Don’t we all wish money grew on trees and buying a rental property was as easy as 123? I think the majority of us find ourselves struggling to find money. We all think we have a good deal and the knowledge, however money-wise we find ourselves short. Our friends and family are telling us no, the banks tell you no, and most of all you say no to yourself. Without a target or plan in mind, you won’t get anyplace. Real estate investors look at the first deal that they get and see how much money they have and give up before even starting. You begin to think that buying a rental property is impossible and not worth the struggle. Starting off in real estate is not impossible even if you don’t have the money. You can still become a real estate investor despite how you start off- money or no money. All you have to do is think of different ways to use someone else’s money. Maybe the bank’s money or a friend? There are different ways to buy a rental property with no money down. Let’s take a closer look and please feel free to share your comments or any personal experiences you may have so we can all benefit from each other.
Different Ways to Buying a Rental Property With No Money Down
1. FHA Owner-Occupancy Loan
An FHA loan for homeowners is one of the fastest loans you can get for buying a rental property with no money down. Based largely on your credit score, owner-occupancy loans generally tend to have better terms. They’re a great type of loan because they attract low interest rates and call for quite minimal down payments. Getting selected or qualified for FHA’s owner-occupancy loan however only has one major issue which is that you must use the property as your home for the first year. It’s only after the first year after the purchase has passed that you can change it into a rental property in which you can rent it out to tenants. Only go for this decision if you have the patience and discipline to do so.
2. Hard Money Loan
From the phrase “HARD money”, you can tell that there’s something that isn’t quite easy here. Hard money loans are another way to buying a rental property with no money down. With hard money loans, a lender doesn’t measure your value based on your credit score. Rather, lenders try to look at the views of your intended investment. What is its market value? What returns does it hold for the future? These are some of the questions that lenders first ask themselves. A lender can finance even up to the entire cost of the property once they feel sure of its capability.
Given the fact that they aren’t based on good credit, hard money loans do have harder terms. For example, they attract very large interest rates and fees. Moreover, they are also likely to come with shorter repayment periods. Only apply for hard loans if you’re certain that your investment property will constantly generate a high and positive cash flow.
3. Real Estate Partnership
A real estate partnership is not typically a loan or mortgage. It’s, in essence, an agreement to share property ownership with another person. The agreement spells out the responsibilities of each partner as well as the terms of any deal involving the shared investment property.
With a real estate partnership, the partnership company may agree to fund your entire rental property on certain conditions. One of these may be that you contribute to the project in a major way like funding its management.
4. Private Loans
Private loans are loans from friends or family. This is another loan option for buying a rental property with no money down. Although many of us would rather borrow from banks and financial institutions, we have to understand that sometimes desperate times call for desperate measures. You may just have to mix business with family and borrow from them.
5. Lease to Buy Later
If you, by all means, wish to buy a rental property yet it’s currently impossible, you can try out this option. Simply lease a property then buy it later when you’re ready. With this arrangement, you pay rent and have the option to buy the investment property after a few years. The landlord and the buyer agree that a portion of the rental payments goes towards buying the real estate property. A schedule is also set for the buyer to make the full purchase. This method may not fully remove the down payment, but it can decrease it if agreed upon by the two.
The Bottom Line
As the real estate investing world expands and attracts various competitors, many real estate investors struggle to start investing, let alone own more than one investment property. However in real estate, as many would say “if there is a will, there is a way.” Buying a rental property has become easier for investors and there are many options out there available. All you have to do is stay committed and have the courage to go out there and find the best financing option that suits you.
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