How To Buy Rental Property With No Money Down In 2024 (2024)

Learn how to buy investment property with no money down

You’re not alone if you’re wondering how to buy a rental property with no money down. Many aspiring real estate investors start with little cash flow.

Believe it or not, your current financial situation might not be a barrier.

Learning how to invest in real estate with no money opens opportunities for both renters and homeowners to become investors, building wealth through home equity despite having little or no down payment.

In this article (Skip to...)

• Buying rental property with no money
• 11 no-money strategies
• Pros and cons
• Choosing the right strategy
• FAQ

Can you buy a rental property with no money down?

Yes, you can buy a rental property with no money down.

When house flippers, home buyers, and investors employ the “no money down” strategy, they’re essentially acquiring real estate without committing a significant portion of their own money into the initial costs of a rental property.

While buying a property the traditional way usually requires a sizable upfront investment, knowing how to buy a rental property without any money down can streamline your investment strategy. Moreover, real estate investors might find that using minimal personal funds to purchase rental properties can lead to a more favorable return on investment (ROI).

Exploring alternative financing options, such as leveraging home equity, securing investment property loans with no down payment, or partnering with co-borrowers, provides a potential path into the real estate market, especially when personal savings are limited.

11 ways to buy a rental property with no money down

1. Rent out your primary residence

If you already own a home, you’re ahead of the game. One of the more common ways to become a real estate investor is by turning your current primary residence into a rental property. There are significant advantages to “backing into your first rental property” this way.

• Traditional investment property loans require a larger down payment and come with higher interest rates. You can typically expect a 20% down payment requirement.
• The interest rate on an investment property is generally higher than the rate on your primary residence by a half percent or more.

The investment strategy is to rent out your current home and finance the next home you buy as a primary residence (meaning you’ll be living there full time). That way, you pay a lower interest rate on both properties. And if you’re still making mortgage payments on that first home, you can use the income you make from rent to cover part or all of the mortgage.

“Be prepared to provide a letter of explanation,” notes Jon Meyer, loan expert and licensed MLO. “It may be requested depending on how long you have been in the original home.”

2. Leverage your home equity

If you own a home but prefer not to rent it out, using your home’s equity to buy property with no money down could be a viable option.

Home equity refers to the difference between your home’s current market value and the amount you owe on it. By tapping your home equity, you may find that you have enough money to not only cover a significant down payment but possibly to buy an investment property outright, depending on the amount of equity available.

To tap your home equity to buy an investment property, you have several options.

Home equity loan

A home equity loan provides you with a lump sum of money upfront, which you then pay back over time with fixed monthly payments, much like your original mortgage loan. This can be especially helpful as it gives you a defined, budgetable amount to use for the down payment on an investment property.

Home equity line of credit (HELOC)

A HELOC offers flexible access to funds by turning your home’s equity into a credit line. It’s akin to having a credit card with a limit based on your property’s equity, allowing for withdrawals as needed within the draw period. This makes HELOCs ideal for managing the varying costs associated with purchasing an investment property, offering a convenient way to access funds.

Cash-out refinance

A cash-out refinance replaces your existing mortgage with a new loan for more than you owe on your home, allowing you to take the difference in cash. It’s an effective way to access a large amount of money from your home equity to put towards buying an investment property.

Cash-out refinancing is available for both conventional loans and government-backed loans, providing homeowners with various options to access their equity for investment opportunities, regardless of their loan type.

3. Consider house hacking

Your primary residence doesn’t have to be a single-family home. Multifamily homes can be a great way for novice real estate investors and aspiring property managers to get started buying properties that generate income.

House hacking involves purchasing a multifamily home, residing in one unit, and renting out the others. For instance, if you buy a duplex, triplex, or quadplex, you would live in one unit, while tenants would rent the remaining one, two, or three units.

Most house hackers look for a good real estate deal on a 2-4 unit property and live in one unit while renting out the others. They then use the rent payments to help offset mortgage payments.

An FHA or VA loan can make the purchase of such multi-unit properties more accessible and favorable. In fact, VA loans have no minimum down payment requirement, and FHA loans only require 3.5% of the purchase price as a down payment for borrowers with good credit. House hacking is particularly accessible with an FHA 203k loan, which is designed for fixer-uppers.

These options, along with potential gift funds or down payment assistance, minimize upfront costs significantly compared to the traditional 20% down payment, aiding those exploring how to buy a rental property with minimal financial start-up funds.

If you’re investigating how to buy a rental property with no money, consider house hacking with

4. Try the BRRRR Method

The BRRRR strategy refers to a traditional real estate investment strategy that requires initial cash but provides returns later. The acronym BRRRR stands for “buy, renovate, rent, refinance, and repeat.”

