Starting a rental property business can seem daunting for aspiring real estate investors with little or no money. Does this mean investors with restricted or inadequate finances should not plan on buying and managing rental properties? Not at all! While planning to save up money before purchasing property is the typical go-to, buying investment properties with little or no money IS possible. The catch, though, is that nothing is ever truly free. At some point, the real estate investor will have to pay back the money used to purchase the property. Still, it is very possible to start investing in real estate with little or no money. Having ‘little’ or ‘no’ money is not the same; therefore there are different solutions to these different, yet related, problems. Let’s start with how to buy rental property with little money.
How to Buy Rental Property with Little Money
Investing in real estate with limited money is obviously more doable than investing with no money at all. The options are more realistic, since the real estate investor is not at as much of a risk with little money as opposed to zilch. Here are some great ways on how to buy rental property with limited finances.
If your credit condition and monetary savings are not up to par, purchasing a property with an owner-occupied mortgage is a great choice to follow. What exactly is an owner-occupied mortgage? It’s essentially like any other standard mortgage, but with a catch. A typical mortgage has real estate investors purchase properties either as homes or as rentals. An owner-occupied mortgage gives you a choice. The mortgage starts out as an ordinary house loan. Normal rules, like the house investor living in the property, still apply. Once a year has passed, the investor could decide to use it as a rental, with no change to the original loan terms.
How does this help real estate investors with little money? Since these loan terms are the same as normal home mortgage terms, and not non-owner occupied (rental property) ones, the credit requirements are not as strict, interest rates are lower, and the loan is more affordable overall. Not only does this method help money-strapped investors with investing in real estate for rental income, it provides them with a residence for some time!
Lease with Option to Buy
Here’s another answer to ‘how to buy rental property with little money’. Unlike the previous option, a real estate investor does not need to purchase a property as a residence first. Instead, the investor rents out a property, and agrees with the landlord to buy the rented property eventually. A portion of the rent is allocated towards the purchase, and the real estate investor is given a timetable to fulfill the final purchase.
This option is especially great when considering how to buy first rental property. It gives the investor an insight to the property, what makes it a good investment, what maintenance challenges it may have, and how to make it better. A lease with the option to buy is a very smart way for starting a rental property business.
Real Estate Partnerships
Investing in real estate for rental income does not have to be a one-man show. And if you’re tight on cash, it is difficult to invest all alone. The solution? Network with other real estate investors! The parties of the real estate partnership end up splitting the purchase based off agreed terms. A real estate investor with limited finances gets started with the help of other investors and pays back later or even performs a service for the property, like management. Some of the best income properties are based off powerful partnerships. If you’re on a low budget, be sure to discuss how to buy rental property with your investor network!
How to Buy Rental Property with No Money
The options on how to buy rental property with no money down are more limited than buying with little money. While buying with no money is not easy, it can still be done. A lot of research and effort will be needed, but it will help you reach the goal: investing in real estate for rental income.
The options to buy an investment property with no money can also apply to wanting to buy investment properties with little money. With little money, these possibilities become more feasible.
Loan programs, including government-assisted loans, are great tools to buy investment properties with no money. The programs vary in their requirements and assistances, so be sure to research different programs before committing to one. The most common loan programs are from the USDA, the FHA, and the VA.
USDA loans are a dream come true for real estate investors with no money at all. These loans can come with no down payment whatsoever. Interest rates are also low with USDA loans. If you’re planning on buying and managing rental properties with no money in a rural or suburban area, the USDA will be of great help.
Sticking with government loans, we move on to FHA loans. FHA loans are the perfect answer for real estate investors wondering how to buy rental property with little or no money. These loans can cover more than 90% of the purchase price and can eliminate down payments through gifts or grants. The better an investor’s credit score, the better deal with the FHA loan.
If a house investor is a veteran, then VA loans can help purchasing a property with little or no money. The loans may vary, but they can certainly be a viable answer to ‘how to buy rental property with no down payment’.
Hard Money/Private Money Loans
Hard money loans are loans that could help real estate investors purchase property with no money down. These lenders are not very easy to find, but they are useful for investors low on cash since the lenders base the investment off the property’s value, and not the investor’s credit. In some cases, the purchase is entirely covered. The downside to hard-money lenders is that interest rates and fees tend to be pretty high. Unless you are sure that the investment will be among the best income properties in terms of cash flow, do not try getting a loan from these lenders. But even then, evaluate your position wisely.
The less risky counterpart to hard-money lenders are private money lenders. Private money loans are loans given by a person, typically a friend or a family member, or private lender to an investor. The loan’s terms are agreed upon by the two parties, which can make purchasing a property with little or no money a likely possibility.
The last answer to ‘how to buy rental property with no money down’ is through a purchase-money mortgage. Essentially, the property seller gives the property buyer the loan to buy the property. On the surface, this situation sounds odd. The benefit for the buyer is obvious, since he/she has just found a way for how to buy rental property with no money down. What benefit does the property seller get? Like hard-money loans, the lender receives high interest payments. The seller also receives less taxes on the installment sale.
All in all, starting a rental property business with little or no money can be tiresome, especially with no money, but it is possible. The real estate investor will need to do enough research on the property and the method of funding the property. Where can you do research on the best investment properties for sale? Right here with Mashvisor! Start your trial today to scour for properties all over the US! Follow the Mashvisor blog for more on topics related to how to buy rental property!