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Buying a rental house costs a lot. But the process cannot be started without money for the down payment.
How Much Money To Buy Rental Property
What can you do if you don’t have money, especially if this is your first rental property?
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Fortunately, there are some alternatives that don’t require a down payment and will allow you to buy your first rental property quickly.
You’ll still need cash or cash equivalents, but with that you can move into your first rental property sooner than you think.
Once you’ve checked them out and found your path, 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:
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If you’re new to rental investing, there’s a lot to consider, so don’t skimp on the details: How to Buy a Rental Property: A Step-by-Step Guide.
Before looking at how to buy a rental with little or no money down (ie, alternative methods of buying a rental property), let’s talk briefly about the traditional way.
Renting out a property requires a large down payment, usually a minimum deposit of 20% to 30%.
However, there are some ways to rent with little or no money of your own initially.
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Most methods require a deductible in some way, but there are things you can do to lower the amount you’ll have to out-of-pocket.
Below are several methods of buying a rental property without your own money (depending on the method).
One of the most convenient and common, it is very easy to convert your primary residence into a rental property.
First, as we talked about earlier, the down payment for a primary residence is lower than for a rental property.
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So, if you buy a new primary residence and convert your old primary residence into a rental property, you can avoid that and save a lot of money.
That means you’ll save more in interest each month by switching because you’ll be paying two primary occupancy-level interest rates instead of the usual rates for one primary residence and rent.
Another option is to purchase a multi-family home that you use as your primary residence while renting out other units.
You should be ready to start your property management as soon as you move into your new home, which can be a little stressful, but it’s a great way to get started.
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The benefits here are manifold, as you can use something like an FHA loan to own the property (often around 3%).
You’re essentially making a down payment on your own primary residence as well, meaning you’re paying a very low down payment on both the rental and the primary residence at the same time.
A HELOC or home equity loan is a great option for primary residence owners with equity.
By using property equity, you can get a HELOC, which is used as a down payment on a rental property.
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Depending on how much equity you have in your home, this is one of the few ways to get a rental property with no money down.
It depends on the market as you have to have stock. However, if you can take advantage of it, you can start your rental investment out of pocket.
Another unique option is someone who can serve as a full or strict financial partner and is willing to move into a rental property with you.
If you are willing to do all the work required to manage the property, you may be able to convince your co-borrower to transfer the money.
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This way, you don’t have to spend time learning how to manage a rental property and can start with little or no money.
Assuming you have someone who can work with you as a good partner and co-borrower, it’s a win-win.
House hacking is the act of subdividing a single-family residence into multiple households (“hacking”) to rent out a newly constructed guest house, duplex, etc.
It’s a quick and easy way to turn part of your property into an income-generating rental unit.
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Additionally, new legislation passed in many states (such as CA) during the pandemic has made it easier than ever to move a primary residence in order to reduce housing burdens.
Due to the difficulty of affording a home for many families, the non-traditional option, rent-to-own property schemes, has become more popular than ever.
The good news is that with an extra step, we can use the rent-to-own plan for method #1 we mentioned earlier.
Although not really a ‘no money’ option, it saves tens of thousands of dollars in the average case.
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But what if you don’t have a property to begin with or a small down payment to get started?
Rent-to-own allows you to start the home buying process by renting a property that you will eventually buy.
Your rent payment will be higher than usual, and a portion of that payment will go toward paying down the down payment over time.
Finally, once you reach the right amount after a predetermined period, the rent-to-own company transfers ownership to you, and you’re done.
Want To Know How To Buy Rental Property With No Money Down?
Although this method is a bit of a long road, depending on the scheme you can get approval without putting any money upfront, making it a good option for those who want to get into rental property for long-term purposes.
Remember that you will need to live in the property as your primary residence in the first place, so this can be a sacrifice.
What if you don’t have cash, but have a property or other high-value item that can be used as collateral and have good credit?
Hard money loans are often used by house flippers because they are a great way to get short-term financing quickly (usually from a private lender).
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Buying a rental property is not easy, so starting with a small amount of money will make things much easier, and if you want to know more about how to buy a rental property from scratch, this article will be very helpful.
But if you own the property, what do you need to know to ensure your investment is successful?
For that, check out our guide on how to buy a rental property: A step-by-step guide.
For example, you’ll learn the importance of accounting for fees and other unexpected expenses you’ll pay as a landlord so they don’t surprise you by eating into your rental profits:
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Then, get started with award-winning property management software to streamline your entire system and simplify the day-to-day management of your new property.
David is a co-founder and CMO, best-selling author, legal CLE speaker, and real estate investor. When she’s not hanging with her three kids, she writes articles here! “How do you invest in real estate?” We are often asked the question. Most people think that real estate investing requires buying and managing a house or apartment building.
Owning rental properties is one way to invest in real estate, and there are actually many ways to become a real estate investor, some of which require less down payment than buying a property outright.
There are many ways to make money with real estate. If you are new to real estate investing, some of the best places to start are:
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Rental properties allow you to build wealth by collecting rental income. Rental property investments, long-term tenants, vacation rentals, or short-term lodging sites like Airbnb or Vrbo aim to generate steady monthly income through rentals.
House flippers make money by buying a property at a discount and selling it to the next buyer at higher market value. This is usually done by some combination of:
If you can’t answer yes to either of these questions (and you can say yes to both), house flipping may not be for you.
If you have the connections, market intelligence and/or ability to handle uncertainty, house flipping is a great way to invest in real estate. Access your connections and create a plan to get started!
Will You See A Good Return On Investment (roi) On Rental Property You Buy Today?
Also known as “house hacking”, you can earn extra income from your home in a variety of ways. Some examples:
If you want to make your primary residence a deliberate investment, it’s important to consider it together.
PSA: Although an owned primary residence is an asset, it is not always a good investment. Factor in all expenses (maintenance, property taxes, mortgage interest,
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