Is the day of buying a property with no skin in the game dead?

Question

I'm a fairly new investor and my father is a bit of a seasoned real estate professional that remembers the days of lenders loaning money to anyone with a pulse (and even some without a pulse). He continues to tell me that the money is out here and you can still find financing for your deal without having to bring any money to the table. I have not seen this in my market (Metro Detroit area). Does anyone know if financing is available without the buyer bringing money to the table? Regardless of if it's my market or now, I am just curious as to what is going on out there.

Scott McMahan · Answer

A borrower who asks for a no skin in the game loan raises some serious red flags to most lenders, be it a bank or a private lender. It indicates the borrower may be initiating the deal with a tight cash position, which could potentially disrupt the deal if things don't go as expected. If you're not bringing cash to the deal, you've gotta bring something of value. If you bring the deal, and it's a genuine deal, you should have no problem finding someone to partner with you and give you a slice of the deal in place of an assignment fee. Then use the cash you get from that one as skin for your next deal.

Paul Timmins · Answer

@Alton Williams

Welcome. The others have said it well you need to bring something to the table. Increase your networking with local like minded people see below.

Check out the Start Here page http://www.biggerpockets.com/starthere

Check out BiggerPockets Ultimate Beginner's Guide - A fantastic free book that walks through many of the key topics of real estate investing.

Check out the free BiggerPockets Podcast - A weekly podcast with interviews and a ton of great advice. And you get the benefit of having 60 past ones to catch up on.

Two Great reads, I bought both J. Scott The Book on Flipping Houses,The Book on Estimating ReHab Costshttp://www.biggerpockets.com/flippingbook

Locate and attend 3 different local REIA club meetings great place to meet people gather resources and info. Here you will meet wholesalers who provide deals and all the cash buyers (rehabbers) you will need.

To find out about the local areas go to IREM.org search for ARM certified property managers. Call 5 ask them what sides of the city they like/dislike and why. Ask what they see them selling for and what expenses are by category. Ask if they know anything coming up for sale.

Good luck

Paul

Andy Collins · Answer

You could If you have an established relationship with a HML and

IF you can find a deal at literally 70% of ARV less repairs, you can do it,,however in my area those 70% less repairs ARV deals are long gone

Your still going to have to have reserves

David T. · Answer

YES, it is a fact that you can get "no money down" deals in at least two ways. First you structure the deal with a down payment from one source and the balance from another, be it a HML or similar. You will have to jump through some serious hoops, but it can be done. You need to be careful you're not committing fraud in the process too.

Second way is if you have a high net worth and can fully secure the object property with another property, usually for the same or a higher amount. So effectively, the lender(s) will be secured twice, once by the property and then by your alternate security plus huge fees and interest rates.

Either way, if you're going to do your deals this way you're just asking for trouble, IMO.

Joel Owens · Answer

If a buyer contacts me wanting no money down deals in commercial real estate I simply tell them in a matter of seconds that I have no interest in helping with that.

I have too many clients who have liquidity, net worth, and meet lending requirements to do a deal.

Those no money down deals were 4 to 6 years ago for the most part. Now there are some situations you can do it such as you tell a retiring seller you want to keep more money for reserves on an owner finance but offer up to cross collateralize your other properties.

If you have no money and no assets I think you are wasting your time. I did a no down payment deal years ago but still had to have closing costs, repairs, reserves, etc. Some will say they can still find a no money down deal but I think most of these are from sellers whoa re upside down in value and no longer want a headache. Even if the property improves you are still trying to catch up with a break even value because you paid too much for seller finance.

The market cycle today is too hot for sellers to want to finance the whole deal and banks will not touch you for that. I know some that will do 75% ltv and let the seller hold a 10% second for CLTV of 85%. Banks are not going to loan you 100% and when the property fails look at the auditors and regulators and say we do not know why the loan went bad.

Michaela G. · Answer

I used to do 'no money down' deals in Atlanta. There were a good number of HML, who would loan up to 65-70% of After-repair-value. And if I bought well enough, they would roll purchase price, rehab and 6 months payments into that loan and keep it in escrow, released as necessary.

Those lenders got stuck with a lot of inventory after the downturn and aren't lending any longer that way.

I think it all depends on your local market and what different people perceive as a risk or not and what they see their competition doing. What may be difficult in one city may be very different in another location.

A HML who goes to RE clubs will likely stick with the crowd and do what others do. But there may be private lendors, who aren't following anybody else's path and make up their own mind what they think is an acceptable risk and what isn't.

Jonathan Marcus · Answer

I think there is a misnomer when it comes to the term No Money Down or Skin in the Game. Most believe No Money Down means the buyer does not put any down payment on a deal which is not the case or shouldn't be the case.

What no money down really means, which I've learned early on in my real estate investment career, is no money (significant amount) comes out of my pocket. But it doesn't mean not putting a down payment on the deal.

Someone commented above, it has to do with deal structure which is absolutely correct. If I find a great deal and put it under contract; then I find a lender who will loan me 70% loan-to-cost and I bring in private money to cover the 30%. In essence, this is a no money down deal for me because the down payment did not come from my pocket but from somebody else.

My skin in this deal is the marketing and effort I put in to find the deal and locking it up. It is the deal the predicates the money/funding.

Alton Williams · Answer

I appreciate the information.

Account Closed · Answer

I know a few hard money lenders who are still doing what I call "pure equity" lending.  They use current FMVs and will lend up to 65%, no down, no credit check.  You pay for it though.  4-5 points, 13-18%.

Most buyers can't or don't know how to buy at 65% of value though. My experience says that the more problems you can solve the better deal you can get.  Making offers on the MLS or to FSBOs where there is no seller or property distress is not likely to generate a 65% of FMV deal.

Find a screaming deal and the money will follow. :)

Bill Gulley · Answer

Point made by Scott holds true and will forever.

No money down deals, I'd say that doesn't always mean going to the bank. An old saying, you can get a loan when you can show you don't need it.

The problem is that newbies come pumped with garbage from gurus thinking they can do no money deals, very slim chance, but not impossible, but close to it.

Reason is, newbies don't have knowledge or experience in putting deals together. You'll always have to bring something to the table.

Land, labor, capital and entrepreneurship, google that and see what pops up. Basic factors of economics and it holds true in any business venture of any kind. Land can not be substituted, all other factors may be, more of one can mean less of another is necessary. Putting capital at zero means labor and entrepreneurship must be at very high levels. That's usually hard to do by a newbie walking in with a high degree of management skills, about all you have left is labor.

Deals without skin? Always possible, the question is, by whom? :)

Is the day of buying a property with no skin in the game dead?

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