How to buy a rental property with no money down: A real-estate investor with a 26-unit portfolio shares 2 strategies for new investors — and 7 other tips for getting started (2024)

One is a strategy that many probably don't realize is even possible — they bought a $60,000 property using credit cards.

To do this, they used a service called Fund & Grow. The site allows would-be investors to pool money from multiple credit cards to put towards a property. They then used business transaction firm Plastiq to pay the title company for the property.

While this sounds risky, as credit card debt can quickly compound and over one-third of Americans carry an ongoing credit card debt balance, the Spinellis took a low-risk approach. This is because the credit cards they used were zero-interest for a year or more, and they immediately began paying back the balance with rent payments when a tenant moved in.

Over the course of the first year, they got the balance down to $40,000, and then decided to take a cash-out refinance out of the home. The property's value had appreciated to $85,000 over that time, she said, and so they took out $60,000 of equity through the refinance, repaid the remaining credit card balance of $40,000, and then used the leftover money for other down payments.

The other no-money-down method the Spinellis used was to borrow money from a hard-money lender.

Hard-money lenders offer quick access to cash with fewer hurdles than getting a loan from a bank, but interest rates are higher and loan terms are shorter. According to Rocket Mortgage, average rates on hard-money loans in May 2022 were between 8-15%. By comparison, current data from Mortgage News Daily shows the average 30-year fixed mortgage rate is around 7%.

When the Spinellis used a hard money lender, they borrowed enough to buy the property and fix it up. With the property value higher after the rehab, they took out a cash-out refinance from a bank, paid back the hard-money lender, and put a tenant into the property whose rent payments would go towards paying back the cash out refinance.

This is one way of executing the BRRRR strategy, an acronym for buy, rehab, rent, refinance, repeat.

7 top tips for new investors

If one doesn't want to take either of the routes mentioned above, Spinelli recommends buying a home with an FHA (Federal Housing Act) loan, which allow buyers to purchase a home with an extremely low down payment. For example, she bought her first home with one in 2009 with a 3.75% down payment.

You would have to live in the property for at least a year, however. Given this, she said to consider house-hacking, or subletting out rooms in the house to tenants. This is one way to pay off a mortgage faster, or to save up money for other down payments.

To save enough for a down payment, she recommended keeping the same lifestyle when you get a raise,saving the extra income, and cutting costs where possible. She also said it's possible to partner with someone who does have the money.

Next, she said to invest for cash flow and not to bet on appreciation, especially right now as home prices are up around 40% since the start of the pandemic.

This is also a safer approach, she said, as it's not sensitive to price fluctuations.

"I would never go for appreciation when we've been at the top of the market," Spinelli said. "When you're buying for monthly cash flow, it does not matter if the property tomorrow loses $50,000 in its value, because you're buying for cash flow and that's what you're getting. And typically in a 10-12-year span, when a crash happens, your value comes back."

To make sure you're cash flowing enough to make the mortgage payment each month, Camille said to use the 1% rule, which says that rent payments should be equal to 1% of how much you bought the property for.

Finally, she said to try not to buy in places that have higher property taxes. These include states like New York, New Jersey, and California, she said.