7 Ways to Buy Rental Property With No Money Down

Purchasing a no-money-down investment property is an attractive opportunity as it increases the odds of a favourable return. Check out our strategies for buying with a zero down payment.

By Emily Southey | 16 minute read

Interested in learning more about buying a rental property with no money down? You’ve come to the right place! Buying an investment property with no money down is when real estate investors purchase properties without putting much or any of their own money into the upfront costs. 

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Real Estate Investing 101: How to Buy an Investment Property House With No Money Down

Buying any piece of real estate requires a cash investment, but there are ways to ensure this money doesn’t come out of your personal savings account. From partnering with a co-borrower to taking out a hard money loan, check out this list of alternative ways to buy an investment property with a zero down payment.

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1. House Hacking

The first way to buy an investment property with little to no money down is through a process known as house hacking. The concept behind house hacking is relatively simple: An investor purchases a small, multi-family property (for example, two to four units), moves into one of the units, and rents out the other(s). In turn, the rental income they collect from the other tenants covers the housing expenses, including the mortgage, maintenance, property taxes, utilities, and more. Finally, when it comes time for the investor to move out, they retain the property, find a new tenant to replace them, and increase the cash flow even further. In terms of how this helps an investor buy a rental property with no money down, many mortgage lenders require smaller down payments on owner-occupied properties than on investment properties (in their minds, borrowers are less likely to default on their home mortgage than they are on an investment property loan). Therefore, by temporarily living in one of the units you intend to rent out, you may enjoy better mortgage terms.  

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2. The BRRRR Method

Another way to buy a rental property with no money down is by using the BRRRR method. The only catch with the BRRRR method is that it requires upfront cash. However, you will get this cash back. For those who don’t know, BRRRR is a method of real estate investing popularized by Brandon Turner, a real estate expert, bestselling author, and the former host of the BiggerPockets podcast. It stands for Buy, Rehab, Rent, Refinance, and Repeat. The BRRRR method operates as follows: A real estate investor purchases a property, rehabilitates it, rents it out to a tenant (or multiple tenants), refinances the loan on the property, and then repeats the entire process with a new property. More specifically, the first step of the BRRRR method is to find a piece of real estate that meets your goals as an investor. We recommend purchasing a property in an established or up-and-coming area with low vacancy rates and high average rents. Ideally, the property will also be listed under market value. The second step is rehab. This involves repairing and renovating your newly purchased property in an effort to increase the property value and maximize your profits. Step three is to find a tenant who will rent the property from you once the repairs are complete. (Pro tip: Be sure to charge an amount of rent that will cover the property expenses.) The fourth step is to refinance the property, which means using your home equity as cash equal to the value of the property (minus the mortgage amount). Step five is to repeat the entire process all over again with a new rental property. 

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• Refinance: The fourth step of the BRRRR method is to refinance. Now is the time to use the rental income and property value appreciation (thanks to your renovations) to refinance your mortgage loan. With this step, the goal is to use your home equity as cash equal to the value of the property (less the mortgage amount).  
• Repeat: Finally, it’s time to start all over again, which means going back to step one and finding a new property to buy. 

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Ultimately, the BRRRR method is a great option if you are looking to purchase a rental property without using much of your own money. However, owing to the increased risk that comes with higher leverage, this method is typically better suited to more experienced investors.

3. Seller Financing

Occasionally, a seller may be willing to finance the property for you, allowing you to negotiate your own loan terms. In such a scenario, you might be able to negotiate to buy the property with no money down. This tends to work well with property owners who have no mortgage of their own or sellers who inherited the property and do not want the hassle of dealing with it. For example, if someone inherited a fixer-upper and they don’t have the money to make the necessary repairs, they may be willing to accept monthly payments for the property in exchange for a quick and hassle-free sale that is free from REALTOR® commissions. At the end of the day, not every seller is open to owner financing, but some are, so it might be worth asking if you’re looking to buy your first investment property with no money down. 

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4. Assume the Seller’s Mortgage

As mentioned, not all sellers will be willing to finance your rental property, but that doesn’t mean you can’t buy the property with no money down. You might still be able to achieve this by assuming the seller’s mortgage. An investor can offer to take over the seller’s mortgage and make payments on their behalf. This typically translates to lower interest rates for the investor. Plus, they are only left with the remainder of the mortgage, rather than the full mortgage, simply paying the seller directly for any difference. This private method of financing allows the investor to pay the seller however they want. To avoid putting any money down, you could borrow money from friends or family members, take out a personal loan, borrow from your credit card, or even work out a loan with the seller themselves.  

