It is very real, and yes, it can be done. There are probably a few thousand apartment entrepreneurs across the country doing it right now. Let’s break it down and look at it, because once you understand apartments a little more you’ll see that buying this way is just the most effective way to put deals together.

First of all, “no money down” is misleading. There are always down payments made on apartment deals. Paying a down payment is the only way for a lender, or seller if owner financing, to minimize the risk they incur by extending purchase money financing. The more down payment buyer puts in, the more likely they are to make the payments. End of story. So no seller or lender is going to extend 100% financing on any apartment deal, there will always be a down payment required.

However as an apartment entrepreneur, you don’t put up your personal money for a down payment. To cover the down payment, closing costs, fees, earnest money, rehab cost, and any cash requirement the deal has, the smart thing to do is use Other People’s Money.

In French, entrepreneur means ‘problem solver’. Let’s face it, an apartment entrepreneur’s entire brief is to take a property which is essentially just a giant mass of problems, and one by one, sometimes two or three at a time … solve them. And that applies at the very beginning, when you are buying the property.

Apartment deals require a lot of money to buy, and often, a lot more as well to get rehab done. The bulk of the purchase price is covered by a commercial lender. Commercial lenders have hundreds of millions of dollars they need to get out. Believe me, they want your business.

But you are worried your net worth or income is not high enough to qualify for a three million dollar mortgage. That’s OK. The lender isn’t looking at your income statement to make sure their payments will be covered, they are looking at the property’s income statement. With 20 to 30 percent down payment, a good debt coverage ratio, and a good management company in place to manage the property after you take title, commercial lenders are happy to provide you with 70 to 80 percent of the purchase price of your deal.

That leaves the not inconsequential issue of, where does the cash for a 20 to 30% down payment come from. If I’m buying 250 units for $4M, that means I have to raise a million dollars for the down payment! Geez! How … … ? Well, you are an apartment entrepreneur, remember? A problem solver. You need money to buy an income property that is going to produce a very healthy return. Who has money receiving low returns right now, say 2%, who would be thrilled if they could place their money a real estate secured investment that gave them a much higher return, say, 10%.

The answer is, millions of people all across the country. There are people with money in self directed IRA’s, many people have thousands, even millions, just sitting in CD’s while they collect the interest. There are other investors doing 1031 tax deferred exchanges with real estate sale proceeds they need to get reinvested before a certain deadline. There are other investors in your local community, there are attorney’s, accountants, doctors, dentists, the list goes on and on. All with money to invest.

You could call these people with capital seeking safe, high returns, private lenders. Or more generally, private money. Despite what you may think, your community is awash in private money seeking the safe, high returns you offer with your apartment deals. Your job is to put your deal together, package the it as an investment opportunity for them, showing cashflow numbers, how you are going to increase the value of the property, how they are protected, and then make it available to as many potential private money investors as possible. What you don’t know just yet, but will be pleasantly surprised by, is when you do this, just how much private money shows up in your own network, and how quickly it materializes.

Private money doesn’t show up just for the sake of it though. You must be offering an extraordinary deal, in every respect. Two, three times the return, with absolutely no way for them to lose.

All of this is possible with a profitable apartment deal. You are taking a troubled apartment project, investing in and restoring it to it’s highest and best use, releasing a lot of cashflow and value. The tenants benefit, the local community benefits, and by clearly showing this to potential private money lenders you give them the chance to be part of the adventure and profit with you.

When you start looking at an apartment deal through the lens of an entrepreneur you start to see all of the opportunities for solving problems with win/win solutions. “No money down” was a sensational marketing device for an ’80′s era information marketer, however it is not representative of how you go about funding an apartment deal.

You are better to shed the antiquated notions of “no money down” and instead don your apartment entrepreneur’s hat. Look for deals where you can create serious upside value, make a compelling case to your private money backers, and let your great adventure begin.

Known as the ‘Grave Dancer’ one gets the impression that’s something others feel he should be embarrassed about. From an investing point of view, it’s just smart. When property is on sale at artificially depressed prices, that’s the time to buy all you can in markets that will appreciate well when they recover.

In February 2007 Zell sold his flagship business, Equity Office Products (EOP), and its portfolio of 540 prime office buildings to the Blackstone Group for $39 billion, as reported in a Forbes article at the time.

This is the portfolio of property that Zell has meticulously built up over the last 20 years and now sold at premium price to a private equity group at the very peak of the market.

“According to Zell, private equity firms awash with capital benefitted from “preposterous” leverage and offered premium prices to publicly held real estate firms. Zell said he considered that type of deal a “Godfather offer”–because no publicly held company could responsibly refuse it.”

The point to pay particular attention to is, when everybody else in the market was losing their heads buying, afraid they may “miss out”, Zell sold his entire commercial property portfolio (about 125 office buildings in 15 metropolitan areas he had identified as target markets).

And likewise, when everbody is desperately trying to sell, unable to continue with ownership of their property, Zell is buying.

