Borrow the Money

Probably the easiest way to purchase a property with no money down is by borrowing the down payment. Either find a lender offering a low interest rate, or use a home equity or other line of credit loan, which will still have the tax benefits of a normal mortgage.

You can also borrow from your real estate broker—arrange to borrow the broker’s commission for a short time and use those funds for the down payment.

Calculate Operating Expenses

Operating expenses on your new property will be between 35% and 80% of your gross operating income. If you charge $1,500 for rent and your expenses come in at $600 per month, you’re at 40% for operating expenses. For an even easier calculation, use the 50% rule. If the rent you charge is $2,000 per month, expect to pay $1,000 in total expenses.


Factor in Unexpected Costs

It’s not just maintenance and upkeep costs that will eat into your rental income. There’s always the potential for an emergency to crop up—roof damage from a hurricane, for instance, or burst pipes that destroy a kitchen floor. Plan to set aside 20% to 30% of your rental income for these types of costs so you have a fund to pay for timely repairs.

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8. Hard money loan

House flippers are known for using hard money lenders to help them house hack into a real estate deal.

Hard money loans are non-conforming loans that are generally provided by private lenders, individual investors, or groups who offer money upfront for short-term borrowing.

It’s private money lent with high interest rates and short terms, and this loan option allows investors to secure financing based on the property’s current or even future value.

Hard money lenders may pull your credit score, but the underwriting process is typically less strict than with a traditional mortgage loan.

If you find a deal on a fixer upper, and you qualify for a hard money lender’s loan-to-value guidelines, you may be able purchase with little or no money down.

“If you are buying an investment property, you will need collateral, such as a separate property, going this route,” says Meyer.

How to Get Continuous Real Estate Financing

One thing that helped my wife and me is to buy our rental properties separately, under our own personal names, instead of under a joint title.

As far as I’m aware, this is possible in most states (or at least where we invest in). What this did was double our conventional mortgage limit, compared to buying everything as a couple or alone. We can still max out, but not until much later. When we feel we’re approaching this point, it will be time to look for alternative solutions.

These two options are the easiest to find, in my opinion:

  • Commercial loans. Although we started with buying single-family homes, we ultimately transitioned to buying residential multi-family buildings (2-4 units) and are now looking into larger 15-20+ unit complexes. Because of that, we switched to commercial financing. There are hundreds of banks that offer it across the country with different rates, terms, and requirements. I was even able to find a lender who finances 2-4 units with a 25-year amortization period—all you have to do is look and ask around.
  • Portfolio loans. Similar to conventional loans, portfolio loans are much more flexible than conventional mortgages and the terms will depend on the lender. You can often use these to finance single-family homes or entire “packages” of properties. You’ll have to do some online searching or networking with other investors to find these, but once you establish a relationship with a portfolio lender, it will open up almost unlimited financing options.

There are definitely other financing options out there, like seller financing or private money. I don’t have experience with them, so I can’t comment on their effectiveness, but your overall strategy will usually remain the same: Stick with conventional mortgages as long as you can, then start looking for alternative financing options.

A Personal Journey of Becoming a Landlord With Little to No Money

Meet Julie, CEO of Julie Aragon Lending Team, a housing finance expert and avid property investor. Here is her tale of her buying her first piece of real estate.

"The first investment property I had was using the FHA loan to buy a duplex. I still have that property, and it's had positive cash flow for years (currently over $1K/month in profit). The funny thing is that I wasn't even in the market for an investment property, but my friend was the agent who set the deal up, and she promised to manage the property if any issues came up.

To be honest, though, the low down payment is what made it a no-brainer. It required so little work that for the first 5 years, I owned it. I only visited the property once…talk about passive income!"

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The bottom line

Real estate investing can seem intimidating at first. Not everyone has the time or ability to flip houses or handle having a tenant. The good news is there are options available for every level of investor, with each catering to different goals, skill levels, and time constraints. The most important thing to do is get started today and let your investment start compounding now.

Exchange Property

If you already own property, you may want to exchange it for another property. You could either exchange the property with a buyer, or use it in combination with a small amount of cash to obtain the property you want.

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Real Estate Partnerships

You don’t have to go into a real estate investment alone. Buying a rental investment property with no money down can also be done with a real estate partner. In a real estate partnership, you and your real estate partner agree to share ownership of a property. If you don’t have enough money to put down, you can find a trustworthy investing partner who can help you out financially.

A real estate partner could be family members, friends, or colleagues. You could also work with a private lending company. These companies offer loans similar to a bank but offer more flexibility. One of the best partnerships you could enter into as a first time investor is with a more experienced real estate investor that can help you out financially, as well help show you the ropes of rental properties.

Rent Out Your Own Property House Hacking

House Hacking is an alternative to traditional rental income that has been gaining popularity in recent years.

