Can I buy rental properties with no money in the bank?
What if I have just a few thousand dollars in the bank? Can I buy investment properties then?
It’s a toss-up between which of these two questions I hear more often. Interestingly, a question I almost never here is – Should I buy rentals if I have no money in the bank?
In other words, while everyone wonders HOW to buy with no money, hardly anyone bothers to consider whether it’s even a good idea. As they say, just cause you can, doesn’t mean that you should… I will cover the question of whether you should do it in the next article. Today, let’s answer the easy question of whether it’s even possible to buy rentals with no money, but first:
Why People Want to Buy Investment Properties with No Money Down
It would be akin to avoiding an elephant in the room not to acknowledge the following – the fact that this question is in the top 100 questions asked by new real estate investors (and likely in the top 5) is noteworthy and indicative of something… Namely, that most people don’t have any money!!!
This was me.
It has become fashionable to immediately assume that if you don’t have money in the bank, you are either stupid or are overspending , and sure enough there is plenty of that in both directions. However, lots and lots of people work two jobs just to make ends meet, and while I am the first to call stupid – stupid, I am not willing to say that all fault lies with the notion that people are stupid and undisciplined.
Again, let me be clear – there is plenty of lacking financial education, reliance on credit, and lack of financial discipline, but there are indeed a lot of structural problems in our economy, and ignoring this reality is just silly. People haven’t changed as much as everyone wants to believe over the past 30 years – the economy has changed, and lots of folks aren’t able to adjust…
Bottom line, you guys ask the question – Can I buy rentals if I have no money in the bank, because you are broke, which is sad. And the reason I am out here and everywhere trying to impart into you some financial wisdom and skills is because I don’t believe you are lazy or stupid; I believe that most of you are doing the best you can, and need some help, and the fact that you are reading this is testimony to the notion that you are looking for a better, smarter way!.
Can I Buy Rentals if I Have no Money?
The short answer is – Yes.
You can realize that while you need money to buy property, since money is the medium of exchange in our economy, this money doesn’t have to be yours.
If you get really good at creating investment opportunities, you can indeed attract 100% of the money needed to play the game. You’ve likely heard the acronym OPM, which stands for Other People’s Money – this is the greatest single advantage of the real estate investment vehicle relative to all other opportunities. The ease with which we can attract OPM to our endeavors in real estate is simply unsurpassed in any other market.
In real estate, the two basic forms of capital raise are debt and equity. Let’s consider a few details:
Blended Debt for 100% Financing
Borrowing is the most obvious ways to finance deals. In my own practice, what it takes to finance 100% of the acquisition is some sort of blended financing package including institutional and private money.
For example, if you are able to borrow 75% of the money you need at the bank, and then borrow 25% from an accredited investor, then presuming the DSCR (what is DSCR in real estate investing?) is within the guidelines of both lending sources you may be able to finance the whole thing.
Another way to do this would be to use your private investor to purchase the thing with cash at first, and then refinance all or most of the private money out of the deal. Obviously, in order to do this, the appraised value needs to be sufficient and there are a lot of other caveats.
Past this, you can get into bridging of equity that you already have, which you can do with techniques such as blanket notes, cross-collateral, and others. These tools can enable you to collateralize the down-payment on a property with existing equity, and thereby not have to bring any cash to the deal.
All of this is can get complex in a hurry. There are an awful lot of moving parts. I go into great detail on all of this in the Cash Flow Freedom University, where I provide you with many case-studies of how this works in real life. Check out the CFFU if you haven’t yet!
Equity Partners for Buying Real Estate Investments
Aside for borrowing money for your deals, you can create partnerships whereby your partners bring to the table the necessary cash. You can do this with either a simple partnership, or a limited partnership known in real estate investing as a syndication. There are benefits and shortcomings to both, and I have an article planned to discuss both; keep an eye out!
What’s a Better Way to Finance – Equity or Debt?
It’s not that one is better than the other – both are appropriate in different circumstances, and both can produce a nothing down deal for you. The basic risks to remember are:
In case of 100% financing, the excessive leverage can be a dangerous thing. This is why it’s crucial to buy value-add and to know that the intrinsic value of what you’re buying is considerably more than the price you are paying.
And in a partnership situation, the increased risk is the partnership itself – you just never know what people are going to do with money on the line.
Conclusion: Can I Buy Investment Properties with No Money?
In conclusion let me say this – yes, it is very possible to buy property if you have no money. There are many techniques and approaches that can allow us to do this. The bigger question is – is it a good idea to do that, and the answer is not simple. Let’s discuss this in the following article.