“Following a market crash in 1973, Zell spent three years acquiring $3 billion in real estate assets, much of it for $1 down. He built his portfolio by approaching lenders and offering to take future operating losses off their hands in return for equity. Zell was able to carry the properties long enough for them to return to–and exceed–prior valuations. “As it turns out, we made a fortune,” he said. In the 1980s, the real estate industry was again marked by aggressive lending that sparked a development boom. “The idea was ‘build it and somebody will buy it,’ and that somebody was the Japanese,” Zell recalled.”

It’s not rocket science, in fact it is just common sense. Recognise that real estate prices do fluctuate, they don’t always go up. When the prices are down and depressed, buy all the quality properties you can. When prices are sky-high and people are paying more for property tha you think it could possibly be worth … sell everything you have.

Easy to say, hard to do.

1) You need to have control over your emotions. A good deal of which is having access to good information to make decisions with.

2) You need to have clarity of purpose. If you know you endgame going in to your enterprise, you’re unaffected by the emotional rollercoaster the rest of the market is riding. To you it’s a sideshow while you wait for your optimum time to sell.

If you listen to Sam Zell talk about it he sees it all as a function of supply and demand.

He told the Wharton audience he has never recovered from his first course in economics, where he learned about supply and demand. “I would tell you whatever business I’ve been in–real estate, barges, rail cars–it’s all about supply and demand.”

What clearer set of principles could you have to guide you in your real estate investing.

A biography of Sam Zell titled, Money Talks, Bullsh*t Walks has just been published and is a great read. If you are buying apartments it’s a must read! He’s a real investor, the real deal, and there are gems of wisdom on almost every page.

Right now is a great time to buy apartments. Learn from a master operator.

We are a few years post the 2008 financial crisis and residential lending is still trying to recover, as is job growth. The rate of foreclosure has come down a fair amount, but still remains high. The net result is a broad trend of people renting apartment units instead of owning a house. The consequent high demand for rental units has made occupancy rates low and put an upward pressure on rental rates

If you are an apartment owner these are good times. Your cashflow is strong and the value of your properties are going up.

If you are not an apartment owner, now is a good time to get in the game. Not so much because of the rising market (this phase will end, and another will begin), but because the rising market makes it easy for you to put your first deal together.

Let’s say you have decided to get into apartment investing, what is the best way to go about it?

From a macro level there are three basic plays. 1) Assignment Flips, 2) Turnarounds, 3) 1031 Tax Deferred Exchange.

Assignment Flips:

This is a familiar strategy for people working the residential market though it is less well known that the same strategy has a place in the world of multi-family as well. It is carried out just the same way in multi-family as it is in single family; you locate a profitable deal and put it under contract at a price low enough to still be attractive to the end investor after your assignment fee has been taken out. You then put the property under contract at a higher price that includes your assignment fee. Executing the closing can be done by either replacing your end buyer contract with an assignment agreement to save on costs, or if you sense that wouldn’t be wise you can just go ahead with a regular simultaneous close.

The obvious plus to apartment property assignments is the higher assignment fees you can make, and the lack of any substantial risk. Done right, not a cent of your money is spent, no matter how big the deal.

Turnarounds:

Turnarounds are taking an under performing property, curing the problems causing the under performance and returning the property to its peak performing state. For an apartment building bad management is usually the root cause of all problems. Bad management will result in deferred maintenance, high vacancy rates, and below markets rents being charged on rented units.

The under performing property represents an opportunity for a well capitalized apartment entrepreneur to come in and install new management, rehab the property, rent up the vacant units at full market rent, and get the property running as close to 100% occupancy as possible. The difference between the before and after values can be millions of dollars, and achieved in the space of 1-2 two years.

1031 Tax Deferred Exchange:

The 1031 Exchange is a tax loophole that allows the apartment investor to defer the payment of capital gains tax upon the sale of investment real estate, provided they follow certain procedures during the sale of the property. This allows an apartment investor to sell one property, and transfer the entire amount of equity contained in that property to his/her new acquisition, without paying capital gains tax. (The capital gains taxes are eventually paid, though only later when properties are sold outside of the 1031 Exchange process.) When the 1031 Exchange is effectively employed the apartment investors wealth grows at a rapid rate, thanks to the power of compounding.

Which of these plays you choose to focus on depends on your situation and your temperament. When learning the business and cash poor, assignment flips may be the only thing that make sense to you. Locating profitable deals and then assigning them to investors would allow you to learn the business, learn your market, with little risk, while you build up some capital. Another very important benefit would be building up your network with all the contacts you make.

Once established you could then start turning around under performing apartment properties, creating significant amounts of equity in short amounts of time. Instead of holding onto the property for cashflow, you could get another turnaround property under contract, then sell your first property via 1031 Exchange, and transfer all of your created equity into the new property. If you focus on larger 100+ unit apartment properties where your upside is $1M+ per deal, this turn quickly into a significant net worth.

Of all the real estate classes apartments are the most reliable wealth creators. Whatever phase the real estate market is in there is a way to be in apartments that helps you build wealth.