How to Buy a Rental Property With No Money Down in 2023

By: Craig Berry Updated By: Ryan Tronier Reviewed By: Paul Centopani
August 10, 2023 - 9 min read

Buy real estate with almost nothing out of pocket

Maybe you’ve always pictured yourself as a real estate investor, but you never had the cash flow needed to get started.

Believe it or not, that might not matter. Renters and homeowners alike can become real estate investors and start building wealth through home equity, even with little or no money for a down payment.

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What does it mean to buy rental property with no money down?

When flippers, home buyers, and investors purchase rental property with “no money down,” it means they’re buying real estate without putting much or any of their own money into the upfront costs of the investment property.

Real estate investors may increase their odds that rental properties will have a favorable return on investment when less of their own money is used to fund ventures.

Check your investment property loan options. Start here

Of course, buying any property will require a cash investment. But with some know-how, that money doesn’t have to come out of your own savings account. Using other funding channels, like home equity or co-borrowing, can be a great way to get started in real estate investing if your current savings are slim to none.

10 affordable ways to buy rental properties

1. Invest in a new home and make your primary residence a rental

If you already own a home, you’re ahead of the game. One of the more common ways to become a real estate investor is by turning your current primary residence into a rental property. There are significant advantages to “backing into your first rental property” this way.

Check your investment property loan options. Start here

  • Traditional investment property loans require a larger down payment and come with higher interest rates. Often times, you can expect a 20% down payment requirement
  • The interest rate on an investment property is generally higher than the rate on your primary residence by a half percent or more

The investment strategy is to rent out your current home and finance the next home you buy as a primary residence (meaning you’ll be living there full time). That way, you pay a lower interest rate on both properties. And if you’re still making mortgage payments on that first home, you can use the income you make from rent to cover part or all of the mortgage.

“Be prepared to provide a letter of explanation,” notes Jon Meyer, The Mortgage Reports loan expert and licensed MLO. “It may be requested depending on how long you have been in the original home.”

2. Leverage home equity with a HELOC or cash-out refinance

Using a home equity line of credit (HELOC) or cash-out refinance to buy property is another financing option for existing homeowners.

Check your home equity options. Start here

HELOC or home equity loan

If you own a home, you may be able to use your home’s equity for a down payment on your next place. One way to do that is by borrowing cash secured against your home equity. Homeowners may be able to obtain a standard home equity loan or a HELOC to fund a down payment.

Using a HELOC, you secure a line of credit against your home and then draw on it whenever you need cash flow. And you can begin paying the loan back with rental income.

Cash-out refinance

The other type of loan that leverages your home equity is cash-out refinancing. A cash-out refinance lets you refinance your mortgage for a higher amount than you actually owe. Then, you take that extra loan amount out as a lump sum of cash.

In this scenario, the money advanced to you by a cash-out refinance can be used to make the down payment on an investment property. In other words, if you have enough equity in your current home, you may be able to start investing with no money out of pocket.

Verify your eligibility for a cash-out refinance or HELOC. Start here

3. Be a resident and the landlord: Buy a multi-unit home

Your primary residence doesn’t have to be a single-family home. Multi-family homes can be a great way for novice real estate investors and aspiring property managers to get started buying properties that generate income.

Check your eligibility for a multi-unit FHA loan. Start here

First, with the help of a professional, find a good real estate deal on a 2-4 unit property. These homes are typically known as multi-unit properties. While living in one unit, you’ll rent out the others. You can then use the rent payments to help offset your mortgage payment.

The key here is that you can buy a multi-unit property using an affordable financing option — like an FHA loan or VA loan— as long as you live in it, too.

Mortgage programs like FHA loans don’t just have good rates and terms. They also give you options for covering the down payment.

You may be able to obtain gift funds or perhaps even down payment assistance. And you can use these programs to buy a home without emptying your bank account.

If not, thanks to the Federal Housing Administration’s low down payment loan requirements, borrowers with good credit only need 3.5% of the purchase price for the down payment with either a traditional FHA mortgage or the FHA 203K loan, which is well-suited for fixer-uppers.

You may be out-of-pocket with some upfront costs, but it will be less money than 20% down.

4. Try the BRRRR Method

The BRRRR strategy refers to a traditional real estate investment strategy that requires initial cash but provides returns later. The acronym BRRRR stands for “buy, renovate, rent, refinance, and repeat.”

Here is how the method works:

  1. Buy: You acquire a distressed property that needs remodeling with a renovation loan. The goal here is to find a property that, after some improvements, can generate a higher rent than its current condition.
  2. Rehab: The second step is rehabbing, or renovating, the property. This could involve minor cosmetic updates or major structural fixes. The aim is to improve the property’s condition and thus increase its value.
  3. Rent: Once the property has been improved, it is rented out to tenants. The rent collected should ideally cover all expenses such as mortgage payments, insurance, property taxes, and any maintenance costs.
  4. Refinance: After the property has been rented, you then refinance the property with a new mortgage. The new loan is ideally based on the property’s increased value post-rehab. In many cases, the new loan will be large enough to pay off the original mortgage used to purchase the property and cover the renovation costs.
  5. Repeat: The final step is simply to repeat the process with a new property. The cash-out funds from the refinance step are used to purchase another distressed property, and the cycle begins again.

The BRRRR method can be a powerful strategy for building a portfolio of income-generating properties, but it does require significant real estate and financial knowledge to execute effectively. It also comes with risks, such as unexpected renovation costs, difficulty refinancing, or problems finding tenants. It’s important to do thorough research and possibly seek professional advice before embarking on this strategy.