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5. Leverage Home Equity

The fifth way of buying an investment property with no money down is to leverage your home equity. If you own a piece of real estate, you may already have enough capital to begin investing. For example, a home equity line of credit (HELOC) is a common way that homeowners free up money for investment purposes. Another option is a cash-out refinance. Both HELOCs and refinancing are popular options as they can provide investors with enough money to pay for the downpayment and closing costs of a rental property without digging into their personal savings accounts. We outline these two options in greater detail below:  

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• HELOC or home equity loan: If you are already a homeowner, you may be able to use your home equity for a down payment on an investment property. One way to do this is by borrowing money that is secured against your home equity. You could try to obtain a standard home equity loan to cover the down payment. For example, a HELOC would allow you to secure a line of credit against your home and then draw on it whenever you need cash. You would then start paying off this loan as you earn rental income from the investment property.  
• Cash-out refinance: The second type of loan that leverages your home equity is cash-out refinancing. A cash-out refinance allows homeowners to refinance their mortgages for a higher amount than what they actually owe. From there, the homeowner withdraws that extra loan amount as cash. If you use this method, the money advanced to you through the cash-out refinance can then be put toward the down payment on a rental property.  

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Overall, if you have enough equity in your current home, you may be able to buy a rental property without paying any money out-of-pocket. However, to use this method, you will need to have paid off a significant portion of your mortgage and your home must have appreciated in value over time. Under these circumstances, a mortgage lender should be willing to let you borrow money leveraged from your existing property. Keep in mind that you will be responsible for paying back any money you borrow, plus interest.

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6. Partner With a Co-Borrower

A sixth option for purchasing a rental property with no money down in Canada is to partner with a co-borrower. This can be a great option for investors who do not have enough money for a down payment or closing costs on their own. Partnering with another investor can allow you to enter the world of real estate investing with limited funds. When searching for a co-borrower, make sure you settle on someone you trust, whose investing goals align with yours. For example, someone who has the time but lacks the money needed for an investment property is often a good partner for someone who has the capital but doesn’t have time to learn the ins and outs of property management. In such a scenario, these two investors could act as co-borrowers, going in on a rental property together. In turn, they would share the responsibility for monthly payments on the house, as well as the profits that are realized through rental income and equity buildup. Another common example of a co-borrower relationship is when a parent helps their child with a down payment. In another scenario, an investor might even find a co-borrower who is willing to offer them a private loan to help them purchase the home, and in return for their upfront investment, they receive a portion of the monthly payments or home equity. Remember that a co-borrower does not have to be a friend or family member; they could be a stranger who acts as your business partner. 

7. Hard Money Loan

One final option for real estate investors who are looking to buy investment properties with little to no money down is to take out a hard money loan. Hard money loans are typically offered by private lenders and come with high-interest rates and short terms. They work by allowing investors to secure financing based on the present or future value of the investment property. While hard money lenders may review your credit score, the underwriting process is usually less strict than with a traditional mortgage lender. Hard money loans are well-suited to house flippers who often buy fixer-upper homes below market value. Keep in mind that if you are purchasing a rental property, you will need collators (for example, another property) if you wish to go this route. Although a hard money loan can help investors secure the necessary funds to buy a property with little money, these loans can be risky. The combination of high-interest rates and short terms may make some investors uncomfortable. However, they can be a viable option for an investor who wants to purchase a property with private money and flip it — especially when you consider that traditional mortgage loans for this type of real estate investing can be difficult to come by.

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Real Estate Investing Options Beyond an Investment Property

Now that you know seven ways to purchase an investment property with no money down, you probably have a better idea if doing so is right for you. If you do not qualify for the options above or feel they’re too risky, there are still ways that you can invest in real estate. We break down two popular real estate investing options beyond investment properties below. 

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Real Estate Investment Trusts (REITs)

One way to invest in real estate with minimal risk and very little capital is through real estate investment trusts or REITs. REITs are similar to mutual funds, except in this case, they specialize in holding or developing real estate. By investing in a REIT, you become a shareholder and get to benefit from all that being a shareholder entails. Investors typically earn money from REITs in two main ways: First, through dividend payments, and second, by selling their shares of a REIT after the property(ies) has increased in value.

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There are all kinds of REITs available today. Some are focused on commercial real estate while others specialize in residential real estate. This means that by investing in a REIT, you could reap some of the benefits that come with owning a condo, residential home, office building, warehouse, retail space, or even a hotel. 

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The good news is that REITs can be purchased with ease — often in a matter of minutes, just as you would buy and sell a stock, bond, mutual fund, or exchange-traded fund. This makes them an incredibly convenient option, especially for beginner real estate investors. Further, investing in a REIT does not require nearly the same level of responsibility as buying an investment property. When you buy a rental property, you become a landlord. You either have to pay a property management company to manage the property on your behalf or you are stuck doing this yourself. This translates to finding and vetting tenants, handling regular maintenance, taking care of emergency repairs, and more. In contrast, REITs offer a hands-off, hassle-free real estate investment experience. Plus, REITs are far more liquid than actual real estate. This means that you can easily free up money by selling your holdings any time you like. In comparison, selling a home or taking out a new line of credit would be a much slower process. 

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Rent-to-Own

A second real estate investing option is getting involved in a rent-to-own scheme. Such a scheme allows an investor to slowly pay for a property while they rent it. How it works is as follows: An investor pays marginally higher monthly rent and the extra money goes toward the property down payment. Rent-to-own schemes can be a great option for investors as it allows them to gradually save their money and later, to live in the same home after they’ve saved up enough money to cover the down payment. That said, though rent-to-own opportunities are still out there, they are generally less popular in hot markets as landlords stand to benefit more from maintaining their own properties.