Everyone has heard the saying “it takes money to make money.” Some experts and gurus like to point out that this is not always true and that there are many ways to use OPM (other peoples’ money), ZERO down payment techniques (for real estate), and many other ways to make money without using any money up front from your own pocket. One way or another, there does need to be some form of seed money to get the ball rolling, whether it is your money or someone else’s money.
These experts and gurus are 100% correct. There are many ways that you can make money even if you have nothing to start out with. Many of these techniques are great and I would recommend using them, although they are not always easy.
For example, say you do not have any money. For the past couple years you have been reading books, watching videos and educating yourself on real estate investing. You are now confident that you have enough knowledge to get started in real estate. You find a 16 unit apartment complex that is for sale for $500,000 and has a solid positive cash flow. You know that this is going to be an excellent investment. The bank has informed you that you are going to need 25% of the purchase price for a down payment so that they can loan you the other 75%. So how are you going to come up with the $125,000 for the down payment?
The gurus say that when you have a good deal, the money will come. In other words, you should have no problem finding an investment partner or other investor that would be willing to loan you the money for the down payment. While there is some truth to this, think about this realistically. If you were the millionaire and some young stud comes to you with an apartment deal. He has $0 of his own, has never done a single real estate deal, and he is saying that he knows what he is doing because he has been studying books, videos and real estate courses for the past 2 years. Would you be willing to fork over $125,000 and HOPE that everything goes well? Maybe not.
So my point is that there are ways to make money without money, however it is not easy and not as common for beginners. The best approach to take is the “Pack ‘N Stack” method as Grant Cardone calls it. This is the same concept as the “pay yourself first” concept that is talked about in the book “The Richest Man in Babylon.”
Start focusing on your income first and foremost. Do everything you possibly can to increase your income as fast as you can. Take a generous percentage of each paycheck you receive and deposit that money in a savings account that you will not touch for ANYTHING. This money is designated for future investing money and that’s it. You are not allowed to touch this money for any other purpose, period! In “The Richest Man in Babylon,” they say that you should set aside 10% of your income for this purpose. While this might be enough for some people, depending on the size of your income, I would recommend setting aside as much as possible. I currently save between 40-50% of my after tax income for this purpose. The point is, the more you can save, the more you will have to invest, and sooner.
Now maybe you are only able to save $1,000 per month, which makes up to be $12,000 per year. Well after 2 years you will have $24,000, and after 3 years you would have $36,000. Now what can you do with $36,000? Well that can be a 20% down payment on a cash flowing 4-plex that has a purchase price of $180,000. Now we are getting somewhere. And the best part of this deal is that you are the sole owner! You don’t have an investor that you must pay off or split your profits with. You are making ALL of the money on this deal.
The other side of this equation is even more exciting. You are gaining invaluable experience. After you have completed a few of these deals, guess who is going to take you more seriously when you go to seek that $125,000 investment for the $500,000 apartment complex? Now that you can prove that you know what you are doing with real results, your odds of getting new partners and investors goes way up. This is where you can really start to expand your real estate portfolio and explode your wealth.
Do whatever you have to do to start “Stack ‘N Packing” as much of your income as you can today! If you can save 25% of your income, great. If you can save half, even better! Focus on increasing your income and increasing your savings. This is your seed money that you are going to use to start growing your orchard with. Now who is ready to start planting seeds?