Investing in real estate is a great long-term investment strategy.  90% of the world’s millionaires have invested in real estate.  But, how do you get started if you don’t have any cash to invest? The good news is, there are ways to invest in real estate with no money down.  These strategies may require more work and cooperation from others than would be required with a tradition loan or cash home purchase.  You will need to be persistent and patient throughout the process, but keep your eyes on the prize; it will be worth it in the end!

Although it is recommended to have some money in reserve at all times just in case, it is possible to get started without having much money in your savings account.  Here are ideas on how to buy an investment property with no money down and make money in real estate.

Invest in a New Home and Rent out Your Current One

If you already own a home, one of the cheapest and easiest ways to go from home-owner to real estate investor is by turning your current residence into a rental property.  Doing this will save you thousands of dollars on a down payment since you would be buying yourself a new primary residence which does not require as large of a down payment as a rental does.  We’re talking 5% vs. 20% – that is a considerable amount.  The loan you carry on your current residence would not change if you were to rent it out and the interest rate on a rental home also tends to be higher than that on a primary residence.  So, if you’ve been feeling the itch to take on a change in scenery or need more space for your family, this is a great way to satisfy that itch while also making a smart financial investment. 

Roll the Down Payment Into the Purchase Price

If you have an excellent credit score, some lenders may allow you to finance 100% of the purchase price of an investment property. In doing this, your interest rate and insurance rates will be higher, but you will be able to get into a new property with no cash out of pocket and start watching the equity accumulate. You will have to look at the numbers to see if the additional monthly expense will be worth not having to come up with cash upfront.  The goal of real estate investing is to give yourself some extra cash flow as well as a long term gains. 

Use a HELOC or Cash-Out Refinance

Homes have appreciated in value in most major real estate markets over the last few years.  That means that you should have equity in your home and you may be able to use that equity for a down payment on your next place. You would do this using a HELOC or cash-out refinance as an option for picking up another investment property. 

Using a HELOC, you secure a line of credit against your home. You can then use that credit line for anything you’d like. In your case, it would be to use toward a down payment on an investment property or even renovations if you’d like to flip a home.  You could then use the income you generate from your new investment property to pay the line of credit back.  So really, you are just borrowing money from yourself.  

With a cash-out refinance, you are able to refinance your mortgage for a higher amount than you owe. You would then take that extra loan amount out as cash to invest in another property.  Both of these options will cost you, you will have to pay back that cash out amount plus interest to the bank.  It is important to once again look at how much that will cost you versus how much money you can bring in from a tenant renting out the property. 

Buy a Duplex

A duplex is a multi-family home that has two units in one building. Some duplexes are side by side units while others are stacked on top of each other. Duplex buildings also have two separate entrances for each that enter into different living spaces for each home. Tenants do not share anything but a wall and maybe some yard space. 

A duplex is kind of like a two for one deal. You are able to buy one with an FHA loan which does not have high credit score or down payment requirements. You can live in one unit, and rent out the other real estate property for extra cash. 

In addition to the low, 3.5% down payment requirement, there is a good chance that the rent you charge for the additional unit will cover all or some of your mortgage payment so you will be living mortgage free, or close to it.  

There are also other multi-family homes within one building, like a triplex and fourplex. They are a bit more difficult to find and harder to manage since there would be more units to rent out, but the good thing is they are still treated like a single family home when it comes to lending requirements.  If you can get your hands on one of these, it could bring in a lot of money for little money down. 

Trade something other than cash

Trading something other cash is a bit out of the box, but it could work in your favor.  This could include a car, a boat, jewelry or valuable collectibles or even a plot of land you have been holding on to. You never know what a property owner needs! If you have a specific skill, you could offer your services in exchange for their property.  For example, if you are a mechanic or a carpenter, you could offer free services for a specified period of time in exchange for property. 

Apply for a Down Payment Assistance Loan or Grants

Depending on your credit score and income levels, you may be able to qualify for either a down payment assistance loan or grant.  These are generally only awarded for primary residence loans, but you could then use the first strategy we discussed – renting out your primary residence and buying another in a couple of years.  

