Starting out with no cash?? What would you do?

Member since 2023 · 15 posts · 15 votes

Hi everyone!
I've about 6 months into my real estate journey and have been trying to soak in as much information as I can. However, one roadblock I can't seem to get past is how to fund my first deal. We have very little cash, which is barely enough for emergencies so dipping into our savings isn't an option. Here are some of the options I've considered...

- Conventional loan for property purchase and use a HELOC for the down payment (about 60k equity in current home). From running the numbers on this option, it seems like the property would have to be an insanely good deal to get it to positively cash flow after making mortgage and HELOC payments.

- Hard money lending for purchase and renovation. I have a hard time believing a HM lender would take a risk on a first time investor with no cash.

- Sub-to/seller financing: This seems like the most realistic option, but is very intimidating and seems to require some sophisticated knowledge of real estate.

- Partnership/private money: This could be an option. I know some people who could potentially partner with us to provide the cash, but it would probably have to be multiple people and structuring the deal in a way that is profitable for all parties seems complicated and I'm a little lost on how to do that.

Which of these options would you choose in this situation? Any and all advice is greatly appreciated!

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Chris SeveneyBusiness Member

Moderator

Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

Quote from @Adam York:

- Hard money lending for purchase and renovation. I have a hard time believing a HM lender would take a risk on a first time investor with no cash.

- Sub-to/seller financing: This seems like the most realistic option, but is very intimidating and seems to require some sophisticated knowledge of real estate.

Which of these options would you choose in this situation? Any and all advice is greatly appreciated!

you will probably not like this answer, but save money. Investing in real estate without any cash is a disaster waiting to happen. Now we will get all the people commenting about how they did it the past few years but making money in real estate was like shooting fish in a barrel.

Over the next 3-5 years you will see liquidity become tighter and those who are over leveraged no longer bragging about how wonderful real estate is. With no money you have ZERO exit strategies except sell and if the property values decline and you need $ for repairs. You are doomed.

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Chris SeveneyBusiness Member
Moderator
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
3y
Quote from @Adam York:

Hi everyone!
I've about 6 months into my real estate journey and have been trying to soak in as much information as I can. However, one roadblock I can't seem to get past is how to fund my first deal. We have very little cash, which is barely enough for emergencies so dipping into our savings isn't an option. Here are some of the options I've considered...
- Conventional loan for property purchase and use a HELOC for the down payment (about 60k equity in current home). From running the numbers on this option, it seems like the property would have to be an insanely good deal to get it to positively cash flow after making mortgage and HELOC payments.
- Hard money lending for purchase and renovation. I have a hard time believing a HM lender would take a risk on a first time investor with no cash.
- Sub-to/seller financing: This seems like the most realistic option, but is very intimidating and seems to require some sophisticated knowledge of real estate.
- Partnership/private money: This could be an option. I know some people who could potentially partner with us to provide the cash, but it would probably have to be multiple people and structuring the deal in a way that is profitable for all parties seems complicated and I'm a little lost on how to do that.
Which of these options would you choose in this situation? Any and all advice is greatly appreciated!

