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How To Buy a Property With No Money?

A significant obstacle for those buying an investment property to rent is the down payment that traditional lenders will often require. This can be roughly 20% of the property price—a hefty amount for those without much capital to spare. 

It may seem too good to be true, but there are methods to circumnavigate this initial roadblock. Knowing how to buy a house with no money, or at least minimising the money coming out of your pocket, is a well-utilised strategy by experienced property investors. But when it comes to property investment for beginners, this can be a relatively foreign concept. 

‘No money down’ refers to using very little of your own money for the down payment or avoiding a down payment altogether. Here are a couple of different ways to do this.

Use existing equity

The first strategy is for those who already own property with equity and a high credit score. Through a HELOC, or home equity line of credit, you could acquire around 75-80% of your existing equity in cash. 

Let’s say you have $200,000 still owing on a property worth $500,000 (this will depend on a formal appraisal), meaning you have $300,000 in equity. Through a HELOC, you could acquire $225,000 to $255,000 in cash. This can then be used to buy your first rental property, essentially with no money down. 

Seller Financing

The second way to buy investment property with no money down is through ‘seller financing.’ Seller financing is a nontraditional form of financing where the seller of the property assumes the role of the lender for the buyer. Instead of going to a bank to receive traditional financing, a buyer will repay the loan directly to the seller. This is also referred to as ‘owner financing.’ 

The exact conditions of these repayments are stipulated in a formal agreement between the buyer and seller. The advantage of this is that the agreed terms can depend on your negotiation skills. Sure, many sellers will have hard terms on which they are unwilling to budge, including the down payment, the specific interest rate, or the loan period.

But there will be sellers that are open to negotiation, where you may be able to arrange financing with no money down. It is often about ascertaining the seller’s needs. Perhaps they need to sell quickly or reach a specific sale price and are willing to forgo the down payment to meet these needs. For this strategy to work, finding the right seller is vital!

The BRRR Method

BRRRR is a synonym for buying, rehabbing, renting, and refinancing an investment property. This strategy involves finding properties that require fixing up and making the needed renovations, which increases their value. This property is then kept as a rental and refinanced. 

A property that requires a bit of work often minimises the down payment. This is also an excellent method for those looking to grow their portfolio quickly, with the option to refinance and then use those funds to buy multiple properties consecutively. 

Real Estate Partnerships

When it comes to property investment, the less of your own money used, the better the return. That’s why a popular strategy to invest with no money down is to buy using someone else’s money. This may look a little different, depending on your resources and connections. 

One way is to find a private lender willing to partner with you on an investment property. They may be in a position to provide you with the funds for the down payment in exchange for a portion of the returns made on the property. This is where having a network is essential. Partners may include work colleagues, friends or family members looking for investment opportunities. 

What form this return takes will also depend on the agreement. You may pay the lender back with a monthly payment, interest-only loans, or principal and interest. Maybe you establish a lending agreement where a specific return has been agreed to.

Or perhaps ownership of the property is shared, with rental income, equity, and appreciation split dependent on percentages that have been agreed to. The terms of this agreement will depend on you and your partner’s goals, resources, and negotiation abilities. 

Get a hard money loan.

Acquiring a hard money loan is often used in scenarios where the investor plans to renovate and resell the property. This involves securing finance, often from an individual or company rather than a bank, for a property based on a percentage of the property’s value. Usually, the loan will cover the cost to renovate the property. 

The downside to hard money loans is that they often come with very high-interest rates, so this may only be an option for those with good credit and who plan to proceed with a cash-out refinance once the property is repaired and up for rent. 

A property that needs a bit of work means you may be able to purchase at a low price, minimising or even eliminating the money required for a down payment. Once again, this will depend on your negotiation skills, as well as the lender’s loan-to-value requirements. 

Knowing how to invest in real estate with no money is an essential strategy for those who want to start their property investment journey but may have limited resources. Many experienced property investors will use either one or a combination of these strategies to purchase property without putting money down.

While buying a rental property with no money down is not the most straightforward process, it is certainly possible. It’s about utilising the above strategies, knowing the seller and lending options, as well as the resources and connections available to you. 

PK Gupta
Published: 08 Feb 2022


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