One of the more popular down payments grants will give you 5% to use toward your down payment or closing costs.  If you are able to combine this with asking the seller to cover you closing costs, you would be able to apply more of the 5% to your down payment and save you money off the purchase price of the home.  These grants do come with a little bit of an increase in your interest rate to offset the cost, but again, it reduced the amount of cash you have to come up with upfront.

Each state and lending institution has their own requirements, but you will probably need to have a good credit score, and low debt to income ration to qualify. It is definitely something worth looking into if you want to become a home owner but are lacking the cash to do so. 

Find an Investment Partner

If you are lacking the cash to invest, but possess the drive and insight to be a successful real estate investor, look for an investment partner who has cash to partner up with but maybe lacks the time and energy to manage a rental. Together, the two of you would own the property and split up management and maintenance duties.  You would also have to decide how to share profits from rent payments or equity buildup, which can be tricky.  But, if you have someone you can trust and work well with, this could end up being a great way to get into real estate investing. 

Your investment partner can be anyone; a friend, family member, or even a coworker.  Just make sure you trust each other, and as a backup have some legal documents drawn up to outline your partnership.  You can never be too careful! 

 Ask the Seller to Pay your Closing Costs

If you have enough money to cover a down payment, but not enough to cover closing costs, you could ask for some help from the seller.  Sometimes the property seller is willing to pay buyer closing costs in order to incentivize the sale of their home. 

Closing costs can sometimes be as much as 2 to 5 percent of the purchase price of the home. So, if your home cost $350,000, you might pay between $10,000 and $17,500 in closing costs. That is a lot of money!  Many of the fees that make up closing costs are negotiable, and some are completely unnecessary.  Lenders may try to charge notary fees or courier costs which you can ask to have waived which will save you some money. Before deciding to work with a lender you can shop around and ask what their closing costs look like and ask if they offer discounts or match less expensive competitors.  

If you are able to convince the seller to cover your closing costs, you may have to offer a little bit more money on the purchase price for this to work out. That way, the seller would still be netting the same amount of money as they would with an offer, say $10,000 less, if they were not covering your closing costs. 

It is important to make sure that the amount you will get in rent is enough to cover the mortgage at this higher purchase price. Rental properties should always have a positive cash flow to cover vacancies and repairs.  So if the numbers don’t add up, wait until you find a property where it will. 

Find a Rent-To-Own Property or Lease With an Option to Buy. 

It may be a challenge to find someone willing to offer you this type of deal, but it you can it is a great way to become a property owner with little out money out of pocket. You can set it up so that you have a lease-option for 5 years, and at the end of that time, you will purchase the house and can get a bank loan then.  The property will charge you a monthly or yearly premium, in the form of higher rental payments and the additional rental fee will be directed to the purchase price of the home at the end of the 5 years. 

Assume an Existing Mortgage

An assumable mortgage allows a homebuyer to take over the current principal balance, interest rate, repayment period, and any other terms of the seller’s mortgage. This will be beneficial to you, the buyer, for a couple of reasons.  Depending on the seller’s interest rates, you could save money by having them be lower than currently offered rates and you would also save on some of the fees associated with taking out a new mortgage.

The lender of the seller’s original mortgage has to approve of the mortgage assumption. Some loans do not allow for this, you will have to check on the terms and conditions of the seller’s loan before you get too set on using this strategy. You will have to apply for the assumable loan and meet the lender’s credit and asset requirements before being approved. 

If the seller has a lot of equity in the home, you will still have to come up with the money to make up the difference in the mortgage amount and the selling price.  This can be done using either a cash down payment or taking out a smaller mortgage loan to meet the requirements.  But again, if the interest rates and repayment terms make sense, it can still save you a significant amount of money. 

Before the loan is approved and assumed, the lender will give you an estimate of what your mortgage payments will be before approval, so again it is important to make sure you are entering into an agreement you can afford. 

Start Investing in Real Estate Today

We have given you some ideas on how to invest in real estate with little no money down. Interest rates are currently at historic lows, and homes are appreciating extremely quickly, now’s a great time to start investing in real estate. Getting in is the hardest part.  Once you get that first property under your belt, you will be able to figure out how to buy more.