation, I had an idea I wanted to discuss with you that I think lines up with what you're trying to do. It's a continuation of a relationship. It's not a, you know, going to the liquid guy for money. I hate that mentality. When you're bringing on a partner, you are lining up a deal with their existing goals.

Yep, that's it. And then the last really creative strategy you want to share, because this is something that Caleb and Chuck are doing in the mentorship, they actually are buying their 10-plex and selling a little land parcel because it's just an extra piece of real estate attached that they don't need, and that's going to reimburse their down payment. If you're going out buying a deal and you don't want to structure it as debt, you don't want to structure it as equity, you are able to do so. We don't write up deals we can't close. That's just a hard rule. Like, we will not break that. It's a non-starter for us. However, if you're able to close it and you don't want to bring in debt or equity for the down— if you bought, let's say, like the Pheasant Street properties, if you bought a block of duplexes and you could wholesale one or two of them to recoup the down payment you need for the third, all of a sudden you're getting literally free real estate because you're able to package enough value for someone else to get the money to use as your down payment. Now, we don't like to wholesale because a deal worth wholesaling is a deal worth buying. However, if you just want to own a duplex and you can lock up four, sell three of the contracts, get enough money for the last one, and you have absolutely no money, it could be a great place to start if that deal happens to fall in your lap.

Now what I don't want people to hear is, okay, I need to wholesale properties to earn my down payment. This happens to everyone I've ever met who got into wholesaling before they started investing. They get addicted to wholesaling, and every time they have a stellar deal under contract, they'll sell it so they can buy their BMW. It happens every time. I've seen it happen with 6 or 7 different people. I've seen it happen to young people, Old people. Everyone who gets into wholesaling gets addicted to quick money and doesn't move forward. So use it as part of a meta strategy. Yeah, everything has its place. Syndication probably has a place for us somewhere. We just haven't found the appropriate use. Use the strategies, but don't get addicted to any one.

Yeah, a lot of the money from wholesaling I see either goes to Gucci, the poker table, or the cars. So don't get addicted to that. Get used to buying real estate. If you get addicted to buying real estate, you can find a way to monetize that. How to buy it, how to never lose it, which comes down to long-term debt and cash flow. Good debt service, you're going to be better off down the road.

Yeah. Can I throw one bonus one in here? We said we're going to do 4. A quick bonus one that we've done a few times, contract for deed. We get a lot of questions around subject to, which is just a clause in there. It's not a meta, it's not a strategy. It's just a small piece of a large contract. But could you explain just nuts and bolts, if you're doing something that may have a little bit of existing debt on it, How would you use that clause on a contract for deed?

Yeah, so let's say they have a mortgage on it and you want to get a little bit creative. Well, a real estate contract actually doesn't create a lien on title typically, and it's just a contract with obligations that you either meet or you don't meet. And it puts both people on title. You got legal title, and then you got equitable title, which the buyer gets. And so you get the equity and the ability to use the property as if it was yours. But in the case you default, it goes back to the seller and you get booted off. So you're typically able to keep an existing mortgage in place with that clause, subject to, because it's not adding a lien in second, which would violate the terms of the first mortgage.

Now, we're not going to go super into depth on that because it's not something that we do a lot of. We actually haven't had to utilize that clause because we like to work with masters of the game, a lot of them who've been playing a little bit longer have less debt on their assets. We haven't had to work around that.

Yeah, if you're, if you're thinking about it, if the really smart people that are doing really well pay off their loans, you should probably think about doing it yourself over time.

Yes, which is a video for another time. But that is our 4 plus 1 bonus ways to buy deals zero down. There are a lot more. I'm sure there's a part 2 to this, but until then, like, subscribe, and if you want to stay in the Robinhood, come meet us. You're absolutely invited. We're right here in Washington. Hit me up on Instagram @ChristianOsgood and we'll get you invited down here.

We'll see you tomorrow for episode 2 at the Robin Hood.