Have anyone successfully bought an apartments using no money down technique?
How easy is it, or what do need to look for and how to structure the deal?
It has been done and it continues to be done. The problem, though, is that it’s not like putting money into a vending machine and selecting an item.
A lot of analysis needs to be done to determine what price to offer, what projections might affect ownership, type of entity(ies) to utilize, motivation of the owner and more.
It isn’t something that I would recommend right-out-of-the-gate. It takes experience, to a degree, but more importantly it takes a lender/broker who understands how to pull it off.
I’m not necessarily tooting my own horn (I am a broker) but you really need to understand what you’re getting into before you take the leap. Most of the no-money-down deals that you might come across most probably will come back to haunt you if you don’t do it right.
Putz,
Did you mean overleverage when doing zero down or owner finance?
How does most people go about 0 down, finding very motivated seller or one that doesn’t need cash up front?
What sort of sellers will do zero down or owner finance?
It’s a case-by-case scenario. You have to look at all angles of the deal: seller’s motivation, income/expenses, bricks/mortar, mechanicals, projections, rent rolls, financial statements (audited) and come up with a number that makes sense to YOU, not them.
If they want $2.2M and you figure it’s worth $1.2M, guess what!!! Either they get real or you walk.
Never get the “gotta-do-a-deal-itis” bug. There will ALWAYS be another deal.
Have any investors in So CA creatively closed any apartment deals in the last 6 months of so?
I have some listing for duplexes and the prices go from mid 400’s +. There is no way to get cashflow. I maybe have to look at less desirable areas for middle/low income apt investment, or check with HUD for multi-unit deals?
Phoenix might be a good place to go out state for cashflow.
You can invest in negative cash-flow property that with minimal effort, time and/or expense can be the proverbial goose that lays the golden egg.
We recently bought a five-story 40,000 square-foot office building in California with a 60% vacancy (the first two floors had been vacant for nearly six years), below market rents short term leases very good tenants and a negative cash flow for $450,000.
Financing was split almost evenly 1/3 seller, bank and investor.
The investor was a 1031 exchange brought in after we locked up the property.
The seller had owned the building for over 22 years – thus many of the tax benefits had been extinguished. There also was a divorce issue.
Before the closing we had a new tenant for the first two floors. Immediately after the close we began the TI, they moved in two months later bringing our vacancy to 10%. During this time we also redecorated all common areas with paint, carpet, and light fixtures. Within six months, we refinanced, paid off the previous owners note and pulled out $1,285,000, part of was kept as a slush fund with remainder returned to the investors. Additional cash flows were achieved through bringing rents to market, leasing roof space for a cell phone repeater antenna and billboard (for a rent that was like adding a full floor). We reduced expenses by replacing all the old single pane windows with energy efficient uv solar tinted dual pane windows, retrofitted the HAVC and lighting systems. The building now has a strong positive cash flow with a 18% vacancy. Eighteen months after buying it we are about ready to refinance it again to lock in current fixed rates or sell it for a handsome profit.
Phoenix sounds nice, however good deals are as rare there as here. Add that to remote management issues…
hi keratoid,
i enjoyed reading your office building story. i’d love to get into this field after doing single family and small units flips. any suggestions on where to start off? books, seminars, etc. any recommendations would be greatly apprecaited.
kensan
Congratulations for wanting to get in the game of property. I agree with a lot of what the others are saying. There are a lot of ways to get a no money down deal. There are many books, courses and many seasoned investors that would help you learn.
Keratoid,
Just wondering…in what part of CA did you buy a 40,000 sq ft office building for $450,000?
Sounds like a super cheap price for anywhere in CA.
Congrats on the success story!
It can be done but look for a seriously distressed case. Not one where the seller is allowing owner financing in order to get a higher price for an inexperienced investor.
I bought a 70,000 sq ft multi-use building almost no money down for $650,000 and also acquired a $300,000 construction note from the seller. We did have to bring $15,000 for closing but it still felt like no money down when we left with a check for $300k. I’m sure we could have done it $0 out of pocket if we had to.
