Low Down Payment for Rental Property

2 Replies

I am considering buying a place, but lack the down payment.  Seller financing is not an option.  I have about 40-60K to put down, but from what I am reading 25% is normal which means I would be looking more at needing around 100K.  So, the main option I have heard is find a partner.  Contact banks and see what additional loans they can offer with lower down.  Any other advice as I try and get into this business?  Thanks in advance!

Updated over 2 years ago

I should have put this in the first sentence, but I am looking at buying 4-plex and bigger.

@Robert Smoot What kind of rental property are you looking to purchase (i.e. single family, small multi-family (2 - 4 units), large multiple family (5+ units), etc.)? That will dramatically change what financing abilities you have at your disposal. 

For example:

Single family: You will probably be more limited with financing on a single-family because it will have to be a non-owner occupied loan (unless you try and rent out homes). For this reason, most banks will require 20% - 25% as a downpayment. So, like you said, partnering would be one option or getting private lender to cover a downpayment would be another. You'll have more options if you a trying to BRRRR since that will allow you to create equity and refinance out a private lender quickly.

Small multi family: This would open up the doors to house hacking and allow you to get owner occupied financing which will require much less down when compared to a non-owner occupied. I understand there are FHA loans out there that require as little as 3% down and even a 203(k) loan that allows you to roll your repair costs into the loan amount. I would recommend searching around BP to get more information on these options.

Large multi family: Unfortunately, I do not have much insight on the financing aspects of commercial real estate and how you can use these to leverage less money down. I would recommend searching BP for more information. 

Regardless of the route you are taking, just remember that you still need enough cash reserves to handle the unexpected. You don't want to be in a position where you have all your cash tied up in a property and then a furnace goes out and you don't have the cash to repair.

Find a partner! I just bought a 91k 4 unit and had to place a 32k down payment with closing cost. It was commercial so I put 30% LTV. You can also buy a house cash and leverage 60% of the value for a down payment. The value is determined by the appraisal.