How to invest in real estate with little to no money

Real estate can be a smart and lucrative investment regardless of whether it’s where you plan to live. The most common way to invest in real estate is to buy your primary residence, but you can also invest in other properties to rent out and earn revenue.

Buying property typically requires you to come up with enough money to cover a down payment and closing costs, but there are other ways to invest in real estate without paying a large sum of money upfront. We’ve rounded up some alternative real estate investing strategies that require little to no money to get started.

Understanding real estate investing basics

When you buy a home, you build equity with each mortgage payment you make. However, you’ll typically need to make at least a 3% down payment and pay closing costs that can range anywhere from 3% to 6% the purchase price.

If you buy a property and rent it out, you can build equity while also earning rental income. The downside is that rental properties also usually require closing costs and even larger down payment of 15% to 25%.

The good news is that there are other ways to invest in real estate that don’t require you to put that much money down upfront.

8 creative real estate investment tactics that require little to no money down 

If you’re looking to get into real estate investing without draining your savings, here are some alternative options to consider.

1. Utilize seller financing

With seller financing, you borrow from the seller instead of taking a loan out from a lender. Instead of taking out a traditional mortgage from a lender, you make monthly payments. Once you’ve paid off the full amount, ownership of the property will be transferred from the seller to your name.

Seller financing can be a helpful option if you don’t have enough saved to make a down payment or cover your closing costs. This can also allow you to buy a home if your credit score doesn’t allow you to qualify for a mortgage.

There can also be downsides to seller financing, like fewer protections for the buyer since there’s no lender setting the terms of the deal. You may want to get advice from a real estate attorney or other expert before entering a deal using seller financing.

2. Tap into home equity

As you pay down your loan principal, you build equity. You can calculate your equity by taking your home’s currently market value and subtracting the amount you still owe on the mortgage. Once you’ve built enough equity, you can use it as collateral to borrow money.

One way to borrow against your equity is through a second mortgage, either as a home equity loan or home equity line of credit (HELOC). A home equity loan comes as a lump sum, while a HELOC is a line of credit you can borrow against more than once as needed.

Keep in mind that Rocket Mortgage^® doesn’t offer HELOCs at this time.

If a second mortgage feels too risky, you could do a cash-out refinance. With this option, you pay off your mortgage with money from a new, larger loan and withdraw the difference in cash. Suppose you still owe $200,000 on your mortgage and you need $25,000 to cover the down payment and closing costs on an investment property. You could do a cash-out refinance for $225,000 to make that happen. While you won’t have a second monthly payment to make, you’ll be increasing the amount you owe, which can result in higher monthly payments.

3. Consider live-where-you-rent strategies

Live-where-you-rent, also known as house hacking, is when you purchase a multi-unit property to live in one unit and rent out the others. If the property has 4 or less units and will be your primary residence, this allows you to purchase a rental property with a residential loan. The income you generate from renting out the other units can cover the mortgage, so you can potentially live rent-free and build equity.

However, becoming a landlord comes with additional responsibilities. You’ll have to find tenants, manage the property, and cover maintenance and repairs. If there are vacancies, you’ll lose out on that income and will have to cover the difference in the mortgage.

4. Invest in real estate investment trusts (REITs)

A real estate investment trust (REIT) is a company that owns and operates residential and commercial properties and rents them out. When you invest in a REIT, you become a partial owner, and the REIT pays out the income it generates to its investors as dividends. REITs can be an accessible way for new investors to earn money from real estate because you don’t have to buy or manage a property yourself. It’s also possible to invest small amounts, even as little as a single share.

There are other types of REITs as well. Mortgage REITs, or mREITs, are investments in purchased or originated mortgages and mortgage-backed securities (MBSs), which is a type of bond that investors can buy through the bond market. People who invest in mortgages can choose to back commercial or residential mortgages. Individuals can buy shares in an mREIT, which would be listed on major stock exchanges.

According to a 2024 study from CEM Benchmarking, REITs have an average annual return of 9.74%. REITs are typically publicly traded on stock exchanges, so you’re able to buy and sell shares as you go. However, this also means that they are affected by market volatility. You’ll also be taxed on the dividends.

5. Form an equity partnership

Equity partnerships are a way you can pool your resources together with other real estate investors to buy commercial property and earn revenue. Together, you can share the upfront costs of purchasing property, rent it out, and earn money from appreciation. Equity partnerships let you share responsibilities, costs, and risk but also mean you have to share profits, decisions, and liabilities.

There are two main types of equity partnerships:

• General partnerships: Each partner has equal ownership and shares responsibilities, decision-making, and unlimited liability.
• Limited partnership: General partners have management authority and unlimited liability, while limited partners are passive investors with limited liability.

Because equity partnerships require you to work together with other partners, it’s important to work with a real estate attorney when you form the agreement. An attorney can help you set the structure, terms, and expectations of the partnership to help mitigate potential conflict.

6. Leverage private money lenders

Private money lenders are private organizations or individuals that offer loans outside of the traditional banking system. You can use a private money loan to buy a rental house, Airbnb property, or investment property. These types of loans can be beneficial to borrowers who don’t meet the eligibility requirements set by traditional lenders. The downside is the private money loans often come with higher interest rates and additional fees. Private money loans can be risky if you don’t thoroughly research the lender. Be sure to carefully review the loan agreement and understand all the terms fully so you don’t end up with a loan you can’t repay.

7. Explore hard-money lending options

A hard-money loan is a loan issued by a private lender that lets you use your home as collateral to borrow money. Hard-money loans come with shorter repayment periods. You only need to pay interest during the repayment period, but then you’ll need to make a balloon payment once your loan is due.

Hard-money loans typically come with higher interest rates, typically 10% to 18%, and higher down payment requirements - often 20% to 35%. These loans have higher upfront costs but are used by investors looking to flip a property and are confident they’ll be able to sell it by the time the loan is