Cody shows how to buy rental properties with little or no money down using seller financing and creative debt structuring. In his example, a $1.1 million 12-unit building was financed 90% through the seller at 6% interest, leaving positive monthly cash flow. The biggest lever is negotiating cheap debt on the largest portion of the purchase price.
Chapters
Hey YouTube, this is Cody. Welcome to the channel and happy Friday. Today I want to chat about making money on a zero-down real estate deal. There's some misconceptions out there that say it's impossible to cash flow when you're putting zero money down, you're 100% leveraging. I want to share it's just not true. Now, there's 3 actual components to buying real estate. You have your deal, number one, then you have your debt. And if you don't 100% leverage, which granted, we're talking about 100% leverage today, then you find the equity and that equity could just be in your bank account. Maybe it's not. But today we're talking about deal, then debt, and then probably more debt because you're doing 100% leverage. A lot of folks out there say you can't cash flow, it's impossible to do it, or you got to go be a slumlord or you got to go buy in a bad part of town. That's not quite how it works because when you can take it private, meaning you're not going through a traditional bank, you're not doing hard money, you go and seller finance, well, all of a sudden you negotiate all the debt pieces. And the only criteria that Christian Osgood and I really care about that we're looking at on a consistent basis is how do we buy it and how do we never lose it? And now that we're starting to buy some more fun assets, we have a third question, which is, will we have fun doing it? We've bought some deals where we bought it zero money down, zero money out of pocket, cash flow over $1,000 a month, but it wasn't really a fun property. And so we added that as our third secret criteria. But how do you buy it? How do you never lose it? In the beginning, that is what matters. And it comes down to figuring out the debt. And then for how do you never lose it? It just comes down to long-term fixed rate debt and cash flow. And a third component of that is really just having liquid cash. But we don't always have reserves in the beginning. I sure didn't. So I focused on cash flow and on a zero-down deal. I mean, there's, there's tons of ways to make more cash flow. Number one, you can increase the actual income. I mean, if you can do that, phenomenal. Rentals, you can't do that overnight. You can also reduce expenses. So that's another option. You know, you can work the income side up or you can work the expenses down. You can also borrow cheaper money. So you reduce the interest rate. And the last one is you can borrow less money, meaning you put more money down. But today we're talking about 100% leverage. And so I want to share my very first deal that I 100% leveraged. I bought it. It was 12 units, seller financed, $1,000,001. It was actually $1,125,000. I'm going to round down for just a minute. Bought it for $1,000,001. Got 90% of the purchase from the seller and I borrowed 10% down as hard money. Now, the seller, that's the big piece of the debt. That's a lot more debt. I borrowed $1,012,500 from the seller and I borrowed $125,000 for a little bit of extra reserves. From the hard money lender that was just private, wasn't from family, wasn't from friends, but I took it private and that money was 12% interest. Would it make more sense to negotiate the 10% down rate to get it lower, or would it make more sense to negotiate the 90% debt? Well, it would make more sense to negotiate the 90%. So I got $1,012,500 from the seller at 6%., and I got $125,000 that I used as my down payment and closing costs at 12%. Some people, including my family, said it would be very expensive. And it was. It was expensive. They said that was too much and I should try and renegotiate that down. That is a very small percentage of the overall loan amount, like very small. And so I want to focus on the big piece, and that is how you can cash flow with 100% leverage. You focus on the largest amount of debt that you can get on an asset. And again, your options— you can increase income, lower expenses, you can put more money down, which in this case we're not doing, or you can borrow cheaper debt. And that is the way to make these deals work. I borrowed the 90% loan-to-value at 6% interest, and I borrowed a very small percentage of my purchase at 12%. When you're putting money down, or if you don't have any money to put down, When I do seller finance deals, I want to get as much as possible from the seller as cheap as possible. You're not going to be able to do this with a traditional bank. If you get a 90% loan-to-value deal from a bank, interest rate's going to be probably pretty high and it's going to be a little hard to cash flow. Right now, rates are in the 6s and the 7s. If you're doing DSCR loans, they're in the 8s, 9s or plus. They're pretty high. I go to a seller, get 3, 4% debt I'm borrowing cheaper than I could elsewhere, and all of a sudden I can borrow a lot more money and make cash flow. And if you don't have money, your options are you either don't buy it because you're worried about the rate, or you find a way to make it work. You ask, how could I buy this? And the way that you do that when you have absolutely no money, you can't increase income or decrease expenses day one. Is you negotiate cheaper debt. And that is why we love seller financing, because everything is made up. The loan term, whether you interest only, you do amortized, you do no payments for 6 months so you can actually increase the income and decrease the expenses. Everything's made up. And so with the seller finance route, that is the way to play the game with no money. That's the way to make cash flowing assets out of zero down investments. How I did it on my first 12, my second 12, the 6, the 38. I built everything I have today with about $10,000 out of pocket. And I'll tell you, $10,000 when you start buying millions and millions of real estate is pretty similar to zero. And if you're starting out with $0, I did that on my very first deal. I had $3,000 in the bank, didn't spend it all. You can buy these deals, but you're going to have to likely take it private and go out there and negotiate some type of seller financing where Again, cash flow is just a function of income less expenses. Your mortgage is part of those expenses. But as long as you can get that number positive and you're comfortable with the margin, just negotiate the seller finance note where it makes sense for you. And if you need a little bit of money down, if you need 5% down, 10% down, you don't have it. Again, the video is zero money down. You just got to figure out how to borrow that money for the down payment cheap enough to where the deal still cash flows. And if you can do that, which I've repeated multiple times and a lot of the mentees have done the same, you could buy real estate that pays you every single month. And if you just keep buying more of that cash flow, you can start hammering your debt, which is what I did. Paid off multiple six figures of debt this year. Then your cash flow gets even better. But the real estate bought the real estate at that point, and it all started with zero money. So that's how you do it. You go find the deal first, then you structure all the debt. There can be a first lien, a second lien, however you have to do it. Again, you're going to talk with your attorney on actually structuring it once you find the deal, not a deal, but the deal. You find it, you structure the debt, make sure you put the most emphasis on the bigger portion. You don't want to just spend all the time trying to save a point on your 10% down. A lot of people do that. Try and negotiate the big piece as much as possible. And then, and only then, when you have the big portion of the debt figured out, then you look at the little one. And if you can get it all done, buy the deal and just make sure that your income less expenses is positive where you're happy and you own a piece of real estate. That's it for today. Keep things simple and happy Friday.