It is the practice of renting out a portion of your house to cover the Mortgage or other costs associated with owning a home. It can also be defined as purchasing a home near your current residence and renting it out while living in the main house. This allows you to avoid paying for two mortgages or having the equity tied up in two homes.

An excellent way to rent out a portion of your house is through Air BnB. This platform is also great for vacation rentals. When you become more established as a landlord having a vacation rental is a great way to diversify your portfolio.

House hacking makes it possible for future landlords to have the best of both worlds. They can enjoy the benefits of homeownership and get into investing at the same time.

This is not just a way to buy homes. It's also an investment technique that can help people who don't have enough cash to purchase real estate properties and own them.

The idea of living in a home you're renting out may sound very appealing if you're willing to put in the work and spend more time at home. It can be cheaper than renting space elsewhere too.

Given these points, house hacking is an opportunistic strategy for looking for ways to become a landlord with little or no money. It's also a great way to get into real estate investing without the hassle of property management or building equity from scratch.

  • Pros – House hacking is a simple way of owning a home without paying the full price. It offers a way for landlords to reduce or even eliminate their costs associated with the rental while also investing in the property. It requires minimal time, money, and effort.
  • Cons – House hacking is not legal in all areas. You might not get tax breaks as regular homeowners do, and you should be well informed of insurance implications and potential liability before renting out your own property.

The highest risk comes from the tenants. If they don't pay the rent, that could leave the landlord without an income and no place to live.

1. Invest in a new home and make your primary residence a rental

If you already own a home, you’re ahead of the game.

One of the more common ways to become a real estate investor is by turning your current primary residence into a rental property.

There are significant advantages to “backing into your first rental property” this way.

  • Traditional investment property loans require a larger down payment and come with higher interest rates. Often times, you can expect a 20% down payment requirement
  • The interest rate on an investment property is generally higher than the rate on your primary residence by a half percent or more

So the investment strategy is: Rent out your current home, and finance the next home you buy as a primary residence (meaning, you’ll be living there full time).

That way, you pay a lower interest rate on both properties. And if you’re still making mortgage payments on that first home, you can use the income you make from rent to cover part or all of the mortgage.

“Be prepared to provide a letter of explanation,” notes Jon Meyer, The Mortgage Reports loan expert and licensed MLO. “It may be requested depending on how long you have been in the original home.”

Benefits of a No Money Down Investment Property

The benefits of having more of your money as you take on an investment property aren’t too hard to imagine. For starters, you’ll be able to buy sooner. The biggest holdup for aspiring rental property owners is having the cash upfront to proceed. With no money down and 100% financing, you can get the money you need with the ability to pay it off gradually over time, allowing you to pull the trigger sooner — and more confidently.

This is especially true if you’re looking to flip Secondly, “cash is king.” It’s the most valuable investment tool you have. With more cash in your pocket, you’ll have better buying power to maximize your investment goals. You can better find a property you want in an area you want without upfront costs draining you dry. And by staying liquid, you’ll be able to prepare for the not-so-fun parts of owning an investment property. From pest control, maintenance, and repairs like a leaky faucet or broken light, to big emergencies like gas leaks or flooding, cash reserves keep you from diving into the red.

This is especially true if you’re looking to flip your investment. Between insurance, rehab fees, and permits, not to mention unwanted surprises hidden behind walls and under tiles, your total investment cost isn’t always predictable. It’s important to have a little extra for any unexpected costs.

And if the goal is to own another investment property in the near future, staying liquid could be the difference between buying in a year or waiting for another ten. When you’re not using all your cash to pay for this first investment mortgage, you can control when it’s time to invest again.

Avoid Becoming House-Poor

There is a phrase in real estate and finance called “house-poor.” The term describes people who stretch themselves too thin when buying a home and are left without any emergency money. When unexpected events happen, such as a job loss or broken appliance, these homeowners are in such a tight spot financially that it is difficult to recover. Unfortunately, this is all too common when attempting to invest in real estate with no money.

There are a few ways to avoid being backed into a corner financially when purchasing real estate. It is always a good idea to keep your emergency fund separate from other money and not include it in your estimates when buying a house. That way, if anything were to happen, you have funds you can rely on. In some cases reserving your emergency money may force you to make a smaller down payment than you want. Remember that even if you are required to get mortgage insurance initially, you can always refinance down the road when you have more equity in the home.

Hard Equity Line of Credit

Leveraging your property with a hard equity line of credit (HELOC) is another way to buy rental properties with no money down. HELOC loans allow buyers to use existing equity in their current home as collateral towards the new home. Buyers will receive a lump-sum payment and repay the loan with a fixed-rate interest over a set period of time.

By accessing their home equity, buyers don’t have to pull money out of their pocket to buy a new property. Instead, they can use these funds to finance a new down payment and acquire a rental property. With more rental properties and more capital growth, your equity will grow faster allowing you to acquire more properties and build your rental portfolio with ease.

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