Buy an Investment Property with No Money Down
You’ve heard a lot about the benefits of real estate investing, but you’re not sure how regular folks do it without a generous head start. We get it- it can be daunting starting an expensive venture when you have the financial profile of an ordinary person. But here’s the good news- every successful person has had their era of struggle, and there are ways to buy an investment property with little or no money down.
How to Buy an Investment Property with No Money Down (or Little Down)
Buying an investment property with no money down is easier if you are already a homeowner, but there are also ways to invest without owning a home. We will share what options you have when you don’t have a lot of your own money in the bank to buy rental properties.
For Non-Homeowners
If you don’t own a home, you can still get an investment property. With a decent credit score, ability to handle closing costs and stick to a repayment schedule, you can become a real estate investor without bringing a huge down payment at closing.
Here are the options you have — from simplest to not-so-simple. As with all financial decisions, please speak with a financial planner before making any big moves.
1. Buy a property with a 0% down mortgage.
Let’s start with the lowest risk option first. Getting a home with a 0% mortgage, whether it’s a VA loan or USDA loan, is a sure way to get a home without needing a huge down payment — or any at all. As a non-homeowner, you may decide to continue to rent and treat this property as an investment, or you can move into this house, pay down the loan for equity, then use that equity toward your future investments.
You’ll get better interest rates when you have good credit. This also maximizes your chance of profiting with rental income since your mortgage payment will be lower compared to more high interest rate borrowing.
2. Use seller financing.
Seller or owner financing is a viable alternative to getting a mortgage through a lender. In this agreement, you pay installment payments to the seller. It’s ideal for individuals who don’t have a mortgage anymore and are looking for cash flow. You’ll need a lawyer to work out all the details, but you may be able to make a deal without a big (or any) down payment.
3. Get a rent-to-own home.
If you want a soft start to build equity or to own a property that you can turn into an investment tin the future, rent-to-own is another lesser-known option. With this option, the property owner charges you a monthly rent that is slightly higher than market value, and the lease to own contract may include an “option fee” if you want the choice to back out. Your extra rent credits go toward
4. Assume someone else’s mortgage.
This is another one of the lesser-known ways of obtaining a property. If you find someone who doesn’t want to continue their mortgage payments but also doesn’t want to go through the process of selling, then you can use this option. An assumable mortgage lets you take over an existing mortgage with little to no change in the interest rate — a big deal in the age of 8%. In exchange, you’ll inherit the property’s title and become the new owner.
Voila! Now you have an investment property (or a home you can live in and use for equity to invest later). For more details on what types of loans allow assumable mortgages, LendingTree did a great job explaining it all. There a few financial caveats to consider with this method, such as paying for gained equity, so it’s not always the first choice. But it is an option to purchasing the home.
5. Borrow from a family member.
We didn’t list this as number one because the typical homebuyer goes through banks and lenders. However, you can take advantage of family wealth if you have a relative who is willing to give you a head start. If you can go this route instead of paying back a conventional loan or another seller’s mortgage, then you can potentially pay off the purchase price of the investment a lot faster without interest- or a down payment.
6. Use a credit card.
As you can see, we saved the less-recommended route for last. You can potentially open a high limit credit card toward a down payment and flip a house to sell before your interest rates kick in. Risky, not the safest option, but definitely a choice if you want to start ASAP. Please talk with a financial advisor before doing this. We’re only saying it because it has been done before.
For Homeowners
Owning a home with equity gives you a considerable advantage when you want to buy a property with no money down. To start out, people often borrow against their home as a prime investment strategy.
1. Use a home equity loan.
Homes build equity over time as you pay down its loan and it appreciates. If you have enough of a gap between what you owe and your home’s market value, then you can borrow against that sum with a home equity line of credit (HELOC). Use this line of credit to get the down payment you need toward a loan to buy an investment property. Instead of saving up for years, you have the money right there.
You can also use a cash-out refinance. Though refinancing is not advisable if you bought at a lower interest rate, it is an option if you have considerable equity and are able to pay off your loan without resetting the clock 30 years.
2. Buy a new home and turn your first home into a rental.
Did you know that one of the more common ways of owning an investment is simply turning your first home into a rental? Buy a new home and turn your once primary residence into an investment, making it down-payment free. It’s a win-win because you get a new home that suits your needs, and you can keep building equity with your first rental property. So many people get a start this way that it’s worth mentioning.
3. Get a hard money loan.
Hard money loans are excellent short-term financing options for investors who want to fix and flip homes. Since these typically have higher interest rates, you shouldn’t keep paying these back long term.
To pursue this option, find a fixer-upper and see if you can qualify for your hard money lender’s loan-to-value guidelines. This will enable you to buy the home with little to nothing down. Typically, with this option, you need to provide some kind of collateral, such as your home.
Before you commit to a hard money loan, make sure your flip will earn enough money to at least pay back the loan amount. Your ultimate goal should be to profit, so if the numbers don’t work out, don’t do it.
- Note: If you want to find a hard money loan specifically for investors, then check out Mino Lending Solutions. We like them a lot. They have so many other lending choices to meet your particular financing needs.
Buy an Investment Property with No Money Down
Many of us aren’t born rich, but we can achieve financial freedom with hard work, dedication, and a little financial help. If you’ve been interested in finding a way to kickstart your investment journey, reach out to us and we can set up an appointment to explore all your options.
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