Here is how the method works:

1. Buy: You acquire a distressed property that needs remodeling with a renovation loan. The goal here is to find a property that, after some improvements, can generate a higher rent than its current condition.
2. Rehab: The second step is rehabbing, or renovating, the property. This could involve minor cosmetic updates or major structural fixes. The aim is to improve the property’s condition and thus increase its value.
3. Rent: Once the property has been improved, it is rented out to tenants. The rent collected should ideally cover all expenses, such as mortgage payments, insurance, property taxes, and any maintenance costs.
4. Refinance: After the property has been rented, you then refinance the property with a new mortgage. The new loan is ideally based on the property’s increased value post-rehab. In many cases, the new loan will be large enough to pay off the original mortgage used to purchase the property and cover the renovation costs.
5. Repeat: The final step is simply to repeat the process with a new property. The cash-out funds from the refinance step are used to purchase another distressed property, and the cycle begins again.

The BRRRR method can be a powerful strategy for those who are exploring how to buy a rental property with no money down, but it does require significant real estate and financial knowledge to execute effectively. It also comes with risks, such as unexpected renovation costs, difficulty refinancing, or problems finding tenants. It’s important to do thorough research and possibly seek professional advice before embarking on this strategy.

5. Purchase with a co-borrower

If you’re keen on investing in rental properties but lack the funds for a down payment or closing costs, consider partnering with a friend who has the capital but not the time to learn about property investment.

By becoming co-borrowers, this arrangement allows both of you to pool resources and share the responsibilities and benefits of ownership, including monthly payments, rental income, and equity growth. This collaboration could serve as a practical solution, enabling you to embark on your investment journey together.

When considering how to buy a rental property with no money, remember that a co-borrower can be more than just a friend. They can also be a family member or even a stranger willing to act solely as a business partner in your real estate venture.

6. Look into a rent-to-own home

If a traditional mortgage is not suited to your financial situation, another proven way to invest in real estate with no money is through what’s known as a lease option, commonly referred to as a rent-to-own home.

With lease option agreements, the property owner charges the buyer a monthly or yearly premium in the form of higher rental payments. The excess rental fee will then be channeled towards the purchase price of the home.

This setup may require paying a slightly higher rental fee, but it enables an investment path in real estate under less conventional financial circ*mstances.

7. Assume an existing mortgage

An assumable mortgage is one where the buyer can take over the seller’s mortgage, typically with little to no change in terms or interest rate. Basically, the buyer receives the title to a property in return for making monthly payments on the seller’s mortgage.

Using the seller’s existing financing can be especially effective if the current loan has a low interest rate. But keep in mind that this scenario requires a bit more research.

In particular, you will want to make sure there is no due-on-sale clause. This type of clause prohibits the new buyer from assuming the mortgage. And more often than not, assuming a mortgage will require lender approval. So you’ll still have to prove your creditworthiness and fill out some paperwork.

8. Watch for seller financing

Another way to acquire property with no money down is with help from the seller. Known as “owner financing" or “seller financing,” this type of loan is an agreement where the seller handles the mortgage process instead of a financial institution. The borrower repays the loan as specified in its repayment terms, which are detailed in the formal agreement.

This works especially well with sellers who have no mortgage. For example, this can happen when someone inherits a property and does not want to keep it.

For sellers who are willing to take on the role of financier, owner financing can help sellers move a home faster with sizable returns on their investment.

9. Try a hard-money loan

House flippers often turn to hard money lenders—private individuals, investors, or organizations—for financing fixer-uppers. That’s because hard money loans and private money are often lent with less stringent underwriting compared to traditional mortgages.

Hard-money loans prioritize the value of the property over the credit score of the borrower and have high interest rates and short terms. If a fixer-upper meets a lender’s loan-to-value criteria, you might secure it with minimal or no down payment.

Also, “if you are buying an investment property, you will need collateral, such as a separate property, to go this route,” says Meyer.

10. Consider a gap lender

Gap lenders step in to finance the down payment on your real estate investment in exchange for a partial ownership stake in the property. While this option offers an immediate solution to funding hurdles, it’s important to note the high interest rates and fees attached.

Considering gap funding? Be aware that it’s an expensive route. If leveraging your own funds isn’t feasible, a discussion with a gap lender is worth exploring. Yet, exercise caution, as the financial burden of these agreements can be substantial.

11. Use a credit card

Using a credit card to buy a rental property can be quite risky due to the high interest rates and potential for mounting debt. However, it may be a feasible short-term solution in some situations, especially for relatively small amounts needed to close a deal.

For house flippers looking to maximize their home buying budget, reallocating renovation funds towards the down payment and using a credit card for updates and repairs can be a strategic move. This approach allows for an immediate start on renovations, potentially increasing the property value quicker.

However, to circumvent the burden of high interest rates for renovation expenses, considering a HELOC could be a more cost-effective strategy. A HELOC typically offers lower interest rates and can provide a flexible funding source for repairs, reducing the overall financial risk and increasing the potential for profit.

Pros and cons of buying rental property with no money down

When it comes to real estate investment, the idea of buying a rental property with no money down can be very appealing. However, like any investment strategy, it has its own set of advantages and challenges.

