If you are thinking of buying a property, you probably assume that you will need a down payment to do so. Lenders don’t like to give you a loan worth 100% of the value of the property because it increases their risk – and that means you have no skin in the game.
But you shouldn’t be discouraged if you don’t have any money to put aside. There are a number of options available to you to gain exposure to real estate in your investment portfolio, even if you have little or no money to invest in a property. Let’s take a look at the different possibilities to see which might work best for you.
Partner with an investor who has cash
Just because you don’t have a lot of money to save doesn’t mean you don’t have to contribute.
If you’re good at DIY projects or you’re good at finding properties to buy at a bargain price, you may be able to work with a partner to make real estate investments. This partner could provide the money, you could find or repair the properties, and you could split the profits.
The catch, of course, is that this can be a risky approach, and you’ll need to make sure your co-investor is trustworthy. To protect your interests, you will need to put a lot of legal details in writing. But it’s an option if you commit to owning properties outright and don’t have the money to buy them.
Explore No-Down Loan Options
Another option you have if you want to buy physical properties is to explore loan options that don’t require a down payment or that only cost you very little money. These loans can be a little harder to find and often come with higher interest rates and higher upfront fees, but they do exist.
If you find a loan that requires little or no down payment, just be sure to read the fine print and confirm that you know how it works, what your payments will be for the life of the loan, if those payments may change, and to which will add up to your total borrowing costs. Make sure the loan is affordable both up front and over time.
Invest in real estate without directly buying the properties
Finally, one of your best options if you don’t have a down payment but want to invest in real estate is to gain exposure to this asset without buying your own properties.
If you buy a real estate investment trust (REIT), you can benefit indirectly when the real estate industry is doing well since you own a stake in a company that owns, manages or finances properties. You can earn reliable dividends and eventually, hopefully, sell your REIT for a profit. This gives you the opportunity to earn a steady income over time as well as receive payment when you sell, just like owning your own property.
You can usually start investing in a REIT with a very small initial amount of money – far less than you would need for a down payment. And the buying process is simple and easy. Since a REIT can also allow you to buy a company that owns multiple properties, your risk is reduced compared to what it would be if you only bought one investment property.
As you can see, you have a few options for investing in real estate with no down payment, some of which are better than others. Take the time to think about what’s right for you so you can make the most informed choices when building your portfolio.