Peter Brown of eXp Realty in Cranston has some advice for those wanting to pursue the real estate market. He says that it can seem daunting, especially if you don’t have a lot of money saved. However, he outlines several strategies that can help you get started, with little to no money down.
“Whether you’re looking to buy your first home or invest in rental properties, here are some creative ways to make your real estate dreams a reality,” Brown offered.
Some options include:
- Owner Financing: A Direct Path to Ownership
One of the most straightforward ways to buy a property, with little money down, is through owner financing. In this scenario, the seller acts as the lender, allowing them to make payments directly to them, instead of going through a bank. He said that this option works if you have trouble qualifying for traditional financing, as the terms are often more flexible.
“By negotiating with the seller, you might be able to secure a property with a minimal down payment—or even none at all,” Brown said. “Why would a seller want to seller finance? The main reason a seller would want to do this is if they do not want to pay full capital gains when they sell the property. They end up paying less in taxes, but ultimately, they make more money from the sale, due to interest collected over time.”
- Lease Option (Rent-to-Own): Live Now, Buy Later.
Another viable strategy is the lease option, commonly known as “rent-to-own.” This arrangement allows you to lease a property, with the option of purchasing it later. A portion of your rent payments typically goes toward the purchase price, helping you build equity, over time. This approach is particularly beneficial if you need time to improve your credit score, or save for a down payment, while already living in the home you intend to buy.
“This is also a good option, but sometimes hard to find a seller willing to do this. You won’t know if they are open to this option unless you ask,” Brown said.
- Partnerships: Team Up to Break In!
This is probably the best option if you lack the capital to buy property yourself. Consider partnering with someone who has the necessary funds and knowledge about the market you wish to invest. In this arrangement, you contribute your time, effort, and management skills, while your partner provides the financial backing. Profits from the property are then shared between both parties. This strategy not only minimizes your financial risk, but also allows you to leverage the resources of others, to get started in real estate.
“If you don’t know any investors, or people with money to help get you started, then I would advise finding a real estate meet-up in your area. If you would like help finding some good meet-ups, please feel free to call me, and we can connect to help you get started,” Brown said.
- House Hacking: Live for Free.
This is one of the most common and very effective methods, when starting to invest. House hacking is a popular method for those looking to minimize their living expenses, while investing in real estate. The idea is simple: purchase a property with multiple units, live in one unit, and rent out the others. The rental income from tenants can cover your mortgage, effectively allowing you to live for very little, for free, or even generate additional income. This strategy helps you build equity, while reducing or eliminating your housing costs.
“It will also keep your down payment low, as it is typically not considered an ‘investment’ property since you live there,” Brown explained.
- FHA Loans: Accessible Financing for First-Time Buyers
This is probably the most common way for investment beginners. For first-time homebuyers, FHA loans offer a practical solution, with low down payment requirements. These government-backed loans allow you to put down as little as 3.5% of the purchase price. If even this is a stretch, you can use gifts from family, or apply for down payment assistance programs, to cover the cost. FHA loans also come with more lenient credit score requirements, making them accessible to a wider range of buyers.
- Private Money Lenders: Alternative Financing Options
Private money lenders, or “Hard Money” lenders, offer another route to purchasing property without traditional financing. These lenders can be individuals such as friends, family, or investors, who provide funds for your real estate purchase. The terms are often more flexible than those of banks, but tend to require a little more money down. This is typically a temporary loan, while the property is being renovated. After renovations, the owner (you) would do what’s called a “cash out refinance”—and in theory—get your money back (or most of it), and refinance the property with a traditional bank at a lower rate, now that the property has been rehabbed and is worth more. Brown notes that this can be excellent if you have a strong network and a solid investment plan.
- Using a Home Equity Line of Credit (HELOC): Leverage What You Already Own.
If you already own a home, a Home Equity Line of Credit (HELOC) can provide the funds you need to buy additional properties. This method is disregarded by many people, and they may not realize that the equity in their current property may help them acquire more properties.
“By borrowing against the equity in your existing home, you can access cash for a down payment, or even cover the entire purchase. This approach allows you to expand your real estate portfolio, without selling your current property,” Brown said.
- Down Payment Assistance Programs: Help Is Out There.
Many local, state, and federal programs offer down payment assistance to first-time homebuyers. There have been several down payment assistance programs over the last year in Rhode Island. Right now, Rhode Island offers up to 5% of the purchase price (depending on credit, property, and terms), which can essentially mean $0 out of pocket to buy a home. Some municipalities, like Cranston, Warwick, Providence, and Woonsocket, have additional grants that can be used to further reduce your out-of- pocket expenses to purchase a home. These programs provide grants or low-interest loans to help cover your down payment and closing costs, making it easier to purchase a home, with little to no money upfront. It’s worth researching the options available in your area, as these programs can significantly reduce the financial barriers to homeownership.
Again, if you would like more information on how to utilize these programs please reach out to learn more.
- The BRRRR Strategy: Recycle Your Investment.
The BRRRR strategy—Buy, Rehab, Rent, Refinance, Repeat—is a popular method for building a real estate portfolio, with minimal upfront investment. The process involves buying a property below market value, rehabbing it to increase its worth, renting it out, and then refinancing it, based on its new, higher value. The goal is to pull out most or all of your initial investment, allowing you to reinvest in another property, and then, repeat the process. This method is commonly used in conjunction with hard money loans.
Conclusion
While buying real estate with little to no money down requires creativity and careful planning, these strategies demonstrate that it’s possible to enter the market even with limited funds. By leveraging the right approach and being resourceful, you can begin building your real estate portfolio and move closer to financial independence.
“With these strategies in mind, you’re well on your way to starting your real estate journey. Remember, each approach requires careful consideration of the risks and rewards, so be sure to do your homework and seek professional when buying real estate.
“If you would like more information on any of these strategies, or would like any other information on the housing market in Rhode Island or Massachusetts, please reach out to me. Helping people build wealth through real estate is my passion and mission,” Brown said.
Peter Brown can be reached via email at: peter.brown.143879@exprealy.com, or by cell at: 401-601-7480.
