How to Buy a Rental Property With No Money: 10 Strategies for Real Estate Investors

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So you have been dreaming about buying a rental property, but don’t have enough money to put down. Many would say dream on, right? Little do they know that there are ways to invest in real estate without having the money upfront.

But how? The dream seems impossible when you don’t have any cash to put down. However, I’m telling you, it is very much possible. 

Interested? Let’s dive into at least 10 different ways to purchase rental properties with empty pockets in real estate investing.

10 Ways To Buy an Investment Property With No Money

Here are a few options for those looking to invest in real estate—specifically rental properties—but have no money to put down.

1. Partners

Finding a good partner to help fund a deal is one of the best ways to finance a piece of real estate. It’s also one that many investors without a lot of cash begin with. Rather than getting overwhelmed with many different loan options, partnerships offer a more low-key arrangement than going through the loan application process.

Partnerships work because of something we call the “deal delta.” To put together a real estate deal, three things are required:

1. Knowledge
2. Hustle
3. Money

But here’s the thing: You don’t need to provide all three. Instead, partners can make up the difference in what you lack.

I spoke with some friends from church—of all places—who I had known for many years and knew shared an interest in real estate. This couple both worked stable government jobs, had good incomes, and had excellent credit. What they didn’t have was time.

They wanted to get into real estate but lacked the time or “hustle” needed to complete the deal delta. So I proposed a solution: I would take care of the rest if they came up with the initial down payment of $35,000.

I would bring the knowledge and the hustle; they would get the cash for the down payment. We’ve owned this deal for almost six years, and each year, we save up our cash flow until the end of the year, then split everything evenly—50/50.

So take the time needed to find and vet your potential partner. Find someone who fits your style, goals, and ambitions.

2. Seller’s mortgage

Suppose a property owner, Susie, wants to sell her home. As a real estate investor with no money to put down, working on a deal with Susie seems like quite the task. However, there is an option to assume the seller’s mortgage.

For a mortgage assumption, you, the investor, assume the seller’s existing mortgage and make payments on their behalf. Oh, and guess what? The seller’s existing financing is at 3%. Not bad, right?

Keep in mind that if you were to go the conventional financing route, lenders often won’t let you borrow the down payment. It’s almost like they want you to prove you’re worthy of coming up with that money in the first place.

In the case of assuming a seller’s mortgage, you pay the seller separately for any difference and however you want to pay. Read the fine print before taking the mortgage to ensure that there is no due-on-sale clause that prohibits the new buyer from assuming the mortgage.

3. Credit cards

Credit cards have their benefits, whether it’s a super-low interest rate or a free vacation to the Bahamas using reward points. Using a credit card can benefit you in some capacity if used wisely.

Let’s say you use a business card with an initial 0% interest rate and a few cash back reward offers to put down the down payment on an investment property. It may look like this: You purchase a rental property for $200,000 and get a landlord loan for $180,000—you’re left with a balance of $20,000, your down payment. As with many credit cards, there will be a wire advance fee, but you may get cash back, given your credit card’s reward setup.

A word of advice: Pay attention to your no-interest rate term and any fees associated with advances or balance transfers.

4. House hacking

House hacking is a simple, easy way to buy your first investment property. As a beginner real estate investor, you buy a triplex down the street, live in one of the units, and rent out the other two doors.

By renting out the other two doors, you ask for rent covering your own mortgage payments and additional costs, which essentially allows you to live in the house for free.

What if you want to move out? No problem—keep it as a traditional rental property and let that rental income flow in. 

But remember, you have little money to put down on an investment property. No stress! If you plan to have an owner-occupied property, traditional lenders are more likely to offer a lower down payment.

One popular loan program for lower down payments is FHA. FHA loans offer a 3.5% down payment if your credit score exceeds 580.

5. Private money

Yes, it is uncomfortable to ask people for money—especially if you know them. However, as you begin to grow as an investor and build your reputation and portfolio, the people in your life will be more likely to lend you money.

By borrowing private money loans from friends, family members, and other acquaintances for your investment property, you negotiate loan terms that fit both parties.

