October 4, 2016
Joe Fairless

New Approach to Successful No Money Out-of-Pocket Investing

Fabian Calvo has closed on thousands of real estate transactions and has completed tens of millions of purchase and sales in over 30 markets. In our recent conversation, he provided two specific examples of no money out-of-pocket real estate investing and explained the importance of failing in real estate investing.

It wasn’t until after listening to a “no money down” real estate course every day for a few months that Fabian began his investment career. Prior to investing, he was a broker. He was great at finding deals and selling them to investors. However, after listening to the no money down course, he changed his approach. Instead of selling the great deals to investors, he asked if they could partner up on the deal. Fabian would bring a deal to an investor, explain how much money could be made via fix-and-flipping or buy-and-holding, then asked if they would put up the capital if he would manage the deal.

Fabian’s approach was well received. The investors didn’t have the time or desire to find or manage deals, but they still wanted to invest in real estate. Therefore, they had no problem putting up the money while Fabian had no problem managing the project since he would have zero money out of pocket. After successfully following this strategy once, from there, he kept replicating it over and over. The following are two of Fabian’s favorite “zero money out-of-pocket” deals:

No Money Out-of-Pocket Example #1 – Apartment Building

Property Description

  • 12-unit apartment complex
  • Incredible location in Florida
  • Backed up to a 90 ft canal

The Situation

  • Property was falling apart, a real disaster
  • Only 2 units were occupied
  • Out-of-state owner
  • Sent the owner a FedEx letter stating his expressed interest in purchasing the property
  • Got the property under contract
  • Brought on 2 other investors to fund the deal and he would manage the entire project

The Numbers

  • Purchased for $75,000 per unit ($975,000)
  • 30% down payment – Came from investors
  • Construction loan – rehab costs were included in the loan
  • Renovations were $300,000

The Results

  • Converted the apartments into condos – One of the investors had previous experience converting apartments into condos
  • Pre-sold ½ the units within 3 weeks of completing the exterior remodel
  • Sold six 1 bedroom condos for $185,000 and six 2 bedroom condos for $250,000
  • Fabian had a 25% ownership stake, plus, he made $30,000 from broker commissions

The Key Point

  • Finding really good real estate deals will unlock many opportunities – In Fabian’s case, the opportunity unlocked was meeting legitimate investors that have cash and are looking for deals.
  • Since he had sold the two investors several deals in the past, both parties had the confidence to go into business together on a per-deal basis moving forward

No Money Out-of-Pocket #2 – Apartment Building Notes

The Property Description

  • 20 unit apartment complex
  • Located in Florida

The Situation

  • Property was in foreclosure
  • As-is value was around $500,000
  • Current property owner lived in California and held two mortgages totaling $1.2 million
  • Spoke with the owner on the phone and he was interested in doing a short-sale
  • Fabian put the property under contract and presented the deal to an investment firm that he knew was on an apartment building buying spree
  • He ended up settling with the first (current owner) and second mortgage holders

The Numbers

  • Purchased the note for $475,000
  • Paid second mortgage holder $5,000 to release the lien on the property
  • Paid the owner $10,000 to sign over the deed

The Results

  • Investment firm purchased property for $600,000
  • The $475,000 mortgage, and $5,000 and $10,000 settlement fees were taken out of the $600,000
  • Fabian netted $100,000 in under 40 days with no money out of pocket

Key Points

  • This is a more complex deal with a lot of moving parts. That being said, this is the type of deal structure that you would want to work up to. Fabian had 11 years of real estate experience when he completed this deal. However, he had only been investing in mortgage notes for 6 months.
  • The relationships that he formed during his 11 years were the reasons why he was able to complete such a complex deal with no money out of pocket

Saying Yes to Failure

Fabian’s best ever advice, especially for those who want to invest in real estate with no money down, is that you must be willing to fail. He failed a lot, but through failure, he learned a great deal of priceless lessons. If he wasn’t willing to fail, he believes that he would have never actually pulled the trigger and started pursing deals. Real estate is an investment class that requires rejection and failure. Therefore, you must be willing to walk through the fire if you want reach the lucrative success at the end.

Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.
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