How to Invest in Rental Property with Little Money

How to Invest in Rental Property with Little Money

What are my investment options?

Here are the most popular real estate investment methods:

  • Rental properties
  • REITs
  • Real estate investment groups
  • Flipping houses
  • Real estate limited partnerships
  • Real estate mutual funds

Let's dive deeper into how these work.

Rental properties

Rental properties are the most hands-on option in this list. You buy a piece of residential real estate and rent it to tenants. Many rental properties are rented for 12-month periods, but shorter-term rentals through companies such as Airbnb (NASDAQ:ABNB) are becoming more popular as well.

As the property owner, you are the landlord. You’re responsible for upkeep, cleaning between tenants, big repairs, and paying property taxes. Depending on the lease terms, you may be on the hook for replacing appliances and paying for utilities.

You make money off rental properties from the rental income you receive from tenants and price appreciation if you sell the property for more than you paid for it.

You can also benefit from tax write-offs. Under passive activity loss rules, you can deduct up to $25,000 of losses from your rental properties from your normal income if your modified adjusted gross income is $100,000 or less. Depreciation (a noncash expense) and interest (which you pay no matter what), could make the property show an accounting loss even when you’re still making money.

When you buy rental property, you could need a down payment of up to 25%. But if you charge enough rent to cover your mortgage payment, you’ll get the rest covered by your tenant, plus any price appreciation.


Rental Property Financing 101

The second limiting factor in growing your real estate portfolio will always be financing. It’s simple—if you can’t get a loan, you can’t buy the property. You can buy it with cash, but it will slow down your wealth generation.

New investors naturally rely on conventional, 30-y

New investors naturally rely on conventional, 30-year loans to buy rental properties. These are perfectly fine since government-backed mortgages often have the best rates and the longest terms/amortization periods of anything you’ll find elsewhere.

The problem is that due to their rather strict debt-to-income requirements and other regulations, you will, in many cases, max out at around 10 loans. I’ve heard people disagree on the actual number, but I think around 10 is a good guess. After that, the vast majority of banks will simply refuse to give you a new mortgage.

Avoid Becoming House-Poor

There is a phrase in real estate and finance called “house-poor.” The term describes people who stretch themselves too thin when buying a home and are left without any emergency money. When unexpected events happen, such as a job loss or broken appliance, these homeowners are in such a tight spot financially that it is difficult to recover. Unfortunately, this is all too common when attempting to invest in real estate with no money.

There are a few ways to avoid being backed into a corner financially when purchasing real estate. It is always a good idea to keep your emergency fund separate from other money and not include it in your estimates when buying a house. That way, if anything were to happen, you have funds you can rely on. In some cases reserving your emergency money may force you to make a smaller down payment than you want. Remember that even if you are required to get mortgage insurance initially, you can always refinance down the road when you have more equity in the home.

Benefits of a No Money Down Investment Property

The benefits of having more of your money as you take on an investment property aren’t too hard to imagine. For starters, you’ll be able to buy sooner. The biggest holdup for aspiring rental property owners is having the cash upfront to proceed. With no money down and 100% financing, you can get the money you need with the ability to pay it off gradually over time, allowing you to pull the trigger sooner — and more confidently.

This is especially true if you’re looking to flip Secondly, “cash is king.” It’s the most valuable investment tool you have. With more cash in your pocket, you’ll have better buying power to maximize your investment goals. You can better find a property you want in an area you want without upfront costs draining you dry. And by staying liquid, you’ll be able to prepare for the not-so-fun parts of owning an investment property. From pest control, maintenance, and repairs like a leaky faucet or broken light, to big emergencies like gas leaks or flooding, cash reserves keep you from diving into the red.

This is especially true if you’re looking to flip your investment. Between insurance, rehab fees, and permits, not to mention unwanted surprises hidden behind walls and under tiles, your total investment cost isn’t always predictable. It’s important to have a little extra for any unexpected costs.

And if the goal is to own another investment property in the near future, staying liquid could be the difference between buying in a year or waiting for another ten. When you’re not using all your cash to pay for this first investment mortgage, you can control when it’s time to invest again.

Rent Out Your Own Property House Hacking

House Hacking is an alternative to traditional rental income that has been gaining popularity in recent years.

It is the practice of renting out a portion of your house to cover the Mortgage or other costs associated with owning a home. It can also be defined as purchasing a home near your current residence and renting it out while living in the main house. This allows you to avoid paying for two mortgages or having the equity tied up in two homes.

