October 7, 2019 12:00 PM PT

How to Invest in Real Estate with No Money

You can earn cash through real estate investments with no money down. Sound too good to be true? Here's what you need to know before you invest.

Getting Started

Looking to invest in real estate? Your options will depend on factors like:

Holding on to a property to rent it out can save money through your returns. Selling your property as quickly as possible is a higher risk.

Work / Effort
Would you rather repair and remodel or sell your property as is?

Borrowing Strategy
You could borrow the funds and make payments on a loan or sell the property and pay the loan back immediately.

Managing the Property
As a landlord, you would have to find and screen tenants. Plus, you'd need to address any issues that they have while renting. Otherwise, you can hire those tasks out to a property manager.

What type of real estate will you invest in?

  • Residential
    Single family homes, mobile homes, multi-family homes (less than 4 units)

  • Commercial
    Multi-family properties (more than 4 units), apartments, business zoned property

  • Land
    Land that is zoned for either commercial or residential use

Keep reading to find the best no-money-down real estate investment for you.

Seller Financing

A motivated seller might be willing to finance the property with no down payment. Seller financing is a popular way to obtain 100% financing when the seller is looking to get rid of a property, especially at a discounted value.

Real estate brokers will work with you for free. They know the market in their area, and they will be aware of sellers that either offer or may accept special terms—such as seller financing and lease options.

Advantages of Seller Financing
With seller financing, you can:

  • Offer higher monthly payments for a length of time instead of a down payment.

  • Negotiate no payments for a set time frame, perhaps the first 3 months. Take advantage of the payment-free time to repair or spruce up the rental property and to find tenants.

  • Negotiate lowered payments for a set period, such as the first 6 months. Your savings can cover the cost of any repairs, give you additional income for several months, and help you come up with a down payment for your next property.

  • Ask the seller to pay your down payment to a traditional lender to get the property sold quicker. The seller may request that you pay back the down payment or just include it in the agreement, which reduces the selling price of the property.

Disadvantages of Seller Financing
It's best to ask questions and get legal advice when entering a seller financing agreement. Consider these seller-finance disadvantages:

  • The interest you pay may be higher than what you might pay to a traditional lender.

  • The bank or lender can demand immediate payment in full if the existing mortgage contains a due on sale clause. Make sure the seller owns the home debt free or that the lender agrees, in writing, to owner financing.

  • If the property is sold "as is" and you don't pay to have the home inspected, you could take on a property that needs costly repairs that are well beyond your means.

Avoid costly mistakes
Both the buyer and the seller need to consult with a real estate attorney in a seller-financing agreement. An expert can answer questions and draw up the contract properly.

Lease Option

Lease option is a form of seller financing which may or may not require a down payment.

The tenant-buyer leases the property with an option, not an obligation, to purchase the property.

This is a slower way for an investor to purchase property, and the contract may call for a year or more of payments. But it gives the investor time to come up with the money to buy.

Advantages of Lease Option
Term flexibility is the main advantage in a lease option, but here are some others:

  • Pay the down payment back in multiple payments. For example, the down payment is $1,000. The seller may agree to add $200 a month onto the first five lease payments.

  • A portion of the monthly lease payments may be credited to the purchase price.

  • The investor buyer is granted the option to buy the property.

  • The investor may make repairs or renovations and sell the leased property for a profit before the lease option expires.

Disadvantages of Lease Option
The main disadvantages to lease options are the lack of details. Here's what you should know:

  • Monthly lease option payments could be higher than traditional lease or mortgage payments. Seek a term of at least one year, optimally three years.

  • The property could depreciate before the lease option expires. Ensure the option price is within 5% of market value.

  • The seller may not pay the property taxes and insurance. Be clear on who will be paying those costs.

  • The landlord could default on their mortgage. If the property goes into foreclosure, the investor could lose their contract. Consider offering to pay the mortgage for the owner in lieu of the title to ensure the property does not go into foreclosure.

  • Subleasing may not be allowed. Include the right to sublease in your agreement or you could end up losing the property due to a breach of contract.

Make sure the lease option contract spells out the exact amount of the monthly payments that is applied towards the purchase price and the exact final price for the property.

Sandwich Lease Option

Lease sandwich options consist of two lease-to-buy contracts:

  1. The seller leases to the investor.

  2. The investor then finds a tenant-buyer who agrees to sign a rent-to-own option.

The investor is then "sandwiched" between two lease options, one with the seller and the other with the tenant-buyer.

Advantages of Sandwich Leases

  • As a landlord, you make money through your tenant's rent payments, which increases your ability to raise funds for future property purchases.

  • Your tenant should pay an option fee. This is how you make quick money added to your bottom line.

  • The investment property is already sold and should make a profit.

