A study of asset returns over 145 years in 16 developed countries found that rental properties outperformed stocks. But how can rental properties perform better than stocks, with lower volatility and risk? The answer is simple: there’s a higher barrier to entry to invest in rental properties.
Buying Rental Properties Requires Money & Skill
Anyone can throw $100 into an index fund, but rental properties pose two huge challenges to new investors: they require more money to purchase and more skill than index fund investing. At SparkRental, we can help you with the "skill" part of that equation. We offer free rental investing courses, webinars, podcasts, and hundreds of articles. But what about cash? Doesn’t it take tens of thousands of dollars to buy a rental property?
Buying a Rental Property with No Money Down
If you’ve ever wondered, "Can I buy a rental property with no money down?" you’re not alone. Here are ten ideas for how to buy a rental property with no money down or at least less money down.
1. Consider House Hacking First
House hacking is the easiest way to buy your first rental property. By buying a small multifamily property (2-4 units), moving into one of the units, and renting out the others, you can have effectively free housing. Traditional lenders require lower down payments on owner-occupied properties than investment properties, making it easier for you to get started.
2. The BRRRR Method
The BRRRR method (buy, renovate, rent, refinance, repeat) allows you to buy a fixer-upper with a purchase-rehab loan, renovate it, and then refinance it with a long-term landlord loan. If you've created sufficient equity, you can pull some cash out when you refinance, covering your initial down payment.
3. Seller Financing 
Sometimes sellers will finance the property for you, allowing you to negotiate loan terms. This works well with sellers who have no mortgage or properties that need repairs. By making regular monthly payments, you can buy your first rental property with no money down.
4. Assume the Seller’s Mortgage
Even if the seller isn’t willing to directly finance the property, you may be able to assume their mortgage and make payments on their behalf. You step into their loan, leaving you with only the remaining difference to come up with. Just be careful about triggering the "due on sale" clause in the existing mortgage.
Remember, when you buy a property with conventional financing, lenders often won’t let you borrow the down payment. But in this case, you’re not borrowing a purchase mortgage, you’re assuming the existing one and paying the seller separately for any difference.
These are just a few strategies to get started with real estate investing without a large down payment. Remember to do your due diligence, analyze deals carefully, and consult with professionals in the field. With the right approach, you can buy your first rental property with no money down.
Note: This article is for informational purposes only and does not constitute financial advice. Always consult with a qualified financial advisor before making investment decisions.