you will probably not like this answer, but save money. Investing in real estate without any cash is a disaster waiting to happen. Now we will get all the people commenting about how they did it the past few years but making money in real estate was like shooting fish in a barrel.
Over the next 3-5 years you will see liquidity become tighter and those who are over leveraged no longer bragging about how wonderful real estate is. With no money you have ZERO exit strategies except sell and if the property values decline and you need $ for repairs. You are doomed.
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Yue Lehman
Realtor · Fresno, CA · Member since 2020 · 87 posts · 41 votes
3y
@Adam York
Very simple, save more money until you can buy a primary then house hack. What you can consider doing is find a more experienced investor in your area and work for them part time (I'm assuming you have a full time job). This way you can make a little bit of extra money while gaining field experience in real estate. Alternatively, it might be worth it to sharpen your professional skills and find a better paying job in order to get into to real estate. I don't recommend start investing with no money.
5 Reply
V.G JasonPro Member
Investor · Member since 2022 · 3k+ posts · 3k+ votes
3y
You should just learn to manage your money first, and understand how to raise, save, etc., without taking on forms of debt. You're in a new era-- rates will be not historically low-- quit banking on leverage.
5 Reply
Kyle Zdrojewski
Homeowner · Member since 2019 · 36 posts · 12 votes
3y
@Adam York, I agree with some on the thread that it is important to watch how much you are using leverage and keep a close eye on you risk. Continue saving money so that when you find a great deal you will have the capability to take it. If you find a great deal and you are willing to put in the sweat equity there are people who will work with you. You just have to find that right deal first.
0 Reply
Andrew PostellPro Member
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
3y
@Adam York thanks for the post here. Several things to consider but I want to hit on your 4 "questions" here if you don't mind.
1. HELOC on primary home - getting a HELOC on your primary home is a reasonable idea for most people. Even if you never use it...it's super low cost and you have it just in case. However, the AMOUNT of equity you have in your home is not as important as the PERCENTAGE of equity you have in your home. Meaning, if $60k represents 5% equity, then it would be very hard/impossible getting a HELOC. But if $60k represents 50% equity, then most lenders that write them will grant you one. NONE will give you ALL of your equity...usually leaving 20% equity is a good rule for most of those products. This is certainly state/credit/etc dependent so seek out a good lender to look into one. I would caution you about borrowing 100% of the value of a property value though. If you think cashflow is hard at current rates, just think about doing it at 100% "Loan to Value". Even your own primary home won't allow you to do 100% LTV (in most scenarios). My recommendation is to look into getting a HELOC but try to think about other strategies besides using it for your downpayment if buying with a conventional loan.
2. Hard Money - Hard Money is a great option for many of us. You've got to find the deal. And know how to rehab. Oh, and don't forget to factor in holding costs and closing costs. Kind of a lot to know this route....but if having $70k to buy a "turn key" property is impossible, then what's my option? So even though this method is HARD...the other way is impossible. If trying the BRRRR method then try it on a home that doesn't have too much rehab. This might mean you have to come out of pocket about $30k (local market dependent) so even going this route won't mean "zero out of pocket". Just something to keep in mind.
3. Sub-To - yes, not only do you need to know some of the items above you then have to know how to self-source the deals.  I read/see the same posts/videos you do. They make it sound so easy don't they?
4. Partnering - if you find a property, just about anybody with experience will be willing to partner with you. Have you been attending some local REI groups? If not, try some local real estate meetup groups. Meetup.com is a good resource for those but some of the groups will also post here on Bigger Pockets Marketplace too. Even facebook might have some good local groups for you. But post locally for this. That's the best bet.
Keep in mind that TONS of us started with our primary home, and then moved out of it to buy ANOTHER primary home and use our first primary as a rental. That will allow you to lowest out of pocket and you can get the best interest rate that way as well.  Just something else to keep in mind.
Hope all of that makes sense.  Thanks!
5 Reply
Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
3y
I agree with those who said save money up for a down payment. If you have no savings, the last thing you should do is buy a property-what if something happens and you have repairs? Start by looking at your finances-what money is coming in and where is it going. Can you cut your spending? Earn more money? or both?
1 Reply
Adam York
OP
Member since 2023 · 15 posts · 15 votes
3y
Thank you all for the replies! One of the reasons I ask this question is we are a single income family with two kids under 4. In other words, saving is very very difficult right now. I already have two side gigs to bring in extra money. That being said, I think that'd make it more motivating if I had an idea of a target amount of savings and a goal to try and reach. What would you all say is a realistic minimum amount of savings to have before taking a chance on that first deal?
Thanks again!
0 Reply
Heather Kiddoo
Investor · Member since 2023 · 35 posts · 15 votes
2y
Quote from @Adam York:

Thank you all for the replies! One of the reasons I ask this question is we are a single income family with two kids under 4. In other words, saving is very very difficult right now. I already have two side gigs to bring in extra money. That being said, I think that'd make it more motivating if I had an idea of a target amount of savings and a goal to try and reach. What would you all say is a realistic minimum amount of savings to have before taking a chance on that first deal?
Thanks again!

