Real Estate Investing without money - zero down rental properties?

Hey YouTube, we are back for this week's Whiteboard Wednesday where we're bringing 5 more questions we got in the comment section below. If you want your questions addressed in the future, make sure to put them in the comments on this video and future videos moving forward.

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So question number 1 is coming from Bobby Barta. When it comes to buying a property with seller financing and using a hard money lender to cover the down payment, how do you pay that back?

Ah, that is an important question to answer. Uh, well, first of all, when we're buying property, we ask two questions: how do we buy it and how do we keep it forever? That is answered out of cash flow. And if you have something like a balloon payment coming up on year 5, 7, 10, whenever that comes up, you need to do an analysis on the front end for what you're buying today and on the back end for what you are looking at at exit. When you exit, you have a few options. Sell, or refinance. You need to make sure there's enough equity in the property to refinance it, otherwise you're gonna have to sell. There's one other way to do this, which is our personal favorite. You can actually go out and earn money. You can pay it off with earned income. That is the most efficient way to get rid of debt, to lower that obligation. That is a really, really important thing to be able to do.

Now, there have been some other ways that I've gotten out of it. You don't just have to sell the property. Christian came along partway through my investing career, and he had some money set aside because he had worked the 9 to 5. He had worked, well, probably 5 AM to 9 PM.

Yeah, for a while.

He worked a lot of hours at CoStar Group, and he had a little bit of cash set aside. So instead of selling all the property, on some of it, I sold out a little bit of ownership on one of my buildings, and that allowed me to pay off my hard money. So there's lots of ways to get creative, but it comes down to your personal situation. If you have someone you're willing to partner with, or if you just need to go earn it, sell the building, or refinance.

Last thing I'll say on this: when you're buying in and doing your initial investment and you've done your analysis on the front end and the back end, don't rely on being able to have a hyper-creative exit. Cody had a lot of moving pieces and we got very creative. You want to have a few clear exits that are very, very simple before you close on that property. Afterwards, get as creative as you want.

Yeah, the more creative you get, the the less repeatable it is. So just make sure you have your plan set in stone.

I'm quoting that forever. That's a great line there, Cody.

We did it.

All right, next question is from Just Rawl. Question: I recently found out about real estate investing. Where do I start learning? Like, where do you find the money to start investing? Should I save up from my 9-to-5, etc.?

Well, if you're looking to get started, I mean, a great place to get started is BiggerPockets. Couple books you could check out. Brandon Turner's got a great book on real estate investing when you're getting started with low to no money down. Robert Kiyosaki's got a great book, which is more so on the mindset behind, okay, what's an asset, what's a liability, what's the vocabulary you need to be familiar with when you're getting started in real estate. When it comes to actually saving up the money, if you want to go the traditional route, you need to go earn money. Now, that's not something that I did, I started with 100% debt and I had to build equity through creating efficiencies with the real estate. That said, the traditional route, go actually earn money so that you have money to invest. The more money you have, the more you can invest.

Now, while you don't have to have money to get started, by the way, you can do it with no and low money down. I just want to say here, it is hard to do. It is a lot of work. If you're foregoing the 9 to 5, don't think that you're just skipping doing the work. It is a ton of work, a ton of effort when you're getting creative. That being said, I believe it's worth it. Uh, next question: do you guys use balloon payments? And if you do, what do the terms look like? Before you answer this, I want to say, if you don't follow Cody on TikTok, you need to. There's a lot of people who call him a clown because they don't believe what he's done. However, I call him a clown because he is the master of balloons. He can form these into all sorts of things. Cody, talk to us about balloons.

