Does No-Money-Down Work...?!

[Ben Leybovich]

OK.  So - unless you live under a rock, you've by now listened to Podcast 108 featuring Grant Cardone.  If you listen between the lines, and you don't have to dig too dip, Grant has nothing particularly nice to say about the no money down strategy.  He makes this point of view known elsewhere as well...

Since you absolutely can't argue with Grant's success, and he absolutely must be taken very seriously, where does this leave Ben Leybovich and @Brandon Turner who are notorious on BiggerPockets for nothing short of nothing down?!

My thoughts:

Grant is not so much trying to create income in RE, but to change the face value of earned income in his businesses to RE income, which is not only taxed lower, but Grant feels is more stable.  To him, RE is not a stepping stone - it is the destination.  All good by me...

Now - consider myself.  I've built a portfolio of multifamily which has allowed\s me not to work for a living.  I pursued the nothing down strategy because it was the only option - I am not smart enough to start businesses and unfortunately, while I was quite good at playing the fiddle, because of the MS diagnosis I was unable to pursue that career (not that it would have been a career capable of generating any serous revenue anyhow).  

Jump to today - my partners and I are currently negotiating on a 90-unit out of state.  This means a couple of interesting things:

1. This deal, if it grows through, will make me, and the investors, some respectable money.

2. I have partners, without whom I could not do this kind of a deal at this point.  Both of these guys have more money and units than I do today (though this is not going to last).

Both of them, I'd like to believe, take me seriously...  Why - because I've done a lot of ****, and I've learned enough to not do even more ****.  They think I am not stupid.  

Guess what - I got smart doing nothing down deals...

3. I've been using OPM for 8  years now, and if this deal comes through, I'll be floating a PPM of $1,000,000+; I will raise $1 mil from investors who agree with my partners in that I'm not stupid and know what I am doing.

Guess what - I got smart doing nothing down deals...

To me - nothing down is not a destination.  It is a stepping stone.  I am going to turn 40 in March.  I have a portfolio (all bought with nothing down) that has allowed me to do vastly better financially than any music student I went to college with.  It has allowed me not to work and focus on learning RE, and it has bought a margin of financial safety for my family which is better than any of my friends...even those earning high incomes...

And now, I have put myself in position to do much bigger projects, which, after a few years, will begin to cash out big.  At the end of this road, I will be able to retire with free and clear A Class RE with the money I parlay from my syndication pay days...

All of it was teed up by having the audacity to not listen Grant Cardone and go for it in the only way that I could - No-Money-Down!

I've built a small business in RE.  Now, I am growing that business into an empire by re-investing the dividends from the business I already have.  There is some money I can throw around now, but mostly knowledge is the biggest dividend.   

Thus - while no one can disagree with success, I'll take a stand.  I disagree with Grant Cardone - No-Money-Down does work.  However, in this strategy RE is not the final destination, but a stepping stone to bigger and better things.  I am the poster child of this...

Thoughts?

[Serge S.]

I do agree with Grant. I'm not against NMD down but do not see it as investing in RE. Investing in RE is about wealth creation and preservation. When you invest with no money down you generally have nothing to preserve. With no skin in the game there is generally very little to no real cash flow if your calculating it correctly over the long term. Certainly there is no room for property management. As such, your simply creating yourself a very low paid job. Like the immigrants that buy a 7-11 and have to work it 14 hours a day to clear $30k a year. Maybe not bad for them but I would hardly call it an investment. As I tell @Ben Leybovich , why not cut to the chase and just become a property manager? The $100 per property managed will be more than your no money down deal without any of the risk and you are already a PM by default. I don't see "owning" RE as some sort of great privilege. Others want to tell all their friends that they are an "investor". To each his own.

I met a NMD investor recently with a small group of his followers at a local bar. He was bragging how he purchased a portfolio of D class junk from an old man for what amounted to retail value with NMD. He shared how much he would cash flow and how he was now a big time "investor" and created infinite ROI. The group was literally in awe as to how he pulled it off and feverishly taking notes. I felt sorry for him. He purchased nothing but perpetual liabilities with no chance of refi and has instantly become a property manager with no compensation. But at least he is now an "investor." That story will not end well for anyone except the old man that passed along his junk and converted it to real passive income, albeit probably short term.

Now, there is a time and place for no money down investing. At the bottom of a cycle when RE is out of favor like 2009-2011 I would have said buy everything you can regardless of how you buy it. No money down is very viable if you are buying equity. Buying a $100k property for $60k with no money down can be a strategy and you are creating some wealth. Buying someones junk that he can't sell in an arms length MLS transaction with NMD to hope to make $25 a month self managing ... now that is some nonsense. Just think about why your seller is willing to finance you his property instead of selling it outright. Show me a property in today's market that can cash flow anything material after paying 100% debt? Show me a seller today that will sell you his property for 50% of retail AND provide seller financing. How many units will you need to own AND manage to actually cash flow anything material and sustainable? Just save your money and buy a 7-11 if you want a low paying job that bad. Call yourself an investor and be done with it.