Adam if you are still here have you seen the Elephant Challenge with Pace Morby? This time around is for wholesaling. You don’t need money to start you just need to be able to find a deal and the leaders will help find buyers to assign it to.
It’s free to join. It’s a bit chaotic with a ton of people however many are getting their first deals and that would help you save for a property of your own.
1 Reply
Adam York
OP
Member since 2023 · 15 posts · 15 votes
2y
@Heather Kiddoo Thanks for the tip I'll check it out!
0 Reply
Scott E.
Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes
2y
Quote from @Adam York:

@Heather Kiddoo Thanks for the tip I'll check it out!

Don't waste your time getting into that mess. It wont get you anywhere.

As others in this thread have stated, you need to work on increasing your income and saving up more money.

You said you already have 3 jobs just to make ends meet. That's too much. I'd spend some time trying to figure out how you can get either get a promotion at your full time job, or get into a line of work with a higher earning potential.

The simplest path to do more deals with a relatively low barrier to entry would be to rent out your current primary residence, then buy a new primary residence to live in for a few years. After a few years, rent that house out and buy another primary residence. Repeat this process for 10 years and now you own 5 homes.
4 Reply
Cliff BennerBusiness Member
Accountant · Denver, CO · Member since 2020 · 392 posts · 183 votes
2y
I would say save up, like everyone else is saying. I invested with no money and it shot me in the foot. I had a lot of other things I did wrong that happens to most rookies, but no money to help correction those issues and got stuck in a scenario that stopped everything I wanted to do in life.
Im pretty sure I was the worst case scenario that people come up with, and I wish I would have saved more money then I did, I talked about it on the BP podcast #610 if you want to hear more about it.
But you are on the right track, start educating, budget your finances, attend meet ups, talk to lends to see what options they have. Don't be stagnant because of funds, maybe you find a seller finance deal while learning and they are ok with no down payment.
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Eric Gerakos
Investor · Costa Mesa, CA · Member since 2016 · 1k+ posts · 1k+ votes
2y
As others have said, save your money. Buying nothing now is always better than buying a bad investment.
3 Reply
Adam York
OP
Member since 2023 · 15 posts · 15 votes
2y
Quote from @Cliff Benner:

I would say save up, like everyone else is saying. I invested with no money and it shot me in the foot. I had a lot of other things I did wrong that happens to most rookies, but no money to help correction those issues and got stuck in a scenario that stopped everything I wanted to do in life.
Im pretty sure I was the worst case scenario that people come up with, and I wish I would have saved more money then I did, I talked about it on the BP podcast #610 if you want to hear more about it.
But you are on the right track, start educating, budget your finances, attend meet ups, talk to lends to see what options they have. Don't be stagnant because of funds, maybe you find a seller finance deal while learning and they are ok with no down payment.

Thanks Cliff, I'll definitely check out that episode.
1 Reply
Paul Klei
Investor · TX · Member since 2023 · 57 posts · 5 votes
2y
Quote from @Andrew Postell:

@Adam York thanks for the post here. Several things to consider but I want to hit on your 4 "questions" here if you don't mind.
2. Hard Money - Hard Money is a great option for many of us. You've got to find the deal. And know how to rehab. Oh, and don't forget to factor in holding costs and closing costs. Kind of a lot to know this route....but if having $70k to buy a "turn key" property is impossible, then what's my option? So even though this method is HARD...the other way is impossible. If trying the BRRRR method then try it on a home that doesn't have too much rehab. This might mean you have to come out of pocket about $30k (local market dependent) so even going this route won't mean "zero out of pocket". Just something to keep in mind.
I've spoken to a few lenders who confirmed that if the purchase price is under their LTV threshold, then the purchase would be 100% funded. Any experience with that? I've got a few brokers on the line who have persuaded their clients to lower their asking to a certain LTV, or, sellers offering owner financing. So I would just need the down payment to be under the lender's LTV, and the seller would be in the junior position. I just need to find reliable hard money lenders to help me jump on these deals.
0 Reply
Shawn Krieger
Member since 2019 · 151 posts · 20 votes
2y
Quote from @Account Closed:

