Rental Property With No Money Down?

Question

I'm curious about what others think of this as a viable strategy. Essentially, it goes like this. Find a property that is available for purchase well under market value, say, 75% (so a property valued at $400k that can be purchased for $300k). Using a hard-money/private short-term loan to do the initial purchase, then refinancing it into a conventional loan. The purpose being to purchase a rental property without any money down.

I recognize there are a few possible challenges and threats with this approach:

• Finding such a property is more difficult than simply purchasing something for sale off the MLS at market price.
• Finding a hard-money/private lender willing to lend 100% of the purchase price.
• The possibility that the refinance doesn't go through for some reason and I'm stuck with an expensive hard-money/private loan that I can't pay off when due in 6-12 months.

Recognizing those:

• Are there any potential challenges or threats that I missed that are unique to this scenario?
• Is this a viable way to acquire a rental property without having to put any money down?

Shiloh Lundahl · Answer

@Nick Coons one thing your missing, and that has not been stated yet, is that if you buy the house for 300k that should be worth 400k, if you don’t put money into the property to make improvements then you risk the appraiser valuing much lower than 400k because the bank will question the appraiser as to why it should be worth 400k when you bought it for only 300k. Even if there are great comparables, the appraisal is likely to value it lower.

Carini Rochester · Answer

We would all like to do it that way!

Nick Coons · Answer

Definitely financially stable. Covering the mortgage without a tenant (post-refinance) wouldn't be a problem at all if the need were to arise. I could likely put money into savings for two years and have the needed $100k down. But there are some opportunities that I'd like to not wait two years for (or if they would even exist as they are in two years), so looking for some creative ways to get started sooner.

Luck coming your way, thanks!

Nick Coons · Answer

What challenges do you face in your attempts? I would imagine finding 100% financing from a private or hard-money lender would be a big one.

Lynn McGeein · Answer

You may want to research the conventional lenders now, start forming a relationship, as cash-out refi of an investment property is harder to find, may be stricter limits on LTV, like 70%, waiting periods before they'll do it and possibly rental history requirements if needed to qualify.

Jaron Walling · Answer

@Nick Coons Sounds about right. Provided you're financially stable go out and find a deal 25% below market value, and get it under contract. If it's a good neighborhood and in decent condition the money will find you.

It's 2022 and markets are still crazy. I'll send you some luck, you send me some back.

Rental Property With No Money Down?

Most Popular Reply