Maybe, but probably not.
Every time I see an ad on social media claiming to possess the secret to buying large multifamily assets (5 or more units) with no money out of pocket I have to resist the urge to comment. And on top of that, they claim you can do it with no experience. Incredible! But, when things sound too good to be true it usually means that they are and, unfortunately, this is the case here.
I can think of a few instances where this might work. You have a very wealthy friend or family member that is brave enough to trust someone with no experience to invest their money. I don’t think many rich people achieved their wealth by being this foolish. This would be more plausible if you had a very long and successful track record of asset management and achieving great returns for investors.
The second instance would be a seller financing the entire purchase. No, a seller cannot finance the entire portion of the down payment. In my experience, the bank will only allow up to half of the down payment to come from the seller. So, to not involve the bank, the seller would have to finance the entire purchase. This scenario would likely only play out in a war zone type of area where there is zero interest from traditional buyers. The seller would have to really need to sell.
Why it’s not likely
The biggest obstacle when raising money is having no track record. A bad sponsor can turn a great deal into a complete loss fairly easily. You also have to remember that the majority of the people you approach to invest in your deal have no clue about real estate. Your business plan might sound great, but the fact that you have no proof that you can achieve what you claim will be enough to scare off most investors.
Lenders will only allow up to 50% of the down payment to come from the seller. They will also require everyone with 20% or more ownership to guarantee the loan. Capital preservation is the most important factor for passive investors so they would not likely enter into a position to lose more than their initial investment.
Lenders also have net worth and liquidity requirements. Net worth must be equal to or exceed the loan amount and post-closing liquidity must be equal to 9-12 months of debt service. You can get past this requirement if your rich friend is willing to sign on the loan and provide the lender with all of their personal financials but, again, having access to someone willing to do this would be extremely unlikely for most people.
Sadly, such is life, there are no shortcuts to success. Don’t waste your time trying to find that unicorn. Start small, do some deals, make some money, gain experience, and then the sky is the limit. The first place to start is learning about capitalization rates.
Already have that one down? Learn how to correctly analyze a multifamily investment.
Have you proven me wrong? Bought a multifamily investment with no money down and no experience? Tell us about it in the comments below!