How to buy investment property with no money down

If you’re a savvy investor with holdings in the stock market, you probably already know that you can earn a similar return — or even higher yet — by investing in real estate. There are many ways to do this, but one of the most popular (and profitable) is to buy an investment property, such as a rental or a fix-and-flip house.

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Securing financing for a real estate deal can be a bit tougher than qualifying for a primary residence, especially if you don’t have a lot of extra capital. If you don’t have much (or anything) to put toward a down payment, that doesn’t have to hold you back from dipping your toe in the real estate investment world. We’ll cover several options for how to buy investment property with no money down. 

Down payment requirements for an investment property

Most traditional lenders set higher down payment requirements if you’re buying an investment property as opposed to your own home because these real estate deals are seen as a bit riskier to make. Typically, you’ll be expected to make a down payment of at least 15% to 25%. 

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Lenders also look for slightly higher credit scores into the high 600s or low 700s, at a minimum. You may need to demonstrate a low debt-to-income ratio, too, as well as having six months or more of cash reserves on hand to make your new mortgage payments. Many lenders will also want documentation on the cash flow potential of the property you’re buying, such as its prior rental history. 

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

Real estate investors are creative people who’ve forged many paths to buy a rental property, especially if you don’t have tens of thousands of dollars on hand to use toward a down payment on a traditional mortgage. After all, even if you do have this amount of cash on hand, it can be risky to tie up that much capital versus spreading it out across more investments. 

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Some strategies rely on drawing assets from elsewhere in your portfolio, such as the equity you already have in your own home. Others can be used without tapping into your existing assets, making them available to people who don’t even have a single cent to their name. 

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These options can help you buy a property with no money today, potentially compounding your returns further in the long term. However, be aware that they often come with extra costs that can act as a drag on your investment returns, and should be factored into any formal return-on-investment (ROI) analyses that you do before accepting the deal.

How to buy investment property with no money down

Here are eight popular strategies that real estate investors use to buy a property without committing to a full down payment:

Turn your primary home into a rental property

A time-tested way to launch your real estate investing journey is to use the property you already have available to you: your own home. You can rent out a room in your home while you still live there for rental income; but more commonly, people move out entirely to a new home that they buy or even rent. 

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This can be particularly advantageous if you’re already looking to downgrade to a smaller home or move to a new area of the country. Rather than selling the home for a lump sum of cash, you can establish a steady income stream for the foreseeable future. 

Leverage equity

If you have sufficient equity in your primary home (typically at least 20% or more), you may be able to tap into that asset to finance your down payment, which then allows you to qualify for a mortgage on a property investment. 

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You have three options for borrowing against your home equity: a home equity loan, a home equity line of credit (HELOC), or a home equity investment (HEI). These can be cost-effective ways to borrow money, but they can be a bit riskier since you can lose your home to foreclosure if you default on repayment. 

Look for seller financing

You can get a loan from a designated financier, but in some cases, the current owner of the property may be willing to serve as your lender. This can be especially fruitful if someone inherits a paid-off home, for example, because they don’t necessarily need the cash to purchase their next home like someone looking to pack up and move to a new city. 

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You’ll negotiate the terms of the loan contract directly with the seller (with the help of a lawyer, of course), who will hand the title over to you in exchange for regular monthly payments until the debt is paid off. Depending on the terms of the contract you can negotiate, you may not even need to put any money down at all. 

Find a partner

Once you find the right property, a real estate deal requires two things: knowledge and money. If you have the knowledge to execute the deal but lack the funds, an excellent option is to find someone who has plenty of money but not enough time or know-how to handle the investment side of things. 

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In exchange, you’ll share the profits from the deal. Working with someone else can be risky if any disputes arise, so it’s imperative to have a written contract in place. These deals can operate as one-off occurrences with your partner simply acting as a co-borrower, or you might decide to pursue a more formal business partnership. 

Explore government loan programs and grants

Most government-backed loans are only able to be used for your primary home, but there are ways around this rule for many common loan programs, such as USDA loans, VA loans, and the ever-popular FHA loan. Typically, this involves purchasing a multifamily unit that you would then need to live in (making it an owner-occupied building) while renting out the other units. Veterans, in particular, may qualify to purchase such units using a zero-down VA loan. 

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You may also qualify for certain programs through federal, state, and even local governments which can finance the cost of your real estate investment, or offer grant money to be used toward a down payment. These funds are often limited to those working with affordable housing, or in underserved areas. 

Try house hacking

“House hacking” refers to buying a multifamily property (such as a duplex) and living in one unit while you rent out the others for income. We’ve described above how this is a common loophole that allows investors to use government loan programs such as VA loans to buy a rental property when it might not otherwise be allowed. 

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You can use this trick with conventional loans, too, but be aware that many lenders maintain steeper down payment requirements for these types of loans. If you’re willing to sell your home to raise down payment funds and move into a multifamily unit, however, you’ll still remain a homeowner — and become an investor, too.

Assume an existing mortgage

Getting a new mortgage can sometimes be tough, but what if you could just take over the existing mortgage on a property? Surprisingly, this can be possible if you find the right seller with a mortgage that allows for someone else to assume the loan. 

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Doing so could allow you to buy a property without taking out a brand-new mortgage (along with its associated down payment). This can be especially advantageous if the loan has a low interest rate or is already fairly far along in its repayment schedule. However, if the home has a lot of equity, the seller may still ask you to bring cash to the closing table.

Take out a hard money loan

Hard money loans are financing options offered by private lenders with experience in quickly evaluating real estate deals for their income potential. You may be able to get funding from a hard money lender much faster than a traditional lender, allowing you to jump on new opportunities. These loans may also be easier to qualify for since the loan is underwritten primarily based on the property’s income potential. If you bring an exceptional deal to the table, you may not even need any money down at all. 

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A hard money loan is meant to be a temporary financing solution, hence its alternate name, “bridge loan.” It allows you to get the real estate deal in hand, renovate the property, and then either sell it or refinance to a more sustainable long-term solution. Lenders often charge very high interest rates for hard money loans, so you won’t want to carry one in the long term. 

Final thoughts

It’s often possible to qualify for investment property loans with no down payment if you’re dedicated and use the right strategies, whether that involves shuffling around your own assets or partnering up with someone else who does have the cash. Each of these options has costs that need to be taken into account, however, which you should include when performing an analysis of each real estate deal’s ROI. 

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Make sure to consider the full range of pros and cons of each strategy as well. If you opt for a hard money loan, for example, and aren’t able to refinance it into a more sustainable loan for the long term, the high interest rate can easily erode any profit from the deal. But if you’re successful in refinancing, you could end up earning far more over time. 

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