Good news, 4 years later at a 10% Cap it’s worth about 2.5 Million!
I Wouldn’t have bumped this thread, but people always want to know if it’s possible. Stuff like this exists it’s not just Real Estate Guru 1 in a million examples.
I came across mine by accident and really was not interested in it at all. The owner had 1 tenant in the entire building that only used about 3,000 sq ft. They were paying…Get this, $400 a month. He wasn’t paying to up keep the property and the county had just contacted him as they were considering eminent domain! Motivation!
Thanks for sharing your testimony!!!
I love those examples of what can be done. My first apartment building was ‘no down’ in that none of my money was in the deal. The owner had repo’d the project a week before he put it in the paper, and only had a half dozen renters paying him, out of 30 units.
I had no operating data on the building, but I knew the market. I had also spent 18 months farting around with operating data sheets and passing on screaming deals, because I kept thinking something better would come along. Finally, I realized that I was finding a prospective, no-down deal a month and not acting.
Also, I got fed up with my messing around, and made a determination to buy 30 units within a ridiculous time frame (3 days) with other ridiculous limitations …and on the third day …I had my first 30 unit project under contract …that I bought for about 25% of market value.
I signed the purchase agreement with the seller before I even saw the building. When I finally drove by, I discovered it was the newest, nicest building on the block, across the street from one of the largest parks in the city. I had to pinch myself…! So, I got it “no down” (not mine anyway), 75% off, seller financed at 7% fixed, no credit check, proof of funds, or financial statement was required whatsoever.
If I had not spent the extra time analyzing data sheets all those months before, I probably would not have recognized what a deal this was anyway, despite being 75% off. Even with that experience I had come across other properties of similar sizes that I know now I could have walked into without so much as paying a notary fee, but I would not have seen the opportunity.
The things I began to recognize were average costs by building age, utility distribution, taxes, and relationships between taxes, gross income, gross expenses, and market caps. I was recognizing when utilities were too high for the size and configuration of the complex, I saw relationships between age, utility use, owner-paid costs verses tenant paid costs, flat roofs verses pitches roofs, galvanized plumbing repair costs verses copper systems and much more.
So, when I found the building that was priced too low to be real for the size, I jumped on it like a cockroach on a cracker …and only afterward did I do any analysis. Of course the building had a flat roof, copper plumbing, odd sized windows, odd sized appliances, odd sized water heaters …all more expensive than average to fix or replace …but that made no difference… I just remained focused on getting the terms and price I needed …and I was successful.
I think the bottom line why I got this building and nobody else did was three things…
- The seller didn’t want the property. Period.
- I acted fast.
- I wouldn’t take no for an answer. The seller tried to back out of the deal the day after I signed the purchase agreement …after his phone rang off the hook with competing buyers. The seller realized at that point he blew it. He was so motivated to get rid of me, that he offered me ten thousand dollars to walk away. Mind you this was the guy I would have to make payments to for several years. What a way to start a financing relationship.
This would have been a classic Barney Zick deal where I would have been paid NOT to buy. Thank you Barney Zick.
I’m still getting in cheap.
There’s the 18-unit building I bought Sub2 with no down; the 4/2/2 I bought Sub2 near Disneyland with zero down and one of my prouder purchases was a brand spanking new 5/3/3 with all the bells and whistles I purchased Sub2 with no down. :shocked There’s more, but I won’t bore you… :cool
No down deals on anything only come when we first believe they exist, and don’t consider these so far fetched and exotic that only liars and/or seminar gurus would make these claims …and then start looking for them …and then most importantly make offers immediately when we find these deals …before anyone else knows they exist. And forget the MLS for these things… :banghead
There’s no such thing as stealing in slow motion. BTW, I’ve tried that approach. No good. :anon
I would love to hear some more examples of anyone’s no down deals…
SOLID! Fact is commercial isn’t really any harder than SFH just scarier. I’m wasting my time in SFH’s now and I don’t know why!
Yes. From my experience, there are 2 main classifications of “no money down deals”.
- You literally get the deed and the owner finances 100% of the purchase price.
