Money can be a massive barrier to buying real estate. Without any cash in your pocket, it might seem like it’s impossible to be a real estate investor.
However, it’s actually possible to buy properties with no money down.
Currently, there are a variety of no down payment options to help first-time home buyers. Many federal and state programs fund first-time homebuyers, depending on the income of the buyer.
The easiest way to buy real estate with no money is to, well, borrow the money for the down payment. Lenders who give low-interest rates or use home equity may help you pay off a loan in a shorter amount of time.
If you need money and need it quickly, hard money lenders can be integral to buying real estate with no money, check out this website to find more info.
There are eight ways to buy rental properties with no money down. First, professionals propose making your primary residence a rental and then buying a new home. Then, they suggest leveraging home equity to buy a rental property. They also recommend becoming a resident and landlord with a multi-unit property and partnering up with a co-borrower.
As a disclaimer, this article is not intended as financial advice. Please consult a financial or real estate expert before making any major financial decisions.
Here are some strategies to buy real estate with no money in 2022.
House hacking
As for the first option of making your first house a rental and then investing in a new home, professionals say homeowners are ahead of the game in buying real estate with no money down. While earning money from the rental, it’s important to note investment properties tend to have higher interest rates and larger down payment requirements than rates on primary residences.
By living in the investment property, you pay a lower interest rate while you make mortgage payments on your first home. Money from renting out the first home can be used to pay all the mortgage, and real estate experts say to prepare letters of explanation.
This is a strategy known as house hacking, which allows someone to qualify for an FHA loan and put down 3.5% of the house.
It requires very little out-of-pocket money to “house hack” a primary home. Also, it is risky because it requires rental income to cover all the expenses of homeownership, which is not always a guarantee.
Receiving a loan for the downpayment
Investors say borrowing 100% of the down payment is incredibly risky, especially during times of economic downturn like the 2008 financial crisis. Most lenders advise against borrowing your down payment for your home.
However, if this is the route you want to pursue, getting money from a 401(k) is an option, as is borrowing against your retirement. These are very risky options if you quit your job or are fired.
There is also the option of taking a personal loan for emergency cash and letting it sit in your bank account for a couple months for the lender to accept it as your downpayment.
Taking on an assumable mortgage
Another way for a real estate investor to buy real estate without cash is taking over a mortgage. This is valuable particularly if the seller does not change any terms like interest rate.
It is best to take out a seller’s mortgage particularly if interest rates are low and if there is no clause preventing a buyer from assuming the mortgage. It requires approval from a lender to take on the mortgage of a seller, so this is a process that requires significant credit checks and paperwork.
Living in a fix and flip
Another strategy to buy real estate with no money is living in a fix and flip. The obvious con of this strategy is living in a construction zone, but moving into the fix and flip and then making repairs and improvements while living in the home.
This does require loans and money for a down payment and renovation, as well as experience in the renovation. It also requires significant education about the housing market and renovations in general.
Of course, this approach still requires lenders, whether it is hard money lenders or private lenders.
Home equity
A home equity line of credit is also another way to buy property. Existing homeowners can use cash-out refinancing and use home equity as a down payment for another home.
Berry suggests borrowing cash secured against home equity. The home equity line of credit (HELOC) can often be obtained to fund a down payment. A secure line of credit on the home allows you a flow of cash to pay back a loan.
Multi-unit homes
Another way to buy real estate with no money in 2022 is by buying a multi-family home. In a multi-family home, the real estate investor is both a landlord and a resident. 2–4 unit properties are the most typical multi-unit homes, so the landlord can live in one unit while other units are rented out.
The rental income can subsequently be used to pay off the mortgage payment. If you can buy a multi-unit property using an FHA loan, the home becomes even more affordable. FHA loans have low down payment loan requirements, and a borrower with good credit only needs 3.5% of purchase prices.
Multi-unit FHA loan eligibility can be determined on a variety of websites.
Crowdfunding and investment trusts
Another way to buy real estate without any money in 2022 is crowdfunding. Crowdfunding is when small real estate investors pool money together to for larger commercial projects. This is a more passive form of real estate investing where investors are loaning money to developers.
Recently, minimums for crowdfunding platforms have dropped, and they allow you to invest especially if you are an accredited investor.
Real estate investment trusts are also a way to buy real estate without any money. You don’t need money to buy a real estate investment trust. Instead, all you need are real estate assets, and these assets are managed by real estate professionals and then traded by those professionals.
This low-risk option allows real estate investors to diversify their real estate portfolios. Some real estate investment trusts pay dividends that help you gain passive incomes. They allow you to invest without owning or managing property.
Hard money lenders
Hard money lenders offer short-term loans backed by real estate, so credit scores do not factor into hard money loans. The projected property value of the home is the ultimate factor in the terms of the loan. This is not to say credit scores don’t matter at all, because many hard money lenders have minimum requirements of 600 or 620 on loans.
Hard money lenders often offer shorter term loans and give faster loans than their traditional lending peers. This means hard money lenders can approve loans within days rather than months.
In real estate investing, time is often money, and losing out on a great deal will leave many investors unable to secure the ideal property at the right costs.
Hard money lending is more unregulated and riskier than traditional lending, so it is important to vet lenders and do your research. Also, if you are not an experienced investor, it is essential to consult experts like brokers to secure the best possible lender and the best terms possible for your ideal property and situation.
Hard money loans are options for people with low credit, but interest rates often range from 11 to 15 percent, and there are usually additional percentage fees based on loans. Many experts say you can fund all home repairs for a fix and flip with hard money lenders, and most hard money lenders will also only lend a percentage of the purchase price.
In real estate investing, this metric is called LTV (loan to value ratio), and the average LTV in the field is 70%, meaning you will still be responsible for funding 30% of the down payment, while the hard money lender finances 70% of the property. This leaves real estate investors needing to look elsewhere to not spend money out of pocket.
Living in a home while renting it out is often the most common way of buying real estate with no money. If you default on a hard money loan, the consequences are different than if you default on a traditional loan — the hard money lender takes the property as collateral and assumes ownership if you default.
Real estates are currently at historic lows, and housing values are at an all-time high. Now is a terrific time to invest in real estate.