Pros:

• Minimal initial investment: One of the biggest advantages is the low barrier to entry. You can start investing in real estate without needing a significant loan amount upfront, making it accessible for many aspiring investors. This is particularly true for owner-occupied properties, where living in one unit while renting out others can significantly reduce costs.
• Potential for higher returns: With little to no initial investment, the potential return on your investment can be significant. This leverage can amplify your profits as the value of the property appreciates over time, especially in multifamily properties that can generate considerable passive income.
• Learning opportunities: Starting with a no-money-down approach can be a great learning experience. It forces you to be creative with financing, perhaps utilizing private lenders, and to deeply understand the market and property investment strategies.

Cons:

• Higher risk: Purchasing a property with no money down often means taking on more debt, which can increase financial risk. If the property value decreases or if you face difficulties with tenants in multifamily properties, you might end up owing more than the property is worth.
• Dependence on financing: This approach heavily relies on finding lenders willing to finance the entire purchase price, which can be challenging. Loan terms from private lenders might also be less favorable compared to traditional lenders.
• Potential for negative cash flow: If the rental income from your property investment does not cover your mortgage payments and other expenses, you might face negative cash flow. This can put financial strain on your investment and personal finances.

While exploring how to buy a rental property with no money down can be a gateway to real estate investing and generating passive income, it’s important to weigh the potential risks against the benefits. Proper research, understanding of the real estate market, and careful planning are essential to succeed in this investment approach.

How to choose the right no-money-down strategy for you

If you’ve been binge-listening to real estate investing podcasts about how to buy property with no money, you might be buzzing with excitement. While these strategies can be powerful tools for building wealth, the reality often differs from the polished success stories you hear through your earbuds. Let’s break down how to choose the right approach for your unique situation.

Assessing your financial situation and risk tolerance

Before diving into any no-money-down strategy, it’s important to take an honest look at your financial health and appetite for risk.

• Credit score: Many no-money-down strategies still require good credit. Check your score and address any issues before proceeding.
• Income stability: Assess your income sources. Lenders and sellers will scrutinize your ability to make payments, even without a down payment.
• Existing debts: Calculate your debt-to-income ratio. High existing debts can limit your options and increase your risk.
• Cash reserves: While you’re not making a down payment, you’ll need reserves for unexpected expenses. Be realistic about what you can set aside.
• Time and effort capacity: Some strategies, like house hacking or the BRRRR method, require significant time and effort. Be honest about what you can commit to.

Remember, those podcast success stories often gloss over the sleepless nights and close calls. Your risk tolerance should align with your current life situation and long-term goals, especially when considering how to buy your first investment property with no money.

Matching strategies to your investment goals

Once you’ve assessed your situation, it’s time to align strategies with your objectives. Here’s how different goals match up with no-money-down approaches:

1. Goal: Generate immediate rental income

• Strategy: House Hacking
• Why: Live in one unit while renting out others, covering your mortgage, and potentially generating extra income.

2. Goal: Build long-term wealth

• Strategy: BRRRR Method
• Why: It allows you to recycle capital and potentially build a large portfolio over time.

3. Goal: Flip properties for quick profit

• Strategy: Hard money loans or private money lenders
• Why: These strategies can provide fast funding for short-term investments, allowing you to purchase, improve, and sell properties quickly for profit.

4. Goal: Secure a primary residence with investment potential

• Strategy: FHA loan with gift funds
• Why: Low down payment requirements and the ability to purchase 2-4 unit properties, living in one unit while renting out the others. Note: The FHA requires you to occupy one unit as your primary residence.

5. Goal: Invest with minimal financial risk

• Strategy: Lease Options
• Why: Provides control of the property with less financial commitment upfront.

6. Goal: Invest in real estate while building other businesses

• Strategy: Seller Financing
• Why: It often offers more flexible terms, allowing you to balance real estate with other ventures.

Choosing your strategy: How to invest in real estate with no money

When choosing your strategy for how to buy rental property with no money, consider:

• Timeline: How quickly do you need to see returns? Some strategies take longer to pay off than others.
• Scale: Are you looking to acquire one property or build a large portfolio?
• Exit strategy: How easily can you exit the investment if needed? Some no-money-down deals can be harder to walk away from.
• Market conditions: Different strategies work better in different markets. Research your local real estate trends.

Successful real estate investors often combine multiple strategies, adapting as they gain experience. Always conduct thorough due diligence by consulting local professionals, attending investment meetings, and finding mentors.

For those exploring how to get a loan for a rental property with no money down, research specialty lenders, portfolio lenders, and investor-focused programs. As you discover how to invest in real estate with no money, remember that each strategy has unique challenges and opportunities.

Align your approach with your financial situation, risk tolerance, and long-term goals. With persistence, education, and strategic planning, you can creatively enter the real estate market and build wealth over time, even if the journey isn’t as smooth as podcasts suggest.

FAQ: How to buy a rental property with no money down

Discover how to buy a rental property with no money

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