An excellent way to rent out a portion of your house is through Air BnB. This platform is also great for vacation rentals. When you become more established as a landlord having a vacation rental is a great way to diversify your portfolio.

House hacking makes it possible for future landlords to have the best of both worlds. They can enjoy the benefits of homeownership and get into investing at the same time.

This is not just a way to buy homes. It's also an investment technique that can help people who don't have enough cash to purchase real estate properties and own them.

The idea of living in a home you're renting out may sound very appealing if you're willing to put in the work and spend more time at home. It can be cheaper than renting space elsewhere too.

Given these points, house hacking is an opportunistic strategy for looking for ways to become a landlord with little or no money. It's also a great way to get into real estate investing without the hassle of property management or building equity from scratch.

  • Pros – House hacking is a simple way of owning a home without paying the full price. It offers a way for landlords to reduce or even eliminate their costs associated with the rental while also investing in the property. It requires minimal time, money, and effort.
  • Cons – House hacking is not legal in all areas. You might not get tax breaks as regular homeowners do, and you should be well informed of insurance implications and potential liability before renting out your own property.

The highest risk comes from the tenants. If they don't pay the rent, that could leave the landlord without an income and no place to live.


Becoming a landlord with no money at all is not very realistic. The truth is that no one can become a landlord without investing some cash because they inevitably must pay property taxes, insurance, management fees, and maintenance costs.

However, as shown above, there are some ways to buy properties with little or no down payment. It's up to you to choose the most suitable one for the beginning of your professional adventure as a landlord.

We recommend doing comprehensive research before making up your mind on which option you choose to help you on your way to becoming a landlord.

Hard Equity Line of Credit

Leveraging your property with a hard equity line of credit (HELOC) is another way to buy rental properties with no money down. HELOC loans allow buyers to use existing equity in their current home as collateral towards the new home. Buyers will receive a lump-sum payment and repay the loan with a fixed-rate interest over a set period of time.

By accessing their home equity, buyers don’t have to pull money out of their pocket to buy a new property. Instead, they can use these funds to finance a new down payment and acquire a rental property. With more rental properties and more capital growth, your equity will grow faster allowing you to acquire more properties and build your rental portfolio with ease.

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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.

  • 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

So the investment strategy is: 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.”

Find the Right Location

The last thing you want is to be stuck with a rental property in an area that is declining rather than stable or picking up steam. A city or locale where the population is growing and a revitalization plan is underway represents a potential investment opportunity.

When choosing a profitable rental property, look for a location with low property taxes, a decent school district, and plenty of amenities, such as restaurants, coffee shops, shopping, trails, and parks. In addition, a neighborhood with a low crime rate, easy access to public transportation, and a growing job market may mean a larger pool of potential renters.

Invest in Landlord Insurance

Protect your new investment: In addition to homeowners insurance, rental property owners should always purchase landlord insurance. This type of insurance generally covers property damage, lost rental income, and liability protection—in case a tenant or a visitor suffers an injury as a result of property maintenance issues.

Keep in mind that standard homeowners insurance policies may not cover losses incurred while the home is rented out. Contact your insurance agent to make sure you are adequately insured.

To lower your costs, investigate whether an insurance provider will let you bundle landlord insurance with a homeowners insurance policy.

Seller Financing

Another easy way to acquire property with no money down is with the help of the seller. For example, a seller may decline a down payment in return for higher monthly payments. Or, the seller may pay for the buyer’s down payment in order to sell the property faster.

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Real Estate Partnerships

You don’t have to go into a real estate investment alone. Buying a rental investment property with no money down can also be done with a real estate partner. In a real estate partnership, you and your real estate partner agree to share ownership of a property. If you don’t have enough money to put down, you can find a trustworthy investing partner who can help you out financially.

A real estate partner could be family members, friends, or colleagues. You could also work with a private lending company. These companies offer loans similar to a bank but offer more flexibility. One of the best partnerships you could enter into as a first time investor is with a more experienced real estate investor that can help you out financially, as well help show you the ropes of rental properties.

5. 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.

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 via a slightly higher rental fee.

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The bottom line

Real estate investing can seem intimidating at first. Not everyone has the time or ability to flip houses or handle having a tenant. The good news is there are options available for every level of investor, with each catering to different goals, skill levels, and time constraints. The most important thing to do is get started today and let your investment start compounding now.

Research, Research, Research

There are certain buyers that may be more suitable for accepting no money down offers on a property than others. If a property has been on the market for a long time or is being advertised as a must sell, the seller may be more willing to negotiate. In addition, as with any real estate investment, always research the property before completing a sale.


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