Disadvantages of Sandwich Leases
Sandwich lease disadvantages are like those of lease options, with some differences:

  • The buyer may upkeep and maintain the property, causing the property to lose value.

  • The tenant might pull out of the rent-to-own agreement. You'll have to decide whether to drop out of your end of the lease option as well or seek another tenant willing to sign a lease option.

Master Lease

If a landlord is motivated and wants to step away from property management, they may consider a master lease agreement.

With a master lease option, you lease a commercial property as a single tenant with an option to buy. Then you sublease it to occupant tenants. Commercial properties in a master lease include multi-family properties, such as apartments.

Advantages of Master Leases
Here's why you may want to consider a master lease:

  • The lease price, length, and tenants are all controlled by you.

  • You can let the property go if you determine it is not worth purchasing when the contract expires. You've signed an option to buy, not an obligation to buy.

Disadvantages of Master Leases

  • You may pay higher taxes on commercial property.

  • Insurance for commercial property tends to run higher than single-family residences.

  • State and local ordinances may differ from single-family residences. For example, some cities require that commercial property trash disposal include a percentage of recyclable waste distribution.

  • Management of multiple-tenant properties may require more of your time. You'll have to handle the maintenance and repair requirements for multiple tenants.

Option a Property

A purchase option has nothing to do with lease options. The contract gives you the exclusive right to buy the property at a set price by a certain date.

Your sole responsibility is to get the house sold and find a buyer who can either pay cash or obtain a loan. When the house is sold, you collect the fee.

Option Advantages
With an option, you have:

  • An agreement in hand that sets the selling price for a property for a set fee, which gives you time to find your own buyer.

  • No down payment requirement

  • No payments to make. The seller continues to make payments until the property sells.

  • No tenants or repairs to handle, as all transactions are for the property "as is."

Option Disadvantages

  • You must find a willing buyer before the option contract expires.

  • If the seller is struggling financially, they may lose the home through foreclosure before you find a buyer. Bring a real estate attorney into the deal from the beginning to avoid this situation.

Wholesaling Property

With wholesale transactions, you buy a piece of property that is priced much below market value. Then, you sell the property to a buyer willing to fix it up and make it their ideal property.

You never plop down money for repairs. But you still net a profit. If you evaluate property values correctly, you'll experience profits from $10,000 to $15,000 with every sale.

Wholesaling Advantages

  • Profit on every sale you make, if you've done your property evaluations correctly.

  • No time or money spent on fixing the property.

Wholesaling Disadvantages

  • Time and effort spent finding owners who are willing to accept an offer at wholesale pricing.

  • Mistakes in property value evaluations may cost you profit.

Consider buying foreclosures directly from banks. Lenders won't typically consider either a purchase or lease to own option, but they will accept cash. You may be required to provide proof of funds before a lender will accept your offer.

Real Estate Trading

Real estate trading is an arrangement that requires no cash down payment. Find a buyer who is willing to sell a property to you at the same time you buy a property from them, optimally at a matching sale price.

Trading Advantages

  • Earn money at closing when the property you acquire is worth less than the property you are trading.

  • Save money on commissions if you don't involve a real estate agent.

  • No down payment is needed if you are not obtaining a conventional loan for the property.

  • Additional assets can be added to the deal to even out the trade, such as cars, boats, recreational vehicles, including your own promise of "sweat equity."

  • You may be able to trade without paying capital gain taxes if you make a "like-kind" exchange under Internal Revenue Code Section 1031.

Trading Disadvantages

  • The trade needs to be "even" in property values or assets to keep the need for cash or loans out of the picture.

  • Property evaluation must be precise. Fresh property appraisals are recommended.

  • Lenders may need to be paid off if mortgages are owed on properties.

Trading is a much smoother deal when both properties are owned outright without loan or mortgage legalities to deal with.

Assume a Mortgage

Assuming a mortgage means you take over a mortgage and agree to catch up any delinquent payments. In turn, you acquire property in your name. There is typically no money down.

Advantages of Mortgage Assumption

  • Frequently, no down payment is required. Consider working out a deal with the sellers if a down payment is required, such as a contract to pay off their personal debt in lieu of them making the down payment for you.

  • You will see little to no change to the original loan terms or interest rate. An assumed interest rate may be less than today's interest rate.

  • The fees are usually must less than traditional closing costs.

  • Sellers may agree to pay assumption fee and title search.

  • You may acquire property much below market value, with equity built from years of mortgage payments made.

Disadvantages of Mortgage Assumption

  • Original mortgage may have a lien. A title search completed through a reputable business is a must.

  • Some mortgages are not "assumable." This means you'll have to search for an assumable loan, and most property listings do not list this upfront.

  • You will have to go through the same approval process as you would with a traditional mortgage.

