Many new investors struggle to get into property investing due to financial limitations. However, if you know how to use other people’s money wisely, it is possible to invest in rental properties without using your own cash reserves.
One way to do this is by assuming the seller’s mortgage. Another is by finding a private lender willing to partner with you on your next investment.
1. Assume the Seller’s Mortgage
One way to buy property without money down is to assume the seller’s mortgage. With this method, you step into the seller’s existing loan and make payments on their behalf, according to Norada Real Estate Investments. This can be a good option when the seller doesn’t have enough equity in their property to qualify for a conventional mortgage. However, it’s important to remember that most lenders include a due-on-sale clause. This means you may have to pay the balance of the original loan if the home value drops after you take over the mortgage.
Another option is to use private lending sources. Private lenders can offer a more flexible underwriting process than standard mortgage lenders. This can be helpful if you’re buying a “fixer-upper” and don’t meet the requirements of traditional mortgage loans. Alternatively, you can try using hard money loans to buy property with no money down.
Another great way to invest in rental properties is through house hacking. This involves purchasing a multifamily home and living in one of the units while renting out the others. This can help you cover your mortgage and other housing expenses while also earning income from the tenants. However, it’s important to know that this method can be risky if you’re not prepared for the responsibilities of being a landlord.
2. Crowdfunding
A little bit of cash in the bank can help you get into property with less upfront costs. Keeping your funds liquid also helps you be prepared for those not-so-fun expenses like pest control, maintenance, and repairs.
Property crowdfunding has become a popular way to get into real estate with no money down. Crowdfunding involves groups of people pooling their money so that they own a portion of the investment. This type of investing can be done online and can be an excellent option for investors who have no prior experience or are unable to secure traditional financing.
Other methods of getting into rental properties with no money include utilizing the BRRR method (Buy, Repair, Rent, Refinance, Repeat). This strategy allows investors to purchase a home, improve it, and rent it out. The rental income can then be used to pay the mortgage and other costs of owning a property.
Another option is to seek out equity partnerships. These are often made between accredited and non-accredited investors who each contribute a small amount of capital to a project. The money is then used to finance a property acquisition or development. Some of these projects are residential and some are commercial. The investor then receives a share of the profits, and the project creator gets to use their equity in future investments.
3. P2P Lending
Peer-to-peer lending has exploded in recent years as an alternative to traditional banking and credit union loans. The big difference is in who funds the loans. Instead of relying on financial institutions, P2P lenders are funded by individual investors. This has opened up a whole new set of possibilities for people looking to invest in property with little to no money down.
P2P lending sites connect borrowers who need a loan with lenders who want to earn an interest rate on their cash savings. Loan applications are rated on their creditworthiness and posted on the site for potential investors to consider. Once a loan is fully funded, the website transfers the money between parties and manages payments.
Most borrowers who apply for loans on a P2P platform are seeking to pay off credit card debt at a lower interest rate, or purchase a home improvement project. However, a number of borrowers also use P2P loans to buy a business or consolidate student debt.
The biggest risk with this type of investing is that the loans may default and not be repaid. This means that you as the investor could lose all of your money if a borrower fails to repay the loan, which is why P2P websites are regulated by the Financial Conduct Authority (FCA) and keep lenders’ funds in ring-fenced accounts separate from their own.
4. Owner Financing
One of the best ways to get into property with no money is through owner financing. This is when the seller acts as the lender and you pay them a monthly payment, similar to a mortgage payment. This method eliminates the middlemen such as a bank’s loan officer, underwriter and legal department which can slow down the process. Owner financing can also be more flexible in the terms of repayment than a traditional bank loan.
Other no-money down property investment options include property lease options, also known as purchase lease options or PLOs. This involves finding properties that are owned by people who have negative equity and would like to sell but can’t for a number of reasons including divorce, job relocation or bankruptcy.
You can also use your existing home to invest in rental properties with no money down by using a HELOC, or home equity line of credit. This is a type of mortgage that allows you to borrow against the equity you have in your house, and can be used to fund your first rental property. You can then rent out the property and use the income to cover the mortgage payments. This is a popular strategy among investors and can be a good way to learn the ropes of investing in rental properties before making the jump to full-time.