Nothing Down Real Estate is No Dice

How do you build the capital stack in a nothing-down deal?  Not very well.

You see it all the time; people touting the virtues of no-money-down deals- usually directed at the inexperienced or uninformed.  I am assuming that are you are neither, yet temptation prevails!


Because we continue to hear about the winners.

Charlie Rose on 60 Minutes ask Steve Wynn (casino owner) if he had ever known a player that had consistently beat the house. His answer was no.

If you were to ask that question differently; if he had ever known a player that had “inconsistently” beat the house, my guess his answer would be yes.  And there’s the rub.

Inconsistency prevails.

In my experience there is no way to consistently make money in no-money-down deals. Therefore; it is not a sustainable business.  Success stories are possible, they are just not probable.  The risk/reward ratio is seldom in alignment.

This is the primary reason to distance yourself from the perceived “home run” potential and focus that same time, energy and effort on things that work and on investments that do not threaten your entire net worth.

Sure, there is the occasional winner, but they are few and far between.  And the risk to your personal net worth can be overwhelmingly negative if things go bad.

It’s true that main stream investing has lower yield expectations. It’s also true that preservation of capital is paramount; intellectual capital and equity capital. I suggest using both in a sustainable business model that precludes the necessity of a perfect world.

Nothing down deals “require” a perfect world.  No bumps in the economy, no interest rate spikes, etc.  Since being tossed from the Garden of Eden man has yet to re-create that perfect world.  And a nothing-down deal is unlikely to be the starter switch to get any of us back there.

This article is intended to be informational only and does not provide legal, financial or accounting advice. See Multifamily Insight.

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