How To Buy A House With Little Or No Money Down – A lot goes into buying a rental property. But you can’t even start the process without cash for a down payment.
If you don’t have the money, especially if this will be your first rental property, what can you do?
How To Buy A House With Little Or No Money Down
Fortunately, there are some alternative methods that require little or no down payment and can allow you to buy your first rental property sooner.
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You’ll still need cash or a cash equivalent, but with it, you could be on your way to getting your first rental property sooner than you imagined.
Once you’ve checked them out and found the path that works for you, be sure to check out our guide on how to buy a rental property.
It covers everything you need to know to become a rental property investor and landlord, and will help you save time and avoid common mistakes along the way:
If you’re new to rental investing, there’s a lot to consider, so don’t overlook the details: How to Buy a Rental Property: A Step-by-Step Guide.
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Before we get into how to buy a rental property with little or no money down (ie, alternative methods of buying a rental property), let’s talk briefly about the traditional route.
Buying a property with the intention of using it as a rental requires a larger down payment, usually starting from a minimum of 20% down payment up to 30%.
However, there are some ways you can buy a rental with little or no equity up front.
Most methods will require something down one way or another, but there are things you can do to reduce the amount that has to come out of your pocket.
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Below are several methods of buying a rental property with no or very little equity (depending on the method).
One of the most convenient and common, turning your primary residence into a rental property is quite easy.
First, as we talked about earlier, the down payment for a primary residence is less than for a rental property.
So if you buy a new primary home and convert your old primary home into a rental property, you can get around this and save a lot.
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This means you’ll be able to save even more each month on interest by converting, as you’ll be paying two main interest rates per home instead of the typical home and rental rates.
Another option is to purchase a multi-family home, which you can then use as your primary residence while renting out the other units.
You’ll need to be ready to start managing your properties as soon as you move into your new home, which can be a little stressful, but it can be a good way to start.
The benefits here are several, as you can use something like an FHA loan to put very little money down to get the property (often only about 3%).
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Essentially, you’re just putting a down payment on your own primary home as well, meaning you’re essentially paying a super low down payment on a rental and a primary home at the same time.
A HELOC or home equity line of credit is a great option for those who have a primary home with equity.
By using the equity in the property, you can get a HELOC that you can then use as a down payment on a rental property.
This is one of the few methods where you can actually get a rental property with no money down, depending on how much equity you have in your home.
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It is also a bit market dependent, given that you need to have equity. However, if you can use it, you can start investing in a rental with nothing out of pocket.
Another unique option, this one is for those who have someone who can serve as a full or purely financial partner who is willing to get into a rental property with you.
If you are willing to do all the work required to manage the property, you can convince your co-borrower to contribute the money in return.
That way, you can start with little or no money, while they don’t have to spend time learning how to manage a rental property.
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This can be profitable, assuming you have someone who can serve as a good partner and co-borrower.
Hacking is the process of dividing (“hacking”) a single-family residence into a multi-family and renting out the newly created unit, ie. guest house, duplex, etc.
This is usually a fairly quick and easy way to turn part of your property into a profitable rental unit.
Additionally, new legislation passed during the pandemic in many states (such as California) to ease housing burdens has made converting a primary residence easier than ever.
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A less traditional option, rental property programs have become more popular than ever due to the increasing difficulty of finding a home for many families.
The good news is that you can use a rental program for method #1 we covered earlier, just with an extra step.
While not really a “no money down” option, it saves you tens of thousands of dollars in the average case.
But what if you have no property to start with and little or no down payment to get you started?
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Renting allows you to start the home buying process by renting a property that you eventually buy.
Your rent payment will be higher than normal, with a portion of that payment going toward accumulating a down payment over time.
Eventually, once you reach the correct amount after the pre-set period of time, the rental company transfers ownership to you and you’re good to go.
Although this method takes a bit of a longer route, you can get approved without putting any money up front at all depending on the program, making it a good option for those looking to find a long-term rental property.
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Just remember that you have to live in the property as your primary residence to begin with, so it can be a bit of a sacrifice.
What if you don’t have cash, but you have real estate or another item of high value that can be used as collateral and good credit?
Hard cash loans are often used by home flippers because they are an efficient way to quickly obtain short-term financing (usually from a private lender).
Buying a rental property is not easy, so starting with little or no money can make things a lot easier.
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But what about once you have the property, what do you need to know to make sure your investment is a success?
To do this, be sure to check out our guide on how to buy a rental property: A step-by-step guide.
For example, you’ll learn the importance of calculating the fees and other unexpected costs you’ll have to pay as a landlord so they don’t sneak up on you and eat into your rental profits:
Then start with the award-winning property management software to streamline your entire system and simplify the day-to-day management of your new property.
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David is the co-founder and CMO of , a best-selling author, legal CLE speaker, and real estate investor. When he’s not hanging out with his three kids, he’s writing articles here! One of the biggest obstacles to home ownership is not having enough money to put a mortgage on a house at closing. While you may think you won’t be able to buy a home if your savings account is looking a little thin, there are some creative ways you can make it work. From specific loan programs to family gifts and more, chances are good you’ll find a way to make your dream of home ownership a reality.
If you’re planning to buy but trying to limit your out-of-pocket payments, keep these six things in mind as you search for a home and mortgage:
Active duty service members, veterans and their family members are eligible for a VA loan that is backed by the Department of Veterans Affairs. This allows qualified buyers to purchase a home with no down payment and little or no closing costs.
Unlike other loan programs that may require a down payment, the VA loan program has no minimum down payment requirement.
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The VA guaranty fee replaces the mortgage insurance requirement, so it’s a great way to buy a home for those who qualify.
An FHA loan is a popular option that allows buyers to put as little as 3.5% down on a new home, which can be given as a financial gift from family or from a qualified nonprofit or government agency. Sellers can also contribute up to 6% of the home’s sales price toward closing costs.
The great thing about FHA loans is that they have lower down payment requirements and less restrictive qualification criteria, making this a great option for all potential home buyers. But keep in mind that you will have to pay a mortgage insurance premium with this loan program regardless of your down payment.
If you’re a first-time homebuyer, there are so many resources available to help you navigate these unfamiliar waters. Fortunately, there are also some programs available both locally and nationally
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