Zero down real estate | Buying Tons of Rentals with No Money

Hey YouTube, this is Cody. I've got Christian doing Cody things today, and we are actually outside the Lake of Ozarks. If you haven't seen that show, I've heard it's good. I've never seen it, but we are here today looking at some real estate that we are potentially buying zero money down, and that is the topic for today's video. How do you buy real estate zero money down, and are there multiple different ways to do that?

Yes, there absolutely are. We're gonna go through several of them. This is not an exhaustive list, but we wanna share how we actually do this and how a few of our friends have actually bought zero-down deals. Something to note, when you're getting creative, you typically will be working with higher interest rates. However, you're multiplying money that is zero down. It's technically an infinite return. So if you're looking at this and you're looking at some of the margins, know there may be additional prices. You have to make sure you find the right deal to do this on and that it's worth doing. That's gonna be dictated by cash flow. Cody, what is one way that we can do a zero-down deal?

Yeah, so number one way is, one of the ways that I've done it in the past, I did a fix-and-flip house. Now I don't post a whole bunch about fix-and-flip because it's not my business model. I love buy-and-hold apartments. I do that through seller financing where I don't have to qualify through the banks. Well, I bought a house with a, partner, someone that I'm going out buying real estate with today, not Christian, but he's a very VIP client. And this house was over in Puyallup, Washington. What I did in that case is I got a private money lender, aka hard money lender, to fund the purchase. And I had my partner come in with the initial money we needed down to buy the deal. And then from there, we split some of the rehab costs. Now, the first question, how do you buy a piece of real estate? That's our first of the two qualifying questions. Well, how do I buy it? I just had to find someone that could come in with a little bit of money we needed down. It was very low money down. And then we had to get a lender who was willing to fund the deal. We got the deal, then we got the debt, and then I found the equity. And through that, I found a great piece of property, and I got someone to give money in one end, a lender, and someone else to give money in the form of equity on the other end, and I bought the property with a signature.

And by the way, that's the right order to do this in. Deal, then debt and equity. I see a lot of people get excited about an opportunity, they present it to a whole bunch of people before it actually comes about and they've seen the portfolio. Then you go view it and you go, "Oh no, this isn't what I expected." It's a good way to burn relationships. Know the deal first. You can figure out, okay, if I need to do zero down, How do we want to stack debt and equity? Another way you can do this, and this is something that Cody and I do on a majority of the deals we do, is we find an awesome deal, an opportunity that we love in a market that we love, and we'll use seller financing. Now, one way to do it is you can seller finance 100%. Most people won't do that, but I've seen it done. So it's a true zero-down deal with just the seller financer in first position. Super clean. More commonly You're going to need a down payment. These get a little bit more expensive. We typically use private capital in terms of other investors. We take people who we know this deal will benefit, who are the right fit for it, and we will structure either debt as just a second lien against the property, or equity where they will join us as an owner.

Now—

oh, go ahead.

Well, it can get pretty expensive. The first thing that people say when we're showing other folks that deal structures, that's really expensive. You guys are borrowing double-digit interest rates for the down payment sometimes. Yeah, we are. But the reality is there's a price that's associated with getting into this space when you have no money, and there's a cost of not doing it. And when the cost of not buying the real estate exceeds the price of buying it, the price of the capital, we go out and actually make it happen. Some people get in that nervous middle part where they're stuck. It's analysis paralysis. Like, it makes sense, but I'm not quite there yet to where the pain threshold is high enough I actually have to go make it happen. You need to make sure the cost of not doing the deal is so high when you're looking at an opportunity that you will make it happen. That's the reason we can go so quickly.

Mm-hmm. Now, something to note here. When you're putting together these deals, again, start with the deal, then figure out the debt and equity. You need to make sure there's enough cash flow to service the debt. If you're raising debt and say it's one of those high interest rate deals, the most important piece is that your cash flow is so much higher than the actual debt. So sometimes, like, Cody, you borrow— what's the highest interest rate you borrowed at personally?

18%. Don't do that. Don't do that.

However, what was the yield on that deal?

I made about half a million dollars.

Epic deal. Made money. That means there was a spread there between what he was borrowing and what he was making on the property. When you're doing this, especially when you get started, you wanna make sure that you're watching the cash flow. So if you find that the deal is cash flowing, the cash on cash return ends up being 30%. Would you borrow at 18% to make 30%? On a zero down deal, that doesn't sound as expensive, does it? That is how you start figuring out these deals and structuring zero down. A lot of people won't do that because they see the interest rate and they get scared by it. Do the math, and it's not very complicated math. Do the basic 101 math, and you're going to be able to figure out how to do that.

