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Updated over 9 years ago on . Most recent reply

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73
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Konrad Lightner
  • Investor
  • Saint Paul, MN
11
Votes |
73
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Ben Leybovich says that making down-payments is not smart – thoughts?

Konrad Lightner
  • Investor
  • Saint Paul, MN
Posted

Ben's latest article suggested this and he thought it would be a good forum post to check out what other people think.  

Check out his article, it's a good read.  http://www.biggerpockets.com/renewsblog/2014/09/02...

Send out your thoughts / strategies!

Ben told to me to ping you @Brandon Turner

Most Popular Reply

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Bryan Hancock#4 Off Topic Contributor
  • Investor
  • Round Rock, TX
4,382
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Bryan Hancock#4 Off Topic Contributor
  • Investor
  • Round Rock, TX
Replied

Okay....I'll take the bait.

Assuming that "nothing down" financing is best solution for all is, at best, myopic.  Waiting around for 1 deal a year to avoid making down payments on other good quality product is biting off your nose to spite your face.  That is like trying to minimize taxes instead of maximizing after-tax profits.  

The best way to finance more product is to learn how to raise and organize money.  It really astounds me that so few real estate investors take the time to learn this craft.  If your trouble is finding enough money to finance your deal flow habit it stands to reason that you may get off your duff and learn how the securities laws work instead of searching to the end of the earth to find some creative scenario to limit dollars into a transaction.  

There are also tight markets where exotic seller-financed transactions don't work. Lenders will like these markets, but you still need to find the last 10-20% of the capital stack from somewhere. For many larger deals that produce solid cash flows it would be tough to have them continue to cash flow with a higher DSCR. Saying that putting these down payments into said properties is dumb is, well, dumb itself.

People would be far better off learning to raise money and do more deals with bigger numbers.  I would argue there has probably never been a better time in history to do this than right now.  We have BOTH FNMA gov-mint coked-up financing AND the ability to generally solicit for investors.  Try finding a time any time before now when investors had both of those arrows in their quiver.  

Quit spending inordinate amounts of effort doing Jedi mind tricks with sellers, cash-out strategies, etc. and learn the securities laws.  There is a MOUNTAIN of money out there from people sitting idly in accounts.  Title III will be implemented soon.  State securities commissions are passing non-accredited investor rules to allow you to sell them securities to fund all the 10 or 20% down payments you'll ever need on <gasp> inferior product that *only* cash flows well and is not one of the blue moon investments that comes once a year.  Your goal should be to maximize cash flow, ROE, etc. along with the assets you manage and to minimize taxes.  The goal should not be to minimize cumulative down payments.

Now go get off your a$$ and learn to raise money and stop trying to find The White Whale.  

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