What Percentage of Buyers will go under who bought with Zero Down?

[Chris Seveney]

I continue to see people wanting to get creative today with buying real estate and being creative with no money down because they do not have the $ for a down payment. I was curious to ask what percentage of these buyers do you think with either go bankrupt or lose the homes within 3 years?

I would peg it at around 80%. I actually think that is low, but that is where I would start it.

Why do i say this:

1. These buyers have no savings, so if the property sits vacant for a period of time they will be late on payments.

2. They did not anticipate how much it costs to maintain a property (see #1 regarding savings)

3. They took on seller financing, realized after 3 years they have made ZERO money and the property is now worth 20% less because they also paid above market pricing for the property.

Now I will say this is different than other zero down where the borrower has money but did not put money down. I am talking specifically about those who have no savings. 

What do you think?

[Josh Young]

@Chris Seveney I agree. Leverage must always be offset with cash reserves. I'm all for using lots of leverage, even paying a premium for it when the numbers work, but no reserves is just asking for trouble.  It's like Warren Buffet says "When the tide goes out, you see who's swimming naked." 

I love helping people of all levels become real estate investors, but working hard and saving money is part of the game, if someone can't save enough money to have at least 6 months of PITI payments in reserves then they probably aren't ready.