Rental properties are an excellent investment option for high-return passive income. Unfortunately, breaking into the world of rental properties is quite tricky, especially if you have little or no money down. The costs involved in purchasing rental properties are undoubtedly the biggest obstacle. While some people don’t like using their savings in investments, most don’t have savings at hand for a down payment.
Fortunately, you shouldn’t go broke investing in real estate properties. With some financial creativity and the following tips from Excelsior Realty on how to buy first rental property with no money, you can confidently start your journey of becoming a landlord.
House hacking is a suitable idea for most homeowners looking for how to buy first rental property with limited savings. This option involves letting out part of your primary residence to tenants. It is a common option for owners of duplex homes but can also be done by those with a multi-family property, such as 8-unit buildings.
House hacking means you won’t have to pay the 20% or more down payment requirement to access financing. Even if you don’t own a primary residence, purchasing one is more affordable than buying a rental property. Unlike rental properties, you only need a 3% minimum deposit to access conventional loans and 3.5% for FHA loans.
The only cost associated with house hacking is remodeling your primary residence to generate passive income. You can remodel the guest house, garage, or basement to let. Depending on the space, minor repairs include adding a kitchenette, washroom, and other basics. This can also be covered by home repair loans, additionally favoring homeowners with low credit.
Seller or owner financing is another best way to buy first rental property. In this form of financing, the owner of the rental property or the seller holds the financing for the interested buyer. Owner financing gives buyers better leverage when negotiating. However, most sellers only accept specific financing terms on the down payment, loan period, and interest rates charged by the lender.
If you are interested in the rental property, you can use your negotiation skills to adjust these terms. For instance, if you want a financing deal with no money down, you can convince the seller to accept a long loan repayment period.
You can also share the risks of real estate investing by partnering with other interested investors. However, real estate partnerships with little or no money down come with a set of conditions. For instance, you should agree with your real estate partner to share the rental property ownership equally. In most cases, buyers who don’t have enough money to make a down payment partner with a financially better trustworthy partner who can raise the down payment.
You can recruit family members, colleagues, friends, or a private lending company into the partnership. Private lending companies offer loans like other lending facilities, albeit with better flexibility.
Homeowners can also buy rental properties with little or no money down using their hard equity line of credit or HELOC. HELOC financing allows homeowners interested in owning rental properties to use the equity in their primary residence as collateral in the new home. Buyers are given a lump-sum payment which should be repaid over a given period with fixed interest rates.
Using your home equity means you won’t have to withdraw your savings to buy rental properties. Instead, you can channel your savings into financing a down payment to purchase another rental property. HELOC allows homeowners to purchase multiple rental units, which grows their equity and rental portfolio.
The Buy, Repair, Rent, Refinance, and Repeat method is another option for buying rental property with little or no money down. As the name suggests, investors buy a dilapidated rental property, renovate it, rent out, refinance it with a long-term investment loan once its value appreciates, and pull back their initial cash.
While this option requires some cash upfront for the down payment, investors recoup the money through refinancing.
While buying rental properties from Minnetonka real estate, especially with limited savings or little money down, is difficult, the above tips for buying first rental property provide viable options. Real estate investments offer investors a unique balance of safety, high capital gains, and steady cash flow. The tips mentioned above can help interested investors with limited upfront capital build their real estate portfolio. Get in touch with us right away to find out more!