Buying a rental property is one of the BEST ways to rake in passive income and build long-term wealth. But, if you’re like most Americans, just the thought of putting down tens of thousands of dollars on a property makes you anxious. Thankfully, there are NUMEROUS ways to buy a rental property with no money down, so you can start building a passive income stream even if you don’t have hundreds of thousands in the bank.
8 Ways to Buy a Rental Property with No Money
You’ve heard of putting 20% down on a property. But what about 0% down? Here are some of our favorite ways to invest in real estate without needing bundles of cash:
1. Find Private Money Lenders
Private money lenders are individuals who lend money to real estate investors with the intention of earning a return on their investment. They are often willing to offer loans with little or no money down, making them an excellent option for real estate investors who want to invest in rental properties without using their own capital. A private money lender could be a friend, coworker, parent, or anyone with money who wants to make a return.
2. Try Seller Financing
Many sellers are willing to offer seller financing on their property, including some who aren’t currently in a position to sell. This is ideal for real estate investors who want to buy properties without using their own money. In some states, the seller still technically owns the property until you pay it off, so you can make payments directly to them each month—and when the loan is paid off, you own it outright!
3. Seek Out Partnerships and Joint Ventures
A joint venture is a partnership between two or more parties that agree to share the profits and losses of a business venture. A real estate joint venture allows you to pool your money with another investor, meaning you each have a stake in the property. So, if you know someone who wants to own rentals and has money but no time, you can offer to run the property by yourself and split the profits with your joint venture partner in exchange for them putting up the down payment.
4. Get a Home Equity Line of Credit (HELOC)
A HELOC allows you to borrow against the equity in your home, which is essentially your property’s value minus what you still owe on it. So, if your home is worth $250,000, but you only owe $150,000 on it, then you have $100,000 worth of equity. You can use that money to buy rental properties! But remember, a HELOC should only be used for short-term financing, as most HELOCs only last ten years, while mortgages last fifteen to thirty years (on average).
5. Look Into Government Programs
NACA, USDA, and FHA loans are well-known for their low (and sometimes no) money-down options. But, these loans require a buyer to live in the property. Thankfully, you can buy a multi-unit property with these loans, allowing you to live in one unit and rent out the other, leveraging a low/no-money-down loan with the benefits of cash-flowing real estate (more on this in the section below).
6. House Hack
House hacking is when you buy a property and rent out the other available rooms or units to tenants. You can do this with anything from a single-family home up to a multi-unit apartment complex. If you use a NACA loan, seller financing, private money, or another no-money-down option, you can lower your housing expense AND collect rent checks at the same time! That’s a HUGE win-win!
7. Try Rent-to-Own
Rent-to-own is a popular option for many people to buy their first home. With rent-to-own, you still benefit from owning the property and can even build equity over time. The difference with rent-to-own is that instead of making a down payment on your dream home, you simply make monthly payments towards owning the property. This can be an excellent way to invest in real estate without having much cash up front!
8. Assume a Seller’s Mortgage
Assumable mortgages are a new way to invest in real estate with little money. Of course, you’ll have to talk with a lender about the specifics, but often you can find lenders who will allow you to assume a seller’s mortgage on their property. This means that instead of making a down payment, you take over the remaining balance on their existing loan!
Note: If the loan balance of an assumable mortgage and the home’s value are far apart, be prepared to make up for that difference in cash!
Steps to Take When Buying a Rental With No Money
With all the options available, there’s no excuse not to get your first rental property, EVEN if you’re low on cash. But before you start perusing the MLS for your next property, follow some of these basic rental research steps:
- Research the Property and Market: Knowing your real estate market is CRUCIAL, and you’ll want to ensure that wherever you buy is the best place to own an investment property. Even if you’re putting no money down, a rental in a bad part of town WON’T be worth the headache.
- Develop a Solid Business Plan: Know how your rental will make money, when you want to sell, and how you will increase cash flow/equity. DON’T just assume you’ll sit down and start collecting headache-free rent checks. Look into ways to boost your property’s profits so you can turn one rental into many!
- Build Your Team: No matter where you invest, you’ll need an expert realtor, lender, property management company, handyman, and deal-finder. If all these roles exist where you live, investing close to home may be your best bet!
- Negotiate the BEST Deal Possible: Even if you’re buying with no money down, you’ll want to ensure your mortgage payment, interest rate, and terms allow you to profit. Some sellers will be FAR more motivated by a quick sale/fewer headaches than a higher purchase price. So always get to know your seller’s motivation!
- Secure Financing Through One of the Above Options: Whether you go for rent-to-own, seller financing, assumable mortgages, or private lending, ensure your financing works for your portfolio. Walk through MULTIPLE of these options and pick whichever works best for your specific situation.
Purchasing a Rental Property with No Money IS Possible!
Buying a rental property with no money is possible, but it does take time and patience. You have to be willing to spend hours researching properties, making offers, and negotiating with sellers. When buying a rental property without cash, the most important thing is to find the right deal for you: one that will provide a long-term return on investment while allowing room for your portfolio to grow over time.
And remember, in today’s economic climate, with high rates and fewer buyers, a motivated seller may be in a PERFECT position to try out one of these options. So next time you find a killer deal, see if you can get creative without using your cash!
