Think you need to save up money to start a property portfolio? The truth is you don’t need to use your own money at all. That’s right, you can invest without having to touch your savings. Traditional lenders, like a bank or credit union, require a down payment. This is typically 20% or more of the purchase price. This means that most of the time, you’re required to have tens of thousands of dollars of your own money saved up to go the traditional route. However, it’s not necessary.
Invest in Property Without Using Your Own Money
Buying property with no money down is quite common and easy to do. Here are five ways to do just that.
Use a property as leverage for a home equity loan
This option is only viable if you have a high credit score and own another property. If you own a property with equity and have excellent credit, you can put your property ‘on the line’ to get a home equity loan to pay for the new property. This non-traditional financing option allows you to receive a loan for up to 80% of your home’s equity. It’s a great option but it is does care some risk, as you are putting your existing residence on the line.
Use your house as a rental: House hacking 101
An up-and-coming trend is house hacking, where you purchase a multi-unit property to live in and rent out the additional units. This is popular among new and young real estate investors, who tend to have little to no money of their own to invest. There are also a lot of down payment assistance programs or low down payment loans such as the Federal Housing Administration and 203k loan, which lower your down payment from a minimum of 20% to 3.5%. It is also possible to make enough from renting out the other units to cover the cost of your bills and even your mortgage all together.
Seller financing is also known as owner financing. Instead of going to a bank or a credit union for a loan, the owner of the property holds the financing for the buyer. In other words, the seller of the property acts as the lender for the buyer. The buyer then repays the loan in accordance with the repayment terms outlined in the formal agreement, like a note and mortgage.
Some sellers know exactly what terms they will accept, while others are open to negotiation. If you are skilled and strong at negotiations and can determine the seller’s needs, it’s entirely possible to work out financing with no money down or have the seller carry a second mortgage. This option is an excellent choice if you know and trust the seller but beware it can get tricky if there are any issues with the agreement.
Get a ‘hard’ money loan
Hard money loans are the most often used when investing in property with no money down. A flip property, for example, or a fixer-upper might need a hard load option due to bank assessments on the property not matching the property price. With this option, you can get a loan not just for the property price but based on the future value of a property.
Find and use an investment partner
Finding an investment partner is one of the most well-known ways to get your foot on the property ladder. This is a great option for someone who wants to fix up a house and sell it on, and an investor who wants to make money on the profits, while avoiding the hard, messy work altogether. If you have the money to invest, it’s a great way to get your hands on a bigger property by pooling your funds with someone else. If you choose this option, no matter which scenario, make sure it’s someone you trust.
These are five of the best ways you can invest in the property market without having to pay any money down.