How I Initiated My Rental Property Business With No Money

Decision to Invest
In Spring 2012, I made the definite choice that I wanted to invest in long-term buy-and-hold real estate.  The problem was, I didn't have any cash reserves, and my occupation as a musician and yoga teacher didn't produce the required steady W2 income necessary to quality for a mortgage.   I had talked with a couple mortgage brokers who had politely (or bluntly!) indicated that I would need to find a co-signer if I wanted to buy a rental property.

My Goal
My goal was to create a stream of cashflow that could completely support my lifestyle, and I was convinced that I could get there incrementally through buying rental properties. One advantage I had was a flexible daytime schedule, so I decided I'd need to find partners to either act as co-signers or co-investors, preferably those with extra funds earmarked for investing being too busy themselves to hunt down deals.  I reached out to friend who had gotten his real estate license, and asked him to be on the lookout for any potential cashflowing rentals that he saw on the market.  As we were hanging up the call, he gave me a tip, saying that a coworker of his had been buying foreclosure properties and gave me the name of a company who specialized in buying foreclosures.

Taking Action
I immediately looked up the company, attended their weekly meeting, and signed up for their weekly investor packet and website access.  Every Thursday night they reviewed all the properties scheduled for foreclosure auction on Friday morning and gave their analysis (fair market value, predicted auction price, how much it would rent for, etc).  Their fee, in exchange for researching the properties, was 3% of the estimated fair market value of the property. They also had a relationship with a hard money lender that would lend short-term cash to use for buying foreclosure properties to anyone with a good credit score, and a pre-approval letter with a bank (so refi would be the exit strategy).

Convinced It Would Work
After attending the meetings and auctions for a few weeks, and talking with other investors to ask their experience, I became convinced that there were plenty of properties available at the auctions each week, at attractive discounts.  I was most interested in buying rental properties, but I was also intrigued by the possibility of doing a few flips to raise cash for a rental property.  The current market conditions gave me a sense of "now's the time" because the property values were just starting to trend upward after the preceding downcycle.

Approaching Partners
I knew several friends that I thought might be interested in real estate investing, and I started by proposing a Skype call with my two younger brothers.  Both of them owned their own homes and rented out the rooms (as I had done successfully), and I knew they, like me, were interested to eventually own additional rental units. One of my brothers had some cash available that could be used for initial acquisition fees and renovation costs on a rental property, and had strong W2 income that would allow us to refi out of the hard money loan into a 30-year mortgage.

Forging a Partnership Deal
After many conversations, we came up with the idea that I would execute the purchase of a foreclosed rental property and do all the groundwork, and he would put in all the cash needed to turn the deal. He would also spearhead the refinance out of the hard money loan while I was spearheading the renovations and getting renters in.  Once the property was cashflowing, all proceeds would go to him until he was reimbursed for his initial seed money.  At that point we'd be considered "even" on that property, and all further proceeds would be split between us, including sale proceeds should we decide to sell.

Summary
It worked!  The first property went well and we bought another, and another.  It's been less than 3 years and we've built a portfolio of 50 units and growing. We've gained valuable knowledge and experience from each deal which then inspired our approach toward the next one. If you are like me and are seeking financial freedom through owning long-term rental properties, but are missing some key factor (such as cash!), don't let it stop you. Find an angle that you can excel at, and seek partners who need your abilities and can fill the gaps that you are missing.