Review your renovation loan options. Start here

5. Lack credit or funding? Partner up with a co-borrower

Maybe you don’t have enough money for a down payment or closing costs, but you want to start investing in rental properties. What’s more, you’re willing to do the research it’ll take to buy and manage these investments responsibly.

Check out your investment property loan options. Start here

Your friend, on the other hand, has money for a down payment. But they don’t have time to learn the ropes of buying rental properties.

This scenario could be a win-win for both you and your friend. You can go in on the investment together by acting as co-borrowers. You’ll share responsibility for monthly payments on the house, and you can also share profits that come from rent payments or equity buildup.

A co-borrower doesn’t have to be a friend, either. It could be a family member or even a stranger who would purely act as a business partner.

6. Look for a lease purchase option

If a traditional mortgage is not suited to your financial situation, another proven way to invest in real estate with no money is through what’s known as a lease option or a rent-to-own home.

Check your mortgage eligibility. Start here

Under lease options, the property owner charges the buyer a monthly or yearly premium in the form of higher rental payments. The excess rental fee will then be channeled towards the purchase price of the home.

With this type of agreement, you may be able to invest in real estate with a slightly higher rental fee.

7. Assume an existing mortgage

An assumable mortgage is one where the buyer can take over the seller’s mortgage, typically with little to no change in terms or interest rate. Basically, the buyer receives the title to a property in return for making monthly payments on the seller’s mortgage.

Check your investment property loan options. Start here

Using the seller’s existing financing can be especially effective if the current loan has a low interest rate. But keep in mind that this scenario requires a bit more research.

In particular, you will want to make sure there is no due-on-sale clause. This type of clause prohibits the new buyer from assuming the mortgage. And more often than not, assuming a mortgage will require lender approval. So you’ll still have to prove your creditworthiness and fill out some paperwork.

8. Look for seller financing

Another way to acquire property with no money down is with help from the seller. Known as “owner financing" or “seller financing,” this type of loan is an agreement where the seller handles the mortgage process instead of a financial institution. The borrower repays the loan as specified in its repayment terms, which are detailed in the formal agreement.

Check your mortgage eligibility. Start here

This works especially well with sellers who have no mortgage. For example, this can happen when someone inherits a property and does not want to keep it.

For sellers who are willing to take on the role of financier, owner financing can help sellers move a home faster with sizable returns on their investment.

9. Hard money loan

House flippers are known for using hard money lenders to help them house hack into a real estate deal. Hard money loans are non-conforming loans that are generally provided by private money lenders, individual investors, or groups that offer money upfront for short-term borrowing.

Check your investment property loan options. Start here

Hard money loans are private money lent with high interest rates and short terms. They allow investors to secure financing based on the property’s current or even future value.

Hard money lenders may pull your credit score, but the underwriting process is typically less strict than with a traditional mortgage loan.

If you find a deal on a fixer-upper and you qualify for a hard money lender’s loan-to-value guidelines, you may be able to purchase it with little or no money down. Also, “if you are buying an investment property, you will need collateral, such as a separate property, to go this route,” says Meyer.

10. Use a credit card

Using a credit card to buy a rental property can be quite risky due to the high interest rates and potential for mounting debt. However, in some situations, it may be a feasible short-term solution, especially for relatively small amounts needed to close a deal.

For example, if you have a high enough credit limit, getting a cash advance to fund your down payment or closing costs is a viable way to buy real estate with a credit card.

Let’s say John found a bargain fixer-upper property for $50,000, and he estimates it will need $20,000 in renovations. He has the cash for the renovations but is a bit short on the purchase price. He has a credit card with a limit of $15,000 and an introductory interest rate of 0% for the first 12 months.

John decides to put $15,000 of the purchase price on his credit card, thus enabling him to buy the property. He then puts his cash towards the renovation. Once the work is complete, he rents out the property and starts to generate income.

John now has two primary goals:

  1. To refinance the property based on its new, higher value (the after-repair value, or ARV)
  2. And to pay off his credit card before the introductory rate period ends

He contacts a mortgage lender who specializes in rental properties. The property appraises at $90,000 after the renovations. John is able to get a new mortgage for 75% of that value, or $67,500. He uses a portion of the refinanced amount to pay off the $15,000 on his credit card well before the 0% interest rate period ends and then continues with the mortgage payments, which are covered by the rental income.

Using a credit card to buy a rental property does require a good deal of planning and risk management. It’s essential to have a solid understanding of all the costs involved, a clear plan for renovation and rental, and a strategy to refinance and pay off the credit card debt before higher interest rates kick in.

Start investing in real estate now

You don’t need to be a seasoned real estate entrepreneur to get started in real estate investing. There are many ways you can buy property affordably and use it to generate cash flow; you just need to be strategic about how you finance the purchase.

Connect with a mortgage lender to learn more about your loan options. You could stop paying rent, living with your parents, or living with a roommate, and get out on your own.

Time to make a move? Let us find the right mortgage for you

Craig Berry
Authored By: Craig Berry
The Mortgage Reports contributor
With over 20 years in mortgage banking, Craig Berry has helped thousands achieve their homeownership goals.
Ryan Tronier
Updated By: Ryan Tronier
The Mortgage Reports Editor
Ryan Tronier is a personal finance writer and editor. His work has been published on NBC, ABC, USATODAY, Yahoo Finance, MSN Money, and more. Ryan is the former managing editor of the finance website Sapling, as well as the former personal finance editor at Slickdeals.
Paul Centopani
Reviewed By: Paul Centopani
The Mortgage Reports Editor
Paul Centopani is a writer and editor who started covering the lending and housing markets in 2018. Previous to joining The Mortgage Reports, he was a reporter for National Mortgage News. Paul grew up in Connecticut, graduated from Binghamton University and now lives in Chicago after a decade in New York and the D.C. area.