Quote from @Adam York:

Quote from @Cliff Benner:

I would say save up, like everyone else is saying. I invested with no money and it shot me in the foot. I had a lot of other things I did wrong that happens to most rookies, but no money to help correction those issues and got stuck in a scenario that stopped everything I wanted to do in life.
Im pretty sure I was the worst case scenario that people come up with, and I wish I would have saved more money then I did, I talked about it on the BP podcast #610 if you want to hear more about it.
But you are on the right track, start educating, budget your finances, attend meet ups, talk to lends to see what options they have. Don't be stagnant because of funds, maybe you find a seller finance deal while learning and they are ok with no down payment.

Thanks Cliff, I'll definitely check out that episode.
Be careful. Unfortunately from what I have reviewed about the "subto community" and the "elephant challenge" they do not tell you about the downsides that would have your wife and kids wondering what kind of fool would do these things. Just because a clock is right twice a day, doesn't mean that it's working the rest of the day. Beware of what you don't know and what they aren't telling. Someone posted a nice primer at https://www.biggerpockets.com/forums/311/topics/1060320-usin...
I'd start with that as a guideline.

i have a couple seller financed deals but i still need equity partners for closing costs and fees
0 Reply
Paul Klei
Investor · TX · Member since 2023 · 57 posts · 5 votes
2y
Quote from @Account Closed:

Quote from @Shawn Krieger:

Quote from @Account Closed:

Quote from @Adam York:

Quote from @Cliff Benner:

I would say save up, like everyone else is saying. I invested with no money and it shot me in the foot. I had a lot of other things I did wrong that happens to most rookies, but no money to help correction those issues and got stuck in a scenario that stopped everything I wanted to do in life.
Im pretty sure I was the worst case scenario that people come up with, and I wish I would have saved more money then I did, I talked about it on the BP podcast #610 if you want to hear more about it.
But you are on the right track, start educating, budget your finances, attend meet ups, talk to lends to see what options they have. Don't be stagnant because of funds, maybe you find a seller finance deal while learning and they are ok with no down payment.

Thanks Cliff, I'll definitely check out that episode.
Be careful. Unfortunately from what I have reviewed about the "subto community" and the "elephant challenge" they do not tell you about the downsides that would have your wife and kids wondering what kind of fool would do these things. Just because a clock is right twice a day, doesn't mean that it's working the rest of the day. Beware of what you don't know and what they aren't telling. Someone posted a nice primer at https://www.biggerpockets.com/forums/311/topics/1060320-usin...
I'd start with that as a guideline.

i have a couple seller financed deals but i still need equity partners for closing costs and fees
If you can't afford the closing costs and fees, how are you going to make the mortgage payments, insurance and taxes to the seller? Just curious.

Hopefully the properties he's looking at are income-producing and the NOI can carry the debt service, etc. Lenders look at DSCR, debt service coverage ratio. DSCR = NOI divided by the amount due to the lender/seller. If the NOI is 100,000 and the debt service is 50,000 then the DSCR would be 2, meaning that the property makes twice as much as necessary to cover the payments.
0 Reply
Shawn Krieger
Member since 2019 · 151 posts · 20 votes
2y
Quote from @Account Closed:

Quote from @Shawn Krieger:

Quote from @Account Closed:

Quote from @Adam York:

Quote from @Cliff Benner:

I would say save up, like everyone else is saying. I invested with no money and it shot me in the foot. I had a lot of other things I did wrong that happens to most rookies, but no money to help correction those issues and got stuck in a scenario that stopped everything I wanted to do in life.
Im pretty sure I was the worst case scenario that people come up with, and I wish I would have saved more money then I did, I talked about it on the BP podcast #610 if you want to hear more about it.
But you are on the right track, start educating, budget your finances, attend meet ups, talk to lends to see what options they have. Don't be stagnant because of funds, maybe you find a seller finance deal while learning and they are ok with no down payment.

