Sure, you can buy rental property with no money—no magic involved but can be a bit complex anyway.
Perhaps, you are anxious to get started as you have probably heard that rent investments can multiply your streams of passive income or create income in the long term. To get started, usually, the need for a high chunk of cash is the common plan. But if there is no saved-up money, that doesn’t mean you can’t invest—depending.
Investing in rental property does require some upfront money, but you can raise the funds through many creative methods. Taking out an FHA loan which requires low down payments, raising a down payment by finding creative means, using your home equity, and many more, are among the various methods.
How to buy rental property with no money
If you would like to start investing in rentals but don’t have a lot of extra cash, you might consider some of the different options below:
1. Consider house hacking
House hacking involves creative ways to generate income from your home. Originally, house hacking referred to buying a multifamily property, occupying one unit, and renting out the others to have the tenants pay the mortgage, while you build equity and maintain the property.
House hacking is a strategy by some people as a start when they are investing for the first time.
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This is a great way to service ongoing mortgage payments. Nevertheless, you might still finance or take a mortgage. If you can get an FHA loan to get good financial security with a minimum down payment, getting started with rental properties is a smart move. You could even house hack a single family home with this guide.
2. Take FHA loans
FHA loans are government-backed mortgage loans you can use to buy a home with looser financial requirements. With a lower credit score or debt, you could qualify for an FHA loan—Rocket Mortgage, LLC. You might even be able to get an FHA loan if you have a bankruptcy or other financial issue on your record.
If you do not have huge capital available to spend but have some savings, FHA can be a good alternative. Getting a good chance on the housing ladder for a relatively low down payment is one of the great things about FHA loans.
With a decent credit score (about 580), you can get a 15-year fixed-rate mortgage at 3.75% interest. For a property of $100k, that amounts to $3,750.
This is a lot better than the investment property rate of 20% required by most banks. However, this loan comes with a caveat—you can only list the house as a rental after first living in it for a year.
You could take a mortgage on a multifamily unit such as a duplex or triplex as an alternative, and rent out the other units while staying in one unit. Purchasing multifamily complexes of up to 4 units is an option FHA loans rules permits.
3. Partner with another person
Consider joining forces with someone who has the money to invest in a rental property. The agreement between you and that party is what a real estate partnership is all about in essence. You just need to find someone who doesn’t have the time to find deals or oversee projects but is financially capable and wants to invest.
You put in the groundwork, including the research, renovations, or property management as part of the deal structure while they provide the money. Put the agreement in writing with a detailed description so that you and the other party are clear about everything.
Family members, friends, or colleagues can partner in the agreement. However, both parties need to understand the need to keep business as a business.
4. Take over the seller’s mortgage
Consider the option of assuming the existing mortgage of the seller. A seller might agree to let you assume payments of their mortgages. Thus, you take over their mortgage payment instead of paying the full price upfront for the property.
However, before agreeing to pay the mortgage make sure you go through the terms. Have in mind that not every loan is transferable, so this method won’t work in all cases.
5. Find a private lender
Instead of taking a bank loan, consider the option of going to a private lender. Hard money lenders or family and friends who have the money but don’t have the time or interest in real estate can become your private lenders. Or try to get them to partner with you to buy the property.
The terms of the contractual agreement should be written out just like in a partnership.
Though their terms might be more flexible and could suit your situation better than what a bank offers, their interest rates can be higher.
6. Consider a hard money loan
Obtain a short-term loan known as a hard money loan from a lending private investor or company. However, you must have a clear repayment plan as the interest rates on hard money loans are much higher normally.
Although you can buy a rental property with no money through a hard money loan, you might not get 100% financing. Your experience plays a role in this method. Some hard money lenders won’t give the money if it’s your first time flipping a house.
7. Follow the BRRRR practice
If this method is done properly, you stand a good chance of making the money fairly quickly and using it for your next investment. However, the BRRRR method involves a bit of upfront money. If you would like to expand your investment portfolio, this is your go-to alternative.
BRRRR means “Buy, Rehab, Rent, Refinance, and Repeat”. If you have a little money to put upfront, this method is a great way to start investing.
You look for a property that needs repairs or renovations and buy it at a bargain. Rent it out after getting it fixed—after the repairs and the six months test, refinance the property through the bank.
The amount of equity you have built in the house will determine the amount you will be able to get back out. You should get some equity as the house will be valued based on the after repairs value (ARV), resulting in a higher valuation.
This method is a great way to get started in investing, though the initial stage requires a bit more work and getting a little more involved. If you’re an investor with the experience and willing to take risks, this is for you.
8. Take a home equity line of credit
Another way to buy rental property with no money is to take a home equity loan or a home equity line of credit (HELOC). However, this option requires you to have a home.
The HELOC works like a credit card while the home equity loan works like a fixed-term loan.
The amount of equity in your home is what is used as the basis for both loans. Homeowners who have been able to accrue equity in their homes are usually eligible for these loans. Home equity is what some investors leverage as a way of funding their first investment in a rental property.
9. Find a rent-to-own home
Most sellers are not interested in this option but it’s another way that works without the money. Here, you can only make rent payments while the mortgage is still paid by the seller.
The purchase price of the property is paid for by the rent payments. You can turn the house into a rental property once you have fully paid for it.
The housing market of today might make this option a bit tricky to find as most houses do not stay on the market long enough, and housing inventory is tight. You can find the option by identifying house listings that have been on the market for long—the sellers might consider your proposed negotiations about rent-to-own.
Now, don’t mistake the idea of “no money” as used here—your pocket will always have to spit some money, but not so much.
Work on improving yourself
You don’t have to be worried if you are not sure of how to get the funds or where to start to buy a rental.
Make yourself eligible for loan terms with low down payment and best interest rates by improving your credit score, as a higher credit score is your best bet. For example, you will qualify for the best terms on an FHA loan with a higher credit score.
Starting to learn all you can about rental property investments is the next thing to do, so you can see and tell a good bargain. A significant part of generating good returns on investments is learning about locations in emerging markets.
Start saving as a final option. You can see that you don’t require much down payment in some of the options, though you require something in most of them. You can have easier buying options when you want to buy by saving even $10,000.
Taking that first step is what matters. Research counts for something, but you can start without feeling that you have to learn and master everything to get the best results.
