Buying Real Estate with Zero Interest Loans?!

It's free money for a year. If it works, I'm going to be rich. And if it doesn't, you're going to have 30% debt. We have pulled hundreds of thousands of dollars of zero interest loans to get started on a lot of our renovation projects and build our businesses. Today we're talking about exactly how we did that and if you should look at doing the same thing.

Welcome back to the channel. My name is Cody. This is Christian. And today we're talking about 0% interest loans. When we got started, had next to no money. Christian had some money, but he blew it on a couple duplexes. I had no money and can't blow nothing. So that is how we got started. But we started buying apartment buildings together. Our first deal together was a 38-unit which needed a ton of renovations, and we were shy of all of it. So how the heck did we fund those?

Well, I'm going to start with a disclaimer. This strategy works if it works. You take on some risk, but there are credit cards that are available, and a lot of them have zero interest for the first year. Now, when you buy in an LLC— so this is for commercial real estate— if you are an LLC or a partnership and you get a credit card with a 0% interest rate for the promotion for the first year, you actually get paid a few thousand dollars in points usually for your first few things. We got a bunch of cards, a lot of them came in at like $24,000, seemed to be a pretty consistent number., and we could usually get 1 or 2 of these for each LLC. So in general, a lot of our companies started with a renovation budget that we could do on a credit card where we have 1 year to get them.

And some of them were 18 months.

So some of them were 18 months, but for the most part, you have about a year to 18 months. You'll get paid a few thousand dollars, but we can open up anywhere from $24,000 to $50,000 of available credit to get started on a project.

Now we'd use that to— we have our 4-stage business cycle. You've got the build phase where you go out and buy a bunch of stuff, and then you've got stabilization We would use this money to stabilize the assets to get consistent income. Once we have the consistent cash flow, we use that to pay down the cards as quick as we can. Now, this is just going to be a mathematical formula, and then not getting shafted on the fact that everybody would stop paying at once. Mm-hmm. That can happen, but you do a calculated risk. And what we did is we said we can get the assets to cash flow and get the value up enough to where we can pay down the cards, and we mapped it out. Now, the problem with investing is it's not guaranteed, but the way that we did it when we had no money was we took a limited position, which was about $50,000 in credit cards. We fixed up our assets to get started, got consistent income, and used the income to start saving up and paying down those cards. Now, did some of them go to the interest period? Absolutely. But the beauty is, even if you're paying 20% a year on $50,000, it is still only $10,000 a month. And almost a year. Yeah, a year.

But most of them only went a few months over if we did. So a few of them and a majority of them, you just pay them off before the end of the period. And we hit that on most of them. But on a few, we had a few months of overage where like, oh, they didn't quite hit our target, or maybe it took more money or longer time to renovate a building. If you end up with, say, 3 months of high interest after a year of no interest, it balances out to a very, very, very inexpensive cost of capital. The main thing is you do have to be able to pay off those cards. What you do not want to be stuck with, and this is the risk, if you, for example, fix the buildings and decide, hey, you know, it'd be great paying myself cash flow for the next 6 months. Not gonna fly. Not gonna fly. If you spend the money and you let that $50,000 go to 20 to 30% interest, that builds up really fast and that's going to eat into your future cash flow. That is now just adding really, really, really toxic debt into your debt stack. So you need to come up with a plan of this is exactly— I'm gonna pay it off by the end of the year. Now what you can do, we've never had to do this, but you can cycle a few cards. You can pay off one card by getting a brand new card, and you can load that one up. I recommend against that. I think the one-year plan is perfect. It gets you started, it can get you through renovation, especially on these small mid-sized buildings. But if you get addicted to like, I'll borrow this, then I'll borrow again, and then I'll borrow again, eventually you just have a bunch of debt. Yep. And we've seen a lot of people do this with even with private money, not with credit cards, just, hey, I borrowed here and then I borrowed again to pay off that loan and then I borrowed. They call that borrowing from Peter to pay Paul.

That just shows a lack of discipline. Yeah. You have to be really disciplined if you're going to play this game. A real life example, I borrowed $120,000 on a very high interest private money HELOC against one of my buildings, and the payment is $1,270 a month. On a 12-plex where the mortgage is already $6,100 a month. The cash flow from that property will not only make the payments every month, but it will pay off the HELOC well before it's due. Within about 2 years, I'll be able to pay off that, that HELOC just from the property cash flow. So I did a calculated gamble and said, I think based on the cash flow that I can take this loan and prove the asset and use the cash flow to pay it off., and it's absolutely crushing that right now. But, uh, some people just do it irresponsibly. They don't math it out and they borrow money just to make it nicer before they should. Going too quickly in your business will sink you.

And now if you look at how many times we've done this to get started, especially on some of the businesses, because remember we have 20-something LLCs, we have a resort, we started a property management company together, which I now run, but we started all these projects together. And so when we've done a bunch of businesses and you start with no money, we have a stack probably yay thick of various cards between our debit cards and our credit cards. And it's a lot to manage. Best practice in building your credit, because one cool thing that happens when you load up these cards and you pay them off, you build some credit for your companies, which is really— it's fantastic. It increases your ability to borrow on business products. Best practice, when you get to the end of the 1 year, you pay them off, but you lose all that value of having an open line, the longevity of the lines, if you just cancel the card. Best practice, you go into your account, you set that card to auto-pay in full. It will automatically pay itself all the way off no matter what. Maybe you forgot you put a recurring bill on there, or you had some sort of, let's say, a lawn care subscription. And how do we pay it off? With money. Set them to autopay, attach them to the LLC's bank account so that it will automatically pull anything that you forgot to cancel if you had anything you needed to move to another card.

And make sure your business makes enough to actually pay for any debt that you take on. Exactly. It is owed money.

Then take that card and put it in a safe and don't use it. Yeah, it's just like— it's now just a dead card.

Just like your student loans, if you borrow it, you do need to pay it back.

Yep, and that is the most important thing. I think a lot of people forget that. There's— I've seen a lot of courses and ads for, hey, stack as many credit cards as you can, build an empire of free money. And what happens, a lot of people go out and they build businesses just assuming, hey, it's free money, I'm going to build my business, I'm so sure it's going to be successful. That only works when it works. That's why we like it for real estate projects. You can buy based on cash flow, you can do your projects and very, very, very predictably say, hey, when this is rented, this is what market rent is. You're buying into a proven business model. I do not like this model for, hey, I have a new business idea or some venture where I'm going to borrow— terrible plan. Yeah, it's free money for a year. If it works, I'm going to be rich. It's like, and if it doesn't, you're going to have 30% debt. Do it for stable things. This is a great solution if you're getting started in real estate.

Yep. But be responsible with it, do the math, and know the risks. We did, and we mapped it correctly, and we didn't have the whole thing fall out from under us before we finished the projects.

And at the end of the day, it has been hundreds of thousands of dollars of zero interest debt, which is a lot. Yeah. And the few that went over, we got them paid off within a few months. We've probably borrowed realistically in the ballpark of $300,000 or $400,000. At an average percent of maybe 1 or 2%. Doesn't suck. It's basically free money if you execute your business plan and do great math on the front end.

And you have the means to pay them off. Yes.

We don't usually share this one. This is actually—

we've chosen not to share it on the channel because people are reckless and irresponsible.

So don't be reckless and irresponsible. And if you, uh, if you blow it on this strategy, do not blame us. We are sharing what we have done Not what you should do. This may work for you, it may not. If you want more tips on real estate and debt and other debt options, we've shared a video really recently on a bunch of different capital structures we've done to acquire real estate, some of our favorite ones. We share it all on this channel. Like, subscribe, follow for more.