The latest fodder in the “no money down” witchhunt is Casey Serin, a 24-year-old investor in Sacramento, California that’s now $2 million in debt after leveraging himself to the hilt with techniques from Russ Whitney and Carleton Sheets. To the personal finance blogosphere, he is a classic example of what can happen when you buy into the get-rich-quick mentality.

Personally, I think he’s a victim of employing strategies he doesn’t understand. You can buy real estate with no money down, but it’s an advanced strategy that requires foresight and close attention. I’ve purchased several million dollars of real estate using no money down techniques, and I’ve never gotten burned. The difference is, I’ve been involved with this business for my entire life and (most of the time) I know what I’m doing.

To make “no money down” strategies work, you need to:

Understand the Cost of “No Money down”

There’s an old saying in real estate negotiations that goes like this, “You can have your price or your terms, but not both.” In other words, you can buy my house at a discount or I’ll give you financing and you can buy at at a higher price, but you’re not going to get both from me.

People that use seller financing to buy a house with no money down usually go for the terms and end up sacrificing on the price. For example, they might get an 80% loan and ask the seller to finance the other 20%. The problem is, they’re probably paying top dollar in exchange for the good terms.

Then, they mark the property up 10-20%, put it back on the market, and expect to make a fast profit. This is a classic mistake. You can’t expect the property to sell for more money just because you own it. You have to improve its value somehow, such as fixing it up or changing its zoning.

You might occasionally buy a property at a discount with no money down, but it’s exceptionally rare, and I would be suspicious of anyone pushing you to do it.

Pay Close Attention to Your Costs and Timeline

If you want to see a “no money down” proponent stutter, ask them where the money is coming from to make interest payments until the sale. Ask them, “What happens if this takes a year to sell?” Most of them haven’t considered it. They think the need for cash stops as soon as you purchase the property.

Except, it doesn’t. Real estate continues to cost money after you buy it. Generally, you have to make interest payments, improve the property, and pay taxes. Counting on a quick resale to avoid paying any of these expenses is a recipe for disaster, and it sounds like this is what happened to Casey.

Personally, I use the “no money ever” approach. Rather than just financing enough to purchase the property, I factor in the cost of improvements, taxes, and payments. If I think the project will take six months, I borrow enough for one year or longer just to make sure. Then, when things take longer than expected, I’m still safe.

Create a Multitiered Exit Strategy

The upside of no money down strategies is they allow you to minimize your cash investment, thereby maximizing your rate of return. If you invest nothing and make $10,000, then your return is 10,000 / 0 or infinity. It’s a great way to make stellar returns, but there’s also a downside you need to be aware of.

Because you’re leveraging yourself to the hilt, you’ll probably need to get rid of the property as quickly as possible. So, creating a multitiered marketing campaign becomes important. You have sales plan A, B, C, and so on, usually changing the approach or lowering the price at every step.

For example, I’m currently working on selling a large 234 acre development. It’s worth about $19 million, but we’ve been trying to sell the whole thing for a year and no one wants to buy all of it. We do, however, have people that will buy pieces of it, so we are changing the debt structure and selling the residential portion for about $4 million. Then we’ll parcel out the commercial and sell it, piece by piece. It’ll take longer, and we’ll rack up a lot more carrying costs, but it keeps the project moving.

If you’re heavily leveraged, you’ll need a similar strategy. Sometimes you’ll have to sell everything off for less than you’d planned, making little or no money. The key is making sure that you recycle your inventory of properties so that none of them bankrupt you when they don’t sell.

“No Money down” Is Not for Beginners

Imagine that learning to invest in real estate is a series of ski slopes. You’ve got beginner, intermediate, and advanced slopes. In my opinion, no money down is one of the advanced slopes. A beginner might occasionally make it down, but it’s not safe, and lots of them will crash and hurt themselves.

The problem I have with people like Russ Whitney is they push beginners on to the advanced slopes before they are ready. Instead of telling Casey to go out and buy everything in sight with no money down, they should’ve told him to start tracking several real estate markets, saving his money, and building his credit. Then he could’ve made a highly educated, regularly financed purchase.

From there, he could work his way up. Investors like my father and I rarely go on the beginner slopes anymore because it’s just not fun or as profitable. The difference is, we’ve been doing this for a long time, and we both spent plenty of time on the beginner and intermediate slopes before moving up.

So, if you like the idea of no money down but you’re just getting started in real estate, put the strategy on the back burner for a while. Save your money, prepare your credit, and buy the property the old-fashioned way. Then, when you’ve gone through the motions several times, you can move up to the more advanced strategies and try a no money down deal.