- You use other people’s money to acquire the deal, meaning that you are putting none of “your own” money into the deal. You raise money from investors, lenders, the seller, tenants, etc.
In my experience, doing low to no money down deals, the cost of funds and lack of sufficient cash flows can be a big pitfall. Make sure you budget funds for upgrades, operations, improvements, etc. after you purchase the property. No money down deals can easily become that red headed step child that places unwanted demands on your checking account. Be careful (no offense to red heads out there – I’m one too.)
There are so many motivated sellers in the market today, you can also combine owner financing with third-party financing and, if need be, with equity investors, to end up with your first seven-figure deal with no money down from you.
modified due to rules violation
Some no-down deals…
#1 - Lease Optioned a 3/1 from a ‘tired landlord’. Rent = mortgage payment. Price = mortgage balance (80% FMV). Continued renting it to the existing tenant for a $300/month positive cash flow for 18 months then sold it for a $25k profit.
#2 - Purchased a 3/2 that turned out to be a 4/2 (discovered a closed off unfinished room when doing renos) for $40k that was worth about $75k. Put $4k down but bank financed for $50k so I got that back plus reno costs. Sold on installment sale for $80k. 30 months into a 36 month term the buyer walks and I sell the place for $85k cash (after collecting $10k from the buyer’s DP and cash flow).
#3 - Wholesaled a 2/1 worth $110k ARV that I picked up for $20k, made $15k.
#4 - Sub to’ed a 2/2 that was slightly underwater but had a great loan. Made nothing on the backend but cash flowed $250/month on a rent-to-own.
#5 - Assigned a lease option on a 3/2 for $5k. Landlord made $300/month cash flow for 2 years.
#6 - Helped a friend rent-to-own a student rental gone bad. They made $500/month cash flow and $50k profit instead of walking away with a foreclosure on their credit.
There are endless ‘no money down’ opportunities out there, if you know going rents and prices it’s easy to recognize which ones are deals. I really like the ‘take over payments’ (and seller walks away) approach. It’s easy for the seller to understand and if they need debt relief they immediately recognize the benefit to them, no need to try to persuade or convince anybody.
Thanks for sharing your apartment deals. I’ve never done one but I’m considering it now 
@ keratoid- What you told is inspirational. Easier said than done. It’s my goal of investing something as big as a commercial type. Truly, it requires money, time effort and experience to know the ins and outs of REI investment for bigger commercial purposes.
Out of curiosity what kind of apartment building are you trying to buy? How far can you go with no money down? It is an interesting concept but definitely warrants needed research to make the right move and invest in the right building/complex.
You buy “problems” you are prepared and capable of fixing. There’s no limit to the numbers of ‘no money down’ deals. How you define “no money down” might change from deal to to deal, but there’s really no limit, except to your problem solving ability.
I like mismanaged buildings. Mismanaged means any occupancy above or significantly below 95%. The more extreme, the more likely I want it. 100% occupancy is a clue to incompetent ownership, management and maintenance. So is a 70% occupancy, etc.
I don’t like projects that are pretty and operating at 95% occupancy. Why? Because the rents will be at market with no immediate upside; the building is being maintained, by default, to maintain that 95% occupancy average, and though relatively easy to get financing for, it’s more like parking my money.
Plus a well-operated, pride of ownership, building owner, doesn’t get himself into trouble as often, maintains his options, and is less likely to need to offer creative financing to get his property sold. So, I pass on pretty properties with no immediate, obvious upsides.
Later when I’m paralyzed, laying in my hospital bed, drooling, and I’m signing contracts with a pen in my teeth, I’ll settle for buying the pretty properties that are easy to manage and maintain. Until then, I want problems to solve.
can anyone share a couple good commercial deals, WITH money down? Because I think these are the norm, whereas no money down deals are rare.
Does anyone forsee apartments losing their investment luster that it has maintained the past couple of years. I came across this article on NREI and wanted to share. Would love to hear some feedback.
http://nreionline.com/news/should_landlords_worry_about_housing_12112012/