Purchasing rental property with No Money Down

11 Replies

A local credit union has given me the opportunity to purchase a rental property with potentially no money up front, no down payment and no out of pocket for repairs needed. It would be a personal loan to offer and purchase with. Then when title is in my name it would switch to a HELOC with a variable 6% interest rate. The term will be 5 years or less and I am looking at the total loan being $25k or less. To me on the surface it looks like a good deal. I'm just seeking input from more experienced investors. Thank You in advance.

@Luke Fernandez it may be a great deal, although we don't have any of the details. What kind of property is it? Why is the credit union so desperate to get rid of it? Are there tenants currently? Are they paying?

From the outside with, admittedly, limited info, I am going to assume that you will need to put a bunch of cash into this property once you acquire it. No one sells a well performing asset for no money down, so there has to be a catch. As long as you know what the catch is, and are ok with it, then I would say go for it. 

@John Warren I am sorry I did leave out some details. The credit union is providing the loan they don't hold the property. Property may be foreclosed or not. There is not a particular property in mind, but an example of possible properties would be a 2 bed 1 bath 700-1000 square foot. Rents would be anywhere from $600-750 a month. All in Costs would be $10k-27k depending on which particular property o would choose. So the return would be great. I am more so asking for input if there is anything that seems abnormal with the credit union giving me that type of loan and maybe what other questions I need to ask if more info should be gathered.

If someone tells me they are buying AND rehabbing a property for 25k, I'm skeptical.  Be sure you are being realistic in your rehab costs.  

But if the deal is as you say then the only downside I see is the variable rate.  If interest rates keep rising you could end up with a more expensive loan.  But that would be an acceptable risk for me if I were given the same terms as you. 

Thank You @Jeremy England , The numbers are legit they are lower income section 8 properties some of which are beautifully recently remodeled. That was my main concern as well the variable rate. But I think I can overlook that. And are listed from 22k-29k. And need nothing there are some that have tenants some do not. But overall I think the loan is an okay deal to go with.

Sounds like an interesting deal! The key to loans like this is to make sure you can force at least 25% equity within the first year and still cash flow a comfortable amount. That will allow you to refinance with a conventional loan at 100% of your investment. If you can't do that, a loan like this can become very dangerous, especially if you don't have other income to support it if things go south. Good luck!

@Luke Fernandez what's the end game with this type of property? Theres likely no appreciation so selling for profit is out. When the HELOC is due, or paid off, do you refinance or just collect cashflow? A SFR that rents for $600/mo is a tough investment. Fixed expenses are always going to eat up a large portion of the income, even when its paid off
@Luke Fernandez if that's the case then, in my opinion, you could put that money to better use. I would leverage that $25k into something more substantial, and make a better return on your investment. Having a $25k property that appreciates slower than inflation, and with very little cashflow, is a slow process and does not allow you to scale well.

Hey Luke!

Did you end up buying your bungalo? I see you are in Missouri.

Me and my team have been in a buying frenzy in the blue hills neighborhood since the end of 2017. What neighborhood are you looking?

You should be really careful where you buy because some of those neighborhoods in KC are decades away from seeing any increase in equity.

Another cheap neighborhood on the up and up is around 60th and indiana.

Also go to community america credit union for mortgages starting at 30k! Spend 5k more and get a better property than a 2bd 1 bath