One of the key steps to getting started in real estate is getting your investment property financing in order. The method you use for financing rental properties can make or break the property’s cash flow and overall profitability. Typically, investors will have to spend a lot of time saving money before investing in rental properties. For prospective investors with no or little money, however, this task can be daunting. Nonetheless, there are plenty of ways to start investing in real estate with no money. In this blog post, we’ll discuss how to invest in real estate with no money in 5 ways.
Related: Real Estate Investment Financing: 7 Ways That Work for Beginners
5 Ways for Investing in Real Estate with No Money
1. Federal Loan Programs
Federally-assisted loan programs are among the best methods to buy rental properties with little-to-no money. The requirements and assistances differ from one program to another, but most share common features- you will likely need a good credit score but you’ll enjoy low or no down payments.
There is an important caveat, however, with buying properties through these loans. The property must be used as a primary residence during the first year after the purchase. Then, it can be converted to a rental. Still, there is a method for renting out immediately after purchase – house hacking. In other words, you can purchase a multi-unit property, reside in one unit, and rent out the others.
Related: The Ultimate Guide to House Hacking
The most common loan programs are from the USDA, the FHA, and the VA. USDA loans are perfect for those with little money. These investment loans offer low interest rates with no down payment. If you are interested in investing in real estate with no money down in a rural or suburban area, you should consider USDA loans. Similarly, FHA loans can eliminate down payments, or require low money down at the very least. In addition, they can cover more than 90% of the purchase price. Above all, FHA loans depend significantly on the investor’s credit score. If a property buyer is a veteran, then VA loans are another viable source of property financing. These investment loans vary in requirements but are undoubtedly helpful when it comes to investing in real estate with no money.
2. Private Money Loans
It’s generally advisable to not mix friends and family in business. However, if you’re interested in investing in real estate with no money, private money loans could be a useful method. Private money investment loans are loans given out by private money lenders. While they are common among friends and family, they can also extend to private investors and companies. The two parties agree upon the terms of the private money loan. This makes it very possible to negotiate a purchase with no down payment.
There is a potential downside, however, particularly with private investors and companies. While no money down is possible, the lender will usually require high interest rates in return. These high interest rates can be an issue for some investors. But they won’t be for you, if you are investing in rental properties that are profitable. With Mashvisor, you can guarantee that your investment will pay itself off! Mashvisor’s real estate algorithms allow investors to find the most profitable investment properties across the US housing market. To learn more about how Mashvisor works, CLICK HERE!
3. Hard Money Loans
Another method of investing in real estate with no money is through hard money loans. Similar to private money loans, hard money investment loans can require no money down. Unlike private money loans, however, they can even cover the entire purchase. Hard money lenders will focus on an investment property’s value when lending, as opposed to a real estate investor’s financial qualifications.
While these positives are attractive, there are possible negatives with hard money loans. Most importantly, hard money lenders will often require higher interest rates and fees compared to private lenders. Even with such large coverage, the loan can be a financial disadvantage if not analyzed properly by the investor. Be sure to evaluate your choices and loan terms before committing to hard money loans or any other financing method.
4. Real Estate Syndication
Buying an income property does not have to be a one-person effort. Even when investing in real estate with no money, real estate syndication is a great option for buying investment properties for sale. Generally speaking, real estate syndication can be broken down into two categories: real estate partnerships and crowdfunding.
Related: What Is a Real Estate Syndication? Should I Join or Start One?
Real Estate Partnership
Real estate partnerships have always been beneficial for buying multiple rental properties. By combining resources and experiences, the team of investors can find and purchase high cash flow investments. Teaming up with another investor can also mean investing with little-to-no money. The terms of the partnership are set by the parties, allowing investors to contribute however they agree upon. An investor who is not funding much of the property can, for instance, be responsible for rental property management.
Real Estate Crowdfunding
Real estate crowdfunding has taken off in recent years. Like partnerships, crowdfunding is a possible method for investing in real estate with no money. For instance, buyers can invest with as low as $500 and still receive passive rental income from the investment. Real estate investors with no money can also take care of property management as a form of contribution.
5. Lease with Option to Buy
The last method of investing in real estate with no money is through a lease with the option to buy. Through this method, the real estate investor rents out a property and agrees to ultimately buy it from the landlord. A portion of the rent is allocated towards the purchase, and a set time-table is agreed upon by the parties. A lease with the option to buy not only allows investors to buy rental property with no money down, but it also gives them insight into the property. As a result, the investor will learn what makes the property a good rental, what maintenance is like, and how to improve upon the property.
All in all, investing in real estate with no money is more possible than you might have thought. With a more general focus on credit score, property value, or other aspects, these financing methods allow investors with little or no money to get started in real estate. Of course, knowing how to invest in real estate with no money is one thing, actually doing it is another. Such an investment will be worth it if it is profitable. With Mashvisor, you can find the most profitable traditional or Airbnb rental in your area of choice within minutes! To start searching for your ideal rental property, CLICK HERE to start your 7-DAY FREE trial with Mashvisor!