Don’t have 20% to put down on an investment property? Don’t want to put 20% down? Whatever the case, there are more ways to fund your property than you think. In this article, we’re sharing the lowest down payment for investment property options, so you can grow your rental portfolio faster!
Summary:
Buy your next turnkey rental with Rent to Retirement’s 5%-down loans!
Down payment requirements vary by lender, but most investment property loans require at least 20%-25% down. But, by getting creative, you can easily unlock 5%-down investment property loans—even as low as 0% in some cases!
How do you get those loans?
You don’t have to settle for 20% down if you don’t have the money or would rather spread out your capital across multiple investments. Here are seven ways to make a low down payment for an investment property:
Rent to Retirement offers 5%-down financing for select new build investments. This allows you to buy a brand-new, turnkey property for a fraction of the typical upfront costs. Plus, these properties often have builder incentives, like lower closing costs, interest rate buydowns, or cash back at closing. You could even buy multiple rental properties with 5% down!
Rent to Retirement works with top lenders to get you one of the best loans for investment properties, but there are a few requirements:
Browse cash-flowing new-build turnkey rentals!
A second home loan is a mortgage you get on a secondary residence or vacation home. Depending on the lender, you could put as little as 10% down rather than the usual 20%-25%. The property must be a one-unit property—like a single-family home, townhouse, or condo—and it must be located some distance from your primary residence.
Requirements vary from lender to lender, but typically, you’ll need to meet the following:
Seller financing is an agreement between you and the seller of the property. They act as the “bank,” and you make principal and interest payments to them until the loan balance is completely paid off. Seller financing is flexible, and depending on the terms you decide on, you could even use it to buy a rental property with no money down!
There are no hard qualifications for seller financing. You and the seller create the terms of the loan!
By house hacking—renting out part of your home while living in it—you can qualify for primary residence financing. This requires much less money down, as little as 3% with a conventional loan, for example. What’s more, this strategy gives you a place to live and a property that produces rental income!
House hacking is a great, low-risk option for new investors, but keep these conditions in mind:
You could bring less of your own money to the table by partnering with another real estate investor. Split the down payment (10% each) or provide the “sweat equity” portion (like renovations or property management) while your partner brings the full down payment. In some cases, the partner may be able to fund the entire purchase, usually in exchange for a larger stake in the property.
You and your partner have full control over the terms of your partnership agreement. However, if you’re getting financing, the person on the loan will still need to meet the lender’s requirements.
Invest for passive income: Turnkey rentals often have property management in place upon closing!
If you or your spouse have served in the military, you could be eligible for a VA loan, which allows you to put as little as 0% down on a primary residence. To turn this into an investment property, you’ll need to house hack or rent it out after one year (once you move out). You can even use a VA loan for small multifamily properties with up to four units!
To qualify for a VA loan, you’ll need to meet these requirements:
If you’re buying a commercial property or a property in the hospitality space, like a boutique hotel, bed-and-breakfast, or a storage facility, you could qualify for an SBA 504 loan and put as little as 10% down. Keep in mind that you’ll need to bring 10% of the total project costs, which could include closing costs, fees, and renovations.
You’ll need to meet strict borrowing criteria to qualify for an SBA 504 loan:
A low down payment often means a higher mortgage payment (and less cash flow), so when should you put less money down? When you can walk into equity! For example, if you buy a $400,000 new build turnkey rental from Rent to Retirement with 5% down ($20,000) and get a builder discount of $20,000 off the purchase price, you’re now getting another 5% in equity. This essentially means you’re walking into 10% equity with only 5% down!
Regardless of how much money you end up putting down, you should always have reserves so you don’t overleverage yourself and risk losing the property due to non-payment.
If you want not just a lower down payment but a lower mortgage rate and better terms, there are a few things you can do:
A better credit score may not lower your down payment, but it can help you qualify for loan products with lower down payment requirements. A better score does directly impact your mortgage rate, however, and could reduce your borrowing costs significantly.
Depending on the property and market conditions, you may be able to negotiate a seller credit. While this won’t lower the down payment itself, it can reduce the total amount you’ll need to bring to closing.
Bad debt increases your debt-to-income (DTI) ratio, which limits your borrowing power and makes you look riskier to lenders. If you don’t pay it off, you may have to bring a larger down payment or settle for a higher investment property mortgage rate. In some cases, bad debt can keep you from qualifying altogether.
Lenders may prefer to see investing experience before giving you the best terms. If you’re just starting out, a turnkey rental can be an excellent (and faster) way to get in the game!
It takes some people years to save for a 20% down payment. On a $300,000 property, that’s $75,000, plus closing costs and reserves. Then, you’ve got to start over again to buy the next property, making it a difficult way to scale your real estate portfolio!
Rent to Retirement helps you buy new rentals faster, with walk-in equity and appreciation potential, all for just 5% down. What’s more, these turnkey properties often come with property management in place, which allows you to invest remotely in some of the best places to buy rental property and earn more passive income!
Can You Put Down 5% on an Investment Property?
While most loan programs require a 20%-25% investment property down payment, there are several ways to put less money down. Use Rent to Retirement’s 5%-down financing to purchase a new build rental property with much less out of pocket!
What is the Minimum Down Payment for an Investment Property?
Most investment property loans require at least 20% down, but you can put less down if you house hack, get a VA loan or SBA 504 loan, or get creative with seller financing or partnerships. You could even buy a brand new, turnkey rental property with Rent to Retirement’s 5%-down loans!
How Much of a House Can I Afford If I Make $70,000 a Year?
With a $70,000 salary, you could get pre-approved for a house around $200,000-$350,000, depending on mortgage rates, your credit score, your debt, and other factors. Keep in mind that lenders will usually approve you for more than you can actually afford, so buy a home within your budget!
What is the 50% Rule in Rental Property?
Some real estate investors use the 50% rule to determine a rental property’s profitability. It states that you should allocate roughly half of the property’s gross rental income to expenses.