How to Buy an Investment Property With No Money Down

Acquiring investment properties can be a strategic way to diversify your portfolio while building passive income. However, beyond finding the right property, determining the best way to finance the purchase is a key challenge. If you want to invest without depleting your cash reserves, there are ways to buy an investment property with no money down. Several financing options allow you to enter the real estate market with little to no upfront cost.

Consult a financial advisor who can help you assess how investment properties align with your broader financial strategy.

Understanding Down Payment Requirements for Investment Property

A down payment is usually required to purchase an investment property.

The typical range for investment property down payments is between 15% and 25% of the purchase price. ¹ However, your actual down payment can depend on several factors, including:

• Your credit score
• Debt-to-income (DTI) ratio
• Property type
• Loan amount
• Loan type

Government-backed loans, including FHA and VA loans, have lower down payment requirements than conventional loans. These types of loans are an option for purchasing investment property when you’re buying a multi-unit home and plan to live in one of the units while renting out the others.

Budget for More Than the Purchase Price

Financing an investment property with little or no money down does not eliminate the need for cash. Even if you avoid a large down payment, there are other costs that can affect how much money you need before the property begins generating income.

Closing Costs

Closing costs are often the first expense investors encounter.

Depending on the financing method, you may be responsible for several types of fees, including:

• Lender fees
• Title insurance
• Appraisals
• Inspections
• Recording fees
• Prepaid property taxes or insurance

While you can negotiate or finance some of these costs, many transactions still require cash at closing.

Operating Expenses

Owning the property also brings immediate operating expenses.

Insurance premiums, property taxes, utilities, maintenance and repairs begin as soon as you take ownership, regardless of whether the property already has tenants. If the property remains vacant for a period of time, you’ll need enough cash to cover those expenses without relying on rental income.

Setting aside a reserve fund can also reduce financial pressure after the purchase. Unexpected repairs, longer-than-expected vacancies and tenant turnover can increase costs with little warning.

Having cash available for those situations can help you keep the property operating while avoiding additional borrowing.

How to Buy Investment Property With No Money Down

Purchasing an investment property with no money down, whether for rental income or a fix-and-flip project, allows you to minimize upfront costs while preserving cash for essential expenses. Instead of using your own funds for the initial purchase, you can allocate resources toward renovations, covering maintenance or managing utility costs during periods of vacancy.

So, is it possible to buy an investment property with no money down? Yes, it is, and there are multiple strategies that can help make it happen.

Option #1: Rent Out Your Current Home

If you already own a home, you might have an easy entry point into the rental market. You could rent it out while purchasing or renting another home to use as your primary residence.

Whether it makes sense to buy another home or rent can depend on your long-term goals and financial situation. If you’re planning to buy, it could make sense to explore low down payment mortgage options to minimize your out-of-pocket costs.

You can skip the down payment entirely by renting another place to live, though you may need to put up some cash for the security deposit and first month’s rent.

Option #2: Try House Hacking

House hacking involves buying a multifamily home and living in one unit while renting out the rest. For example, you might buy a duplex, triplex or quadplex and live in one unit while moving tenants into the other one, two or three units.

How does that help with down payment costs? Traditionally, down payment requirements for owner-occupied properties are lower compared to other investment properties. For example, the FHA loan program has a down payment requirement of just 3.5%. ² VA loans, meanwhile, require no down payment at all. ³

Option #3: Tap Into Home Equity

If you own a home and don’t want to rent it out, you might be able to leverage your equity instead to cover down payment costs for an investment property. Home equity is the difference between what you owe on your home and its market value or what it’s worth.

There are two ways to leverage home equity to buy investment property:

• Home equity line of credit (HELOC)
• Cash-out refinancing

Depending on how much equity you have, you may be able to borrow enough for a sizable down payment. You may even be able to use your equity to purchase an investment property outright.

Option #4: BRRRR Method

Buy, Renovate, Rent, Refinance, Repeat, or the BRRRR method, is something you may consider if you’re specifically interested in purchasing a fixer-upper.

With this method, you will use a purchase-rehab loan to buy a property, renovate it, rent it out to tenants and then refinance it into a new mortgage. You repeat the cycle, pulling cash out each time you refinance to use toward the purchase of your next property. This strategy can still require some cash upfront for the down payment, but you get it back once you refinance.

The BRRRR method may be better suited to an experienced property investor who’s interested in owning a collection of rental properties.

Option #5: Opt for Seller Financing

Seller financing can help you sidestep a large down payment requirement if you negotiate favorable terms with the property owner.

For example, say someone is selling a home they inherited from their parents. They might be willing to work out an agreement in which you make regular monthly payments to them instead of getting a mortgage through the bank.

If you can’t find a good deal with seller financing, you could also consider a lease-purchase arrangement instead. With this type of deal, you’re renting a property to own, with part of the monthly payments going toward the home’s purchase price.

Option #6: Assume the Current Owner’s Mortgage

Assuming a mortgage allows you to take over a seller’s loan at its original terms while paying out the difference to the seller. You could land a low-interest mortgage this way without going through the traditional borrowing process.

You must pay the seller the difference between the mortgage amount and the sale price, but there is some flexibility in how you come up with the money. For instance, you can take out a loan or sell off assets you don’t need to raise the funds.

Keep in mind that before moving ahead with mortgage assumption, it’s important to read the fine print. If there’s a due-on-sale clause in the mortgage, then you won’t be able to take it over.

Option #7: Buy With a Co-Borrower

Maybe you’re interested in owning rental properties, and you have a friend or a family member who is, as well. They have the cash necessary for a down payment but lack good credit for a mortgage, which you just happen to have.

You could team up to buy an investment property together, without having to put in any cash toward the down payment yourself. This could be a win-win, but remember that you’re both responsible for the debt.

You’ll also have to decide how you want to handle things like property management and accounting. This applies if you plan to write off rental expenses on your taxes.

Talking over the details beforehand can ensure that you’re both on the same page before buying property together.

Option #8: Consider Private Financing

Private financing means financing that doesn’t come through a traditional lender. For example, you may borrow money to buy an investment property from friends or family members.

Another option is a hard money loan if you’re planning to buy a fix-and-flip property. These are short-term loans that help you cover the costs of buying an investment property, often with little to no money down. The catch is that you’ll need to sell the property within a fairly short time frame to pay off the loan.

Bottom Line

There’s no one-size-fits-all solution for buying investment property with no money down. Comparing the different options can help you decide which path to follow, based on your budget, credit scores, the type of property you want to buy and your long-term financial goals.

Investing Tips

• Talking to a financial advisor can help you weigh the pros and cons of buying an investment property and whether it might be right for you. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• If you’re interested in property investing but don’t want to own real estate directly, there are a few other possibilities you might consider. For instance, you could generate passive income with dividends using a real estate investment trust (REIT).

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