Getting started in real estate can feel nearly impossible without a large chunk of cash saved up. However, it doesn’t have to be. With the right strategy, creativity, and willingness to learn, you can start a profitable business with little to no money out of your own pocket. Today, we’ll review how to start a rental property business with no money and provide strategies that have brought several investors success.
House Hacking for Equity and Cash Flow
One of the easiest ways to break into the real estate space with little money down is by house hacking. The concept of house hacking is simple–you buy a property, live in part of it, and rent out the rest. This may be a multi-unit property, or you could even rent out extra bedrooms in a single-family home.
Since you’d be living in the property, you may qualify for low-down-payment loans like a Federal Housing Administration (FHA) loan or a U.S. Department of Veterans Affairs (VA) loan. Then, the rent from your tenants can cover most, if not all, of your mortgage, allowing you to live for free while building equity. During this time, you’re also gaining property management experience–similar to what a property manager in Austin might handle– by managing tenants, keeping up with maintenance, and more.
Investor Partnerships
If you’re wondering how to start a rental property business with no money, consider partnering with someone who does. Forming real estate partnerships is a great way to leverage other people’s money while you contribute your time and knowledge to the investment.
Generally, in this type of arrangement, you’ll find the deal, do the legwork, and manage the property, while your partner supplies the funds. When it comes to how profits are split, it’s up to you and your partner and who contributes what to the deal.
If you have no real estate experience at all, it may be hard to attract investors who want to work with you. So, you’ll want to do things to build trust and show that you understand the market. For instance, do extensive market research and present solid investment opportunities, or show that you have the ability to manage a property successfully.
Seller Financing
Seller financing, otherwise known as owner financing, is another way to buy property with little or no money down. Instead of borrowing money from a bank, you make payments directly to the seller over time.
This strategy works best when you work with a seller who owns the property outright and is open to more flexible terms. Since there’s not a traditional lender involved, you can usually negotiate a lower (or no) down payment, lower closing costs, and more lenient qualification requirements.
Seller financing is especially useful if you’re looking at off-market properties from motivated sellers who are open to receiving steady monthly income instead of a lump sum.
BRRRR for Infinite Returns
BRRRR stands for Buy, Rehab, Rent, Refinance, and Repeat. This is a great strategy for investors who want to build a portfolio with very little capital. Here’s how it works: you buy a distressed property using borrowed funds (for example, a hard money loan), renovate it to increase the value, rent it out, then refinance with a traditional lender based on the new value.
When done correctly, refinancing the property can return all of your original investment and allow you to repeat the process with another property. While it takes a lot of hard work and dedication to your project, this strategy can help you quickly grow your real estate business.
Hard Money Lending & Private Financing
If you don’t qualify for traditional lending, private or hard money loans are your best friend. Instead of focusing on your credit score and financial history, hard money lenders are asset-based, meaning they care more about the property’s value than anything else. These types of loans generally come with higher interest rates, but are ideal for short-term projects, like BRRRR deals or fix-and-flips.
Private loans, on the other hand, involve borrowing from individuals, whether it be family, friends, or professionals, who want to earn a return on their money. That said, these lenders generally offer more flexible terms and can fund deals quickly. If you’re good at negotiating, you can invest in properties with little to none of your own money.
Control Properties via Lease Options
Still not sure how to start a rental property business with no money? A lease option is another way to obtain real estate without buying it outright. For this strategy, you sign a lease agreement that gives you the right (but not necessarily the obligation) to purchase the property later at a predetermined price.
You can then sublease the property to a tenant for a higher monthly rate (with permission from the current property owner), generating cash flow in the meantime. Some investors use this strategy to secure future deals while building income and credibility in the real estate space. Additionally, if you can negotiate well, this option can require little to no upfront cost, making it great for those who don’t have a lot to offer right away.
Leverage Business Credit
Another way to get into real estate that’s often overlooked is by leveraging business credit. For instance, you can establish a business entity (like an LLC) and begin building business credit that’s separate from your personal finances.
A good place to start is by opening vendor accounts, paying your bills on time, and gradually applying for business credit cards or lines of credit. Then, once established, you can use this to fund property repairs, down payments, or other investment costs.
Not only does leveraging business credit help free up personal capital, but it also helps protect your credit and liability. When used responsibly, business credit can be a very valuable tool in establishing and scaling your rental property business.
Need Help Managing Your Properties?
Wondering how to start a rental property business with no money? These strategies can help you achieve your goals, even if you don’t have much starting capital. Many investors leverage strategies like house hacking, partnerships, or other creative financing methods.
Once you’ve secured a property, the next step is managing it effectively to ensure long-term success. However, if you’re a busy investor, you may not always have the time–this is where a professional property management company can help. Here at Stone Oak Management, we can help handle tenant screening, rent collection, maintenance, and compliance, so you can focus on growing your business. Contact us today to learn more about how we can help you succeed as an investor.