So you need to be careful with the balloon. A balloon payment basically says, okay, you've got your amortization schedule, your tenants are going to pay off the loan over time, or it's an interest-only loan where you're just making interest payments so you have a higher cash flow today. Well, what a balloon says is that you're going to pay it off early. If you have a 30-year amortization like a home loan, then that's going to get paid off over 30 years. But with seller financing, you're typically going to have a balloon because the seller doesn't want to finance for you for full 30 years. Typically, they're going to want to get their interest payments in the meantime and then get the rest of their cash at a future point in time. So that balloon, think of it like a pop. It'll pop on you and you have to pay it all off at one point in time. I've done anywhere from 5 years all the way to 30-year with no balloon. The trick with the balloon, we've talked about this in our overleveraging video, you're overleveraged if you have a whole bunch of short-term debt. If you have $10 million loans due in the next 60 days, Well, you might be in trouble because now you're in a time crunch. If you have 30-year debt or 10-year debt or 15-year debt, you've got flexibility because rents are going to go up over time, debt will get paid down over time, so your equity is building. So our next question from The Boss: Great video, guys. What did you guys consult with or hire to get the knowledge necessary to start your property management company?

Ah, so the property management company actually came out of necessity. We had some of the properties professionally managed and that property management company dropped the ball on multiple things. I'm not going to get into details there, but it was really painful. We had the option to find a new manager or start our own company. We had the pieces and the people we needed to do that. That was something that we personally opted to do. It was a lot of learning on the go. One thing that we always push for is you need a different set of problems than you had yesterday. So we were stuck with the problem of, hey, we don't have the right management company. We had a few options. We started one. Now we had the issue of, I don't know everything we need to know. A lot of phone calls. We took AppFolio as our managing software. They actually helped guide us through a lot of the steps, and we hired one of the best property managers I've ever worked with in my life. Her name is Hannah Caldwell. She walked us through a lot of what to do, and more importantly, she tells us what we can't do.

And then our last question for today: How does the analysis differ when you partner on a deal?

The analysis when you partner, it depends heavily on deal structure.

Oh, they go a little bit deeper on that. Oh, perfect. So would you cash flow on a duplex $100 a unit, or would you shoot for $200 a unit because you're going to go 50/50?

Ah, my answer is going to remain about the same though. It depends completely on deal structure and what your business partners looking for. As important as it is to build a relationship with the owner and identify what they want, where they're headed, and why they want to go there, you need to know that with your capital partners. If they are looking to multiply their money over time, you might not even have to share cash flow. You might pay them an equity bump down the road, 3, 5, 10 years down the road. If they are really seeking cash flow, you may write a note at value and you pay a lot more cash flow. It's completely dependent on your partner. The beautiful thing about seller financing and partnerships is your note is completely custom. Anything you can imagine and negotiate, as long as the lawyers will sign off on it, you're golden. Same thing with your operating agreement for your partnership. Anything you guys can structure is doable. It is up to you what your goals are, what their goals are, and aligning those appropriately.

And a step further from that, You said as long as the lawyers sign off on it, just because it's legal, you also need to make sure it's ethical. You got to take that one step further. Just because people sign off on it, make sure you're doing good by everybody. Because I've seen folks in the business who've been playing the game for 15, 20 years and they said, well, I was allowed to do it. Everyone signed off on it. Just because you're allowed to do something doesn't mean you should. So when you're really taking in your partner's goals, if they're going to partner with you, Understand what they truly want. Sometimes there's an unspoken objective that you gotta hit. And so really understand what they're looking for. Make sure that you have documentation to support that. And then have a good ethical, you know, compass, moral compass to guide you through that. Because it's one thing to do things just as the documentation says, but it's another thing to really hit what everybody's looking for.

And what they're looking for always goes deeper than just money. Yes, you absolutely have to pay them back. You absolutely have to hit everything that you promise. So the money is very important. However, everyone's why is deeper than the money. Make sure you understand both pieces. We missed this once early on. We're never going to miss it again. You need to understand what their objectives are, but more importantly, why are they trying to hit those? What does it mean to them? Do they just want to participate with you? Do they really truly want to be passive? What is their end goal? You want to make sure that you're moving towards that goal with them.

So that's it for today's Whiteboard Wednesday. If you guys have more comments or questions, put them down in the comment section below. Like and subscribe if you haven't already, and we'll see you guys next time.