Now let's get a little bit even— a little more creative now that we're getting in the back half of this video. Let's say you already own some property. Let's say that you've already got some equity. How do you go out and buy more real estate zero down Seller financed. Well, I'm working on doing this right now. We haven't done it, and it's probably going to come together in 2023, but I've built the relationship up with an owner, and I bought this 12-plex, and the 12-plex has quite a bit of equity in it. We've got multiple six figures of equity. I bought it 100% leveraged back in June of 2020, just a few years ago from next month, and I built up a significant equity position by paying down some of the debts, increasing the property value by performing renovations out of cash flow, and now I've got equity that I can use. Well, I want to go buy an apartment complex that's pretty close to the property, and the seller owns it outright, and my ideal situation there, and what I'm talking with them about, they've done it before and we're working on doing it again, is where they're going to seller finance 100% of the purchase, except for they're only going to finance 80% of the purchase on the property I'm buying, and 20% as a second loan. Think about how we borrow money for down payments. They're going to use that as a second loan against the 12-plex that I have equity in. I'm basically refinancing a seller note. I'm going to do a seller refinance and put the majority of the promissory note to buy the new place on the new place that I'm buying, and the down payment's going to go against equity I have in another building. And there's no money transfer. They're funding 100% of the purchase for me, but they're just going to use a little bit extra collateral to allow me to go buy more stuff.

Now, if you have no real estate today, that's probably not a strategy that you can do because you don't have another asset to collateralize. But as you start to build, it doesn't take that long to get some equity in the portfolio. Once you do that, your buildings that you bought low down in the past— that building, I believe you bought 10% down, right?

Uh, that one was 17.5%. It was an odd number. They wanted $120,000 down, and I bought it $680,000.

Alright, so he bought it for less than the conventional amount down, had a lower down payment on that building, and that building is now gonna buy the building across the street. That will serve as a down payment. So you can get to a point where your real estate buys your real estate. Now, another option— this is one we haven't executed, but I have friends who have, I'm very familiar with it— you can have the bank finance a portion of the deal, and you can have the seller finance a portion. So say the seller has some debt on the building, they can't seller finance low down. Say they have a 50% equity position. One thing you could do is you can find a bank that will finance 70% of the sale and who is okay with the seller taking a second. And that seller can finance 30% because they have the equity to do that. Now you're in a position where the bank's giving them enough money to pay off their existing debt So their first lien is removed, they have a second position behind the bank, and now you have two different forms of debt. It's called a seller second. Very legitimate way to do zero down.

You're probably not going to get that with big box banks. I mean, you're not going to fit their box, and that's okay. This is typically going to happen— and for our friends that have done this in different states, it's happened in smaller towns with smaller banks that want to place money and they can get creative. This is an option. We're working on doing that, we haven't done it yet, but we have direct contacts who have. It is a way to buy zero-down real estate, but the true trick and the fun piece of this is that when you start mixing and combining these strategies, you can actually go out and build quicker than everyone around you, because some people just want to go out and focus on one strategy, and they don't keep in mind that they could do bits and pieces of all the different strategies to even get money back at close when they're buying stuff. Stuff. Mm-hmm.

And the last one that comes to mind, very simple, is the BRRRR strategy. It's not something that we do a lot. A lot of people use that as their sole model. To your point, it is a tool in your tool belt, and you can use it in the appropriate spot. If you have a building with a lot of upside, or you're picking up well under market value, you know you're going to do some renovations and make it nicer, you can put money in the deal. Say you raise some capital for it, you— and you have a huge upside, you can offer large returns to investors on the right deal, pull all the money back out, and retain the building zero down. BRRRR strategy, we're not gonna go super deep into in this video, but it's all over online. Essentially, you're just gonna buy, rehab, rent, refinance, and then repeat. Again, don't use this as your sole business model. The people I know who do this tend to buy very small properties, and they move very slowly 'cause they're too picky on what deal's gonna work for this. But you should know that there's an option to do that, And there are properties that you can refinance out within 6 to 18 months. Yeah, very, very quick.

So that's it for today's video. If you have more questions on other zero-down structures, yes, there are more, and we can only put so much here. We're going to go check out Lake of the Ozarks. But if you have questions, drop them in the comment section below, and we will see you guys next time.

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