Joint Venture

You can partner with someone who can fund a down payment for an investment. Then you can offer your own skills, such as managing the property.

Perhaps you can manage the entire real estate deal from start to finish with a well-laid out investment plan. Your partner wants no part of the management process, but he or she will front the down payment and is eager to make a return on their investment.

Here's what that could look like:

  1. Partner A invests a $2,000 down payment.

  2. Partner B retains control of daily management (reselling, renting, obtaining tenants, and the management of said tenants).

  3. Partner A receives 50% of the profit, or no less than $4,000 when the property is sold.

  4. Partner B pockets the balance of return.


  1. Partner B pays a percentage of rent to Partner A each month until $4,000 is paid (by a certain date).

  2. Partner B pockets remainder of monthly rent and manages/maintains the property.

  3. Partner A receives no additional returns unless/until the property is sold.

The advantage to a joint venture is that your partner funds the down payment while you both see a return on investment.

Any disadvantages can be avoided. Make sure you can afford to pay your partner back and ensure sure you have the time and skills to complete any services you offer as part of the deal.

Private Lender

The term private lender, especially in reference to real estate transactions, includes lending institutions as well as individuals (friends or family members). A private lender is not always a bank.

Where Do I Start With a Private Lender?
Here are some steps to consider:

  1. Decide who you would like to borrow from—bank, family member, friend, lending institution, etc.

  2. Consider the terms you'd like to propose, such as the time period for repayment.

  3. Determine if you'd like to offer the property, or other assets, as collateral (a bank or lending institution may require this).

Advantages of Using Private Lenders

  • Flexible terms that can be negotiated

  • No money down, if they agree

Disadvantages of Using Private Lenders

  • Private lending institution may charge a higher interest rate.

  • Payments may dip into your earnings until the debt is repaid.

  • Personal relationship are at stake if you do not meticulously plan the deal.

Home Equity Loan

You can open a line of credit or second mortgage using a home or piece of property that you own as collateral. But you'll probably need to have a credit score in the high 600s.

Look for a bank that offers you a decent interest rate and enables you to easily pay the loan back.

Advantages of Home Equity Loans

  • Provides money to cover your real estate down payment (with no down payment needed to obtain the loan).

  • Lower interest rates are typical compared to a private lender loan from a banking institution.

Disadvantages of Home Equity Loans

  • You are putting your own property or home that you live in at risk. Make sure you are fully capable of paying the loan back before signing on the dotted line.

  • The loan eats into your profits until it is paid in full.

Do not borrow more money than you need. An open line of equity credit can lead to much temptation. Overborrowing will take that much longer to repay and will cost you in accrued interest.


Online microlenders serve individuals who are impoverished or unable to obtain loans from mainstream banks.

Let's consider the sandwich lease option as an example of how you can creatively use a microlender loan to close the deal.

  1. You've found a great piece of investment property that you're interested in through a lease option, but you need to come up with a down payment.

  2. The seller will not allow you to pay the down payment through monthly payment terms.

  3. You already have a buyer, an individual who is interested in obtaining the property from you in a lease option, and they have the cash for their down payment.

  4. You obtain your down payment from a microlender and you sell the property immediately afterward.

Advantages of Microloans

  • You have money for a down payment.

  • Microlenders are less interested in your credit score than traditional banks.

Disadvantages of Microloans

  • Loan payments will cut into your profits until paid in full.

  • May pay a higher interest rate than with a traditional lender.

Microlenders, on average, lend $13,000 and up to $50,000. They are geared towards newer or startup businesses that need capital to generate growth.

These lenders are less focused on credit scores than banks that offer larger loans, but beware of interest rates. Shop around for the best interest rate—don't jump at the very first offer without doing some comparison shopping.

Tips and Tricks for Real Estate Investing

Here are some tips to consider when you begin investing in real estate:

Seek a Real Estate Broker Or Agent
This shouldn't cost you a penny. Brokers and agents will help you find motivated sellers, especially those that may accept non-traditional terms, such as lease-to-buy options or seller financing.

Get a Real Estate Attorney
This person should be involved in creating and reviewing your agreements and contracts.

Ensure the Deed is Clear
This needs to happen before contracting on a property. Hire a reputable professional to complete the title search.

Hold the Property Until it Appreciates
Resist the urge to sell early!

Know the Tax Implications
How is the property zoned by the city or classified by the IRS? You don't want to partake in what appears to be a great investment deal and end up plunking down a major amount of money to the city, state, or government.

Bottom Line

You can invest in real estate even if your bank account is empty. All you need is a basic strategy. Understand how much you'd like to be involved in the property management before you begin.

And don't forget to weigh the advantages and disadvantages before completing a real estate transaction.

More from CreditDonkey:

Real Estate Crowdfunding

How Do I Start Investing With Little Money

How to Start Investing

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