Thanks Cliff, I'll definitely check out that episode.
Be careful. Unfortunately from what I have reviewed about the "subto community" and the "elephant challenge" they do not tell you about the downsides that would have your wife and kids wondering what kind of fool would do these things. Just because a clock is right twice a day, doesn't mean that it's working the rest of the day. Beware of what you don't know and what they aren't telling. Someone posted a nice primer at https://www.biggerpockets.com/forums/311/topics/1060320-usin...
I'd start with that as a guideline.

i have a couple seller financed deals but i still need equity partners for closing costs and fees
If you can't afford the closing costs and fees, how are you going to make the mortgage payments, insurance and taxes to the seller? Just curious.

rental income
0 Reply
Shawn Krieger
Member since 2019 · 151 posts · 20 votes
2y
Quote from @Paul Klei:

Quote from @Account Closed:

Quote from @Shawn Krieger:

Quote from @Account Closed:

Quote from @Adam York:

Quote from @Cliff Benner:

I would say save up, like everyone else is saying. I invested with no money and it shot me in the foot. I had a lot of other things I did wrong that happens to most rookies, but no money to help correction those issues and got stuck in a scenario that stopped everything I wanted to do in life.
Im pretty sure I was the worst case scenario that people come up with, and I wish I would have saved more money then I did, I talked about it on the BP podcast #610 if you want to hear more about it.
But you are on the right track, start educating, budget your finances, attend meet ups, talk to lends to see what options they have. Don't be stagnant because of funds, maybe you find a seller finance deal while learning and they are ok with no down payment.

Thanks Cliff, I'll definitely check out that episode.
Be careful. Unfortunately from what I have reviewed about the "subto community" and the "elephant challenge" they do not tell you about the downsides that would have your wife and kids wondering what kind of fool would do these things. Just because a clock is right twice a day, doesn't mean that it's working the rest of the day. Beware of what you don't know and what they aren't telling. Someone posted a nice primer at https://www.biggerpockets.com/forums/311/topics/1060320-usin...
I'd start with that as a guideline.

i have a couple seller financed deals but i still need equity partners for closing costs and fees
If you can't afford the closing costs and fees, how are you going to make the mortgage payments, insurance and taxes to the seller? Just curious.

Hopefully the properties he's looking at are income-producing and the NOI can carry the debt service, etc. Lenders look at DSCR, debt service coverage ratio. DSCR = NOI divided by the amount due to the lender/seller. If the NOI is 100,000 and the debt service is 50,000 then the DSCR would be 2, meaning that the property makes twice as much as necessary to cover the payments.

yes exactly there are deals like this out there
0 Reply
Paul Klei
Investor · TX · Member since 2023 · 57 posts · 5 votes
2y
Quote from @Shawn Krieger:

Quote from @Paul Klei:

Quote from @Account Closed:

Quote from @Shawn Krieger:

Quote from @Account Closed:

Quote from @Adam York:

Quote from @Cliff Benner:

I would say save up, like everyone else is saying. I invested with no money and it shot me in the foot. I had a lot of other things I did wrong that happens to most rookies, but no money to help correction those issues and got stuck in a scenario that stopped everything I wanted to do in life.
Im pretty sure I was the worst case scenario that people come up with, and I wish I would have saved more money then I did, I talked about it on the BP podcast #610 if you want to hear more about it.
But you are on the right track, start educating, budget your finances, attend meet ups, talk to lends to see what options they have. Don't be stagnant because of funds, maybe you find a seller finance deal while learning and they are ok with no down payment.

Thanks Cliff, I'll definitely check out that episode.
Be careful. Unfortunately from what I have reviewed about the "subto community" and the "elephant challenge" they do not tell you about the downsides that would have your wife and kids wondering what kind of fool would do these things. Just because a clock is right twice a day, doesn't mean that it's working the rest of the day. Beware of what you don't know and what they aren't telling. Someone posted a nice primer at https://www.biggerpockets.com/forums/311/topics/1060320-usin...
I'd start with that as a guideline.

i have a couple seller financed deals but i still need equity partners for closing costs and fees
If you can't afford the closing costs and fees, how are you going to make the mortgage payments, insurance and taxes to the seller? Just curious.

Hopefully the properties he's looking at are income-producing and the NOI can carry the debt service, etc. Lenders look at DSCR, debt service coverage ratio. DSCR = NOI divided by the amount due to the lender/seller. If the NOI is 100,000 and the debt service is 50,000 then the DSCR would be 2, meaning that the property makes twice as much as necessary to cover the payments.

yes exactly there are deals like this out there

Yes I've got several online right now. I need bridge loans underwritten solely to the properties.
0 Reply
Andrew PostellPro Member
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
2y
@Paul Klei The Hard Money Lenders I use on my own investment properties fund at 75% of the ARV. None of this 80%-90% purchase price + repairs stuff. Just 75% of the ARV. So, if you can buy AND rehab at 75%...then you would only come out of pocket closing costs. Having the seller be in a junior position on that type of deal wouldn't be a realistic expectation. Most lenders aren't ok with funding past their CLTV - or COMBINED loan-to-value (which is usually their LTV as well).
0 Reply
Paul Klei
Investor · TX · Member since 2023 · 57 posts · 5 votes
2y
Quote from @Andrew Postell:

@Paul Klei The Hard Money Lenders I use on my own investment properties fund at 75% of the ARV. None of this 80%-90% purchase price + repairs stuff. Just 75% of the ARV. So, if you can buy AND rehab at 75%...then you would only come out of pocket closing costs. Having the seller be in a junior position on that type of deal wouldn't be a realistic expectation. Most lenders aren't ok with funding past their CLTV - or COMBINED loan-to-value (which is usually their LTV as well).

I've been hearing 50,60,70% LTV from lenders. Select Commercial Mortgage offered 90% with 10% down. I've wondered about that exact thing - keeping the costs of the entire project under a lender's LTV/CLTV, and it seems to be theoretically possible. It would be more feasible if the seller really needs the cash. I've got a broker who's client is in the deal for 47M but there's a deal at 40M because his loan is coming due at a 37M balance. I could probably get him to the 37M. That's still 90% but it's an example of what's being described.
0 Reply
Peter W.
Member since 2020 · 351 posts · 329 votes
2y
This sounds like the story of how my in laws went bankrupt and ended up not being able to retire 🤔.

Real estate is a capital intensive business. You need cash reserves as well as extra cash flow (from your day job) so you can stay afloat for unexpected vacancies, unexpected repairs and bad tenants.

With that said if you want to go low money down. Rent your current residence and buy a new residence with 5% down. Rehab the new primary and repeat. If you have enough for another 5% down get another conventional loan if you don’t get another heloc or sell.
1 Reply
Alexander Murillo
Real Estate Agent · St George, UT · Member since 2019 · 56 posts · 30 votes
2y
@Adam York Hey Adam, it's definitely possible to invest without savings. Despite what a lot of old-heads will say lol. But you need to understand that if you don't have money, you need to bring something else to the table (like a good deal). If you have any specific properties you're looking at, I'd be happy to help you evaluate them. If I can confirm a deal works.. finding money/partners is easy!
1 Reply
Grady Baltimore
Columbus Ohio · Member since 2023 · 15 posts · 8 votes
2y
Hey Adam, acquiring knowledge right away is great!
A good strategy is starting with something that involves less responsibility like a REIT or syndication / partnership deal. Consider partnering with a high level investor.
But I also see the benefits of starting with something very hands on as to get experience and real skin in the game. Love the HELOC idea for the DP on the property.

Maybe consider renting out an extra bedroom in your primary residence to save up some extra cash.

1 Reply
Ryan KellyBusiness Member
Real Estate Broker · Austin, TX · Member since 2018 · 1k+ posts · 1k+ votes
2y
@Adam York read “Set For Life” by Scott Trench. It will give you step-by-step the order in which you should start your journey. Education is great, but saving money comes first. Nothing is free, including real estate. Take the steps in order and you’ll do great!
[email protected]512-674-5478
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