How to buy multifamily investment property with no money down may sound like some late-night cable television guru pitching products. But there are certain circumstances where the right seller, the right buyer and the right property can work out. So what are some good ways to look creatively at this challenge? This week veteran multifamily syndication investor and mentor Vinney Chopra shares some ideas for you to think about in buying multifamily investment property.
Financing multifamily investment property is something many of my student-investors struggle with, and think that they need many thousands of dollars in cash to get into this type of investment.
You need to think creatively about how to use money from other sources to put together ways to buy a multifamily investment property.
Sellers who have apartments that are suffering from poor management and low occupancy are one place to look, especially in emerging markets. I always like to search for these deals in C+ or B neighborhoods and hardly buy anything in D neighborhoods which can be risky and difficult to collect rent.
How to buy multifamily investment property with no money down
Banks and lending institution are interested in knowing the cash flow from multifamily properties after all the expenses.
That is the basis for what they lend on. They want to see the difference between the property’s gross income and gross expenses.
Ok, you say, so how do I do this with no money?
One of Vinney Chopra's apartment communities
Find a high-net-worth sponsor or partner
This strategy works nicely, where you can look through all your relatives, close friends, colleagues and inner circle of influence. You want to find an individual or two who can partner with you with the cash and net worth. You bring to the table the sweat equity, learning, skills, experience, drive and hard work in pulling the deal together. You may need to give them 20 percent to 30 percent of the general partner side of the profits. And you may only need that to get started.
In our case, my partner and I did not have much money. We reached out to an individual who trusted us and believed in us and our drive to make things happen. He loaned us $100,000 at 6% interest only for a year.
For example, here is what Dave Lindahl writes on earlytorise.com has an example.
“If you don’t have a down payment, you still have the option of using a hard-money lender instead of a bank. Most hard-money lenders will loan you 100 percent of the loan amount, as long as you buy the property below 65 percent of replacement cost.
“That may sound difficult at first, but think about what it means: 65 percent of after-repaired value. Say you buy a property for $650,000 that has low rents or low occupancy. Once you increase the rents or occupancy, that property may be worth $1,000,000 or more. In that case, you’ve just bought your first million-dollar property with no money down,” earlytorise.com writes.
How to buy multifamily investment property with no money down? – Owner financing
The most common way to buy a property with no money down is to use owner financing.
This occurs when the current owner agrees to finance either all or some part of the purchase price, instead of getting the cash now.
You’ll be surprised how many people own their properties free and clear, and are willing to finance the entire amount or a good portion of the mortgage.
Usually, though, you will be getting secondary financing from the owner. That means you will get the majority of the money -the first mortgage – from another source, like a bank, and the seller will give you the rest in the form of a second mortgage.
Borrow from a private lender for a down payment
If you’ve got a great deal, but don’t have the money for a down payment, find a private lender. This is any individual that has extra money set aside that you can use for your purchase.
This person can be a family member, friend, dentist, doctor, dry cleaner, a member of your real estate investment club, etc.
Private investors are everywhere. You just need to start asking.
What do you ask for?
Ask if they have money in an IRA or a savings account that they would like to get a return on, of 8 percent to 10 percent on, secured by real estate. This is very appealing to lots of retired or very busy professionals who would love to get cash flow coming each month – more than what they can earn in interest in CD’s or bank accounts.
After you get one or two lined up and you start to use them successfully, watch what happens: They will tell their friends, who will tell their friends, and so on. It’s human nature to brag at cocktail parties or at the gym about what a great investment you just made. Before you know it, you will have all the funds you need, and your business will explode!
Don’t partner with just anyone!
It’s imperative that you choose the right partner to get the money from, to find the right relative, long-time friend, or business associate who you have dealt with may be good. It’s highly recommended that you get a coach or a mentor who has done these kind of structures and has the knowledge and experience.
Doing due diligence on the multifamily investment is also essential to avoid surprises after take-over. It’s the job of the general partner and sponsor to find all the defects in the exterior and interiors of the buildings and discrepancies in the financial data provided by the seller and the broker of the asset you are looking into acquiring.
Definitely do the legal structure of your partnership, make sure you are protected. It’s important to be smart going into a partnership, and it’s also important to be smart legally with the partnership. Spell it all out so there is no question later.
I have always felt since we started 12 years back that having a legal counsel is so important to avoid mistakes and challenges later in structuring and running of the businesses. We used a service call Prepaid Legal when we started – I think it’s called Legal Zoom now.
So get going and don’t wait on the sidelines even if you don’t have money to start in the multifamily Investing. This is the perfect investment vehicle for great lifestyle and earning of passive or active cash flows!
Disclaimer: I am not a legal or tax professional, and all matters of real estate partnering should go through either legal or tax professionals (or both) before being implemented.
About the author:
Vinney Chopra is the Founder, CEO & Mentor of Moneil Investment Group and President of Ideal Investments Group. His latest accomplishments include acquiring 12 multifamily assets in the last 28 months, worth $132 million. His last two syndications were sold out in just a few hours, and one in 36 hours raising $4.7 million and another one $6 million in eight hours. Between the two syndication companies he founded, Vinney’s team is controlling over $172 million worth of assets. He is very excited to launch a $50 Million Fund for the accredited investors to invest in it to purchase 5-10 multifamily assets. He is a mechanical engineer. After entering USA with $7, he graduated from The George Washington University with Master’s in Business Administration in Marketing, he shifted his focus to marketing and motivation. He was a professional fundraising consultant and motivational speaker for more than 35 years with a wonderful private company. Vinney and his wife started their real estate investments in 1983. He currently owns single-family homes and multifamily units in Texas, California, Atlanta, Arizona and India. Many times, people call him “Mr. Enthusiasm” or “Mr. Smiles.” He likes to bring great value to everyone he comes in touch with.