For example, I receive money at 15% interest thanks to a real estate investing duo I know. Yes, it seems like a lot, considering interest rates are pretty high right now. However, I don’t mind paying the higher interest rate. Why?

The duo didn’t charge for much else in the investment deal. There were no points or closing costs toward the beginning of the loan, and they left the repayment date open. If you think about it, they saved me thousands just in closing costs.

6. Seller financing

Suddenly, you have loan options popping up everywhere—your TV, mobile app, or your computer—because you’ve been “cookied” thanks to the World Wide Web. Have no fear—luckily, you don’t need to turn to a lender to get money.

Purchasing an investment property with no money down doesn’t mean your financing must go through a lender like a bank. Seller financing is another option for investing in rental property. This type of loan is an agreement where the seller is the bank. 

The seller handles the mortgage process instead of a bank or financial institution. The borrower, you, repays the loan as specified in the repayment terms. The repayment terms for seller financing are usually in a formal agreement.

Real estate investors who find a seller with no mortgage are like the gold of all gold because the seller doesn’t have a mortgage burden, and they can make some extra cash by taking on the role of the financier.

7. Hard money loans

A hard money loan is known as a home flipper’s go-to. These nonconforming loans are generally provided by private money lenders, individual real estate investors, or groups that provide money up front for short-term borrowing.

Most of the time, hard money lenders offer high interest rates and short terms. If you find a deal on a fixer-upper and qualify for a hard money loan, purchasing it with little to no down payment is possible.

Remember, hard money lenders are typically not as strict as traditional mortgage lenders, making it even more attractive to someone who wants to invest in property with no money.

8. Cash out refinance

You have a primary residence and want to invest in a few rental properties. You can use your home’s equity for something called cash-out refinancing.

A cash out refinance allows you to take out another mortgage for a higher amount than you owe. Then you use the extra loan amount as a lump sum of cash to put into another real estate investment, possibly even using it as a down payment.

If you have enough equity in your home, you can take it out for real estate investing so that you have enough money to buy that next piece of property you’ve been eyeing.

9. Gap lenders

These lenders cover the down payment for your next real estate investment and will take partial ownership interest in the property in exchange for covering some or all of your down payment. The catch? This real estate deal has excessively high interest rates and fees to cover its high risk.

Gap funding is very costly. If you can’t use your own money, consider discussing a real estate deal with a gap lender. But be careful—these particular deals come at quite a price.

10. The BRRRR method

The BRRRR is a traditional method that stands for buy, renovate, rent, refinance, and repeat.

This one is a little tricky, as you’ll need to follow through with one of the above methods before diving into this one.

Let’s say you spot a fixer-upper down the road from you. I mean, this house looks like it’s about to collapse. At the time, you have no money. So, you use one of these methods, like a hard money loan, to purchase the property.

Keep in mind that the houses that look like they’ve been abandoned for 25 years are typically discounted substantially. So you ask your hard money lender, Tommy, for $60,000.

Let’s say you’re a superstar negotiator and you get the property for $45,000. It’s time to renovate. We’ve got two options here; one will obviously cost you more than the other. You can hire contractors, or if you’re super handy, do the work yourself using the $15,000 left over from the hard money loan to renovate the property.

Whatever you do, the ultimate goal is to get to the next step: renting.

Once you rent out the property to tenants, you opt to do a cash out refinance on the rental property. Through this refinance, the loan is based on the property’s increased value since you originally purchased it. 

Guess what? The property is now worth $100,000. With that $100,000, you can now pay Tommy his initial investment of $60,000 and opt to use the additional $40,000 for possibly more investment properties.

Rinse, wash, and repeat this method to continuously build your real estate portfolio.

Which Strategy Will You Choose?

It’s tough to see the positive when you don’t have any money to put down on an investment property. If you are interested in real estate investing and explicitly interested in buying rental properties, you can do so without any money.

From house hacking to seller financing to diving into your own home’s home equity, there are multiple options to start investing in real estate without using your own money.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.