Buying with No Money Down

I have seen a lot about a method of purchasing properties with No Money Down. Some people seem to have enough success with it that they sell their systems to others. Other people do not seem to have much luck with it at all. I recently found a link to a man who purchased 8 properties in one year using this method and he is now facing foreclosure and the fact that he may have committed mortgage fraud.


I have read through most of one book on the subject. “Nothing Down for the 2000s” by Robert Allen. The reason that I stopped reading the book is because every example of a no-money-down transaction that he gave seemed fishy. I read this book before I knew most of what I know today about investing. Since then I have also read a review of this man by John T. Reed that highlights illegal activities that the author has been convicted of.


If you look at the basics of the no-money-down deal, and take out of the equation the fact that mortgage companies may not like those deals, or whatever other legal or ethical issues there may be, and look purely at the profit and loss numbers the deals do not make much sense. The entire purchase price is a loan of some form or another. Therefore the entire purchase price of the investment needs to be paid back with interest. I have evaluated hundreds if not thousands of properties. I analyze them with the assumption that I am only putting down 20% of the purchase price. Even with this assumption most of the properties do not have a significant cash flow if any cash flow at all. So, if you put down $0 and have to make additional payments on that extra loan, the cash flow becomes even worse. It just makes no sense to me.


I believe leveraging debt is an important tactic for beginning investors to use to build up their portfolio, but eventually it is good to start to pay off that debt to maximize cash flow. There is a man who I have encountered on some forums that claims to purchase properties with all cash and no mortgage debts. Of course it takes a while to get to the position where you can afford to do this, and I am sure that there are limits to how much he can buy. But it is something that I will fantasize about being able to do myself one day.


As I write this I am thinking of a way to formulate not only the maximum cash flow, but also maximum return on investment for each property based on the amount of mortgage owed. It seems to be that there had to be an optimal level that will give you the most ROI and cash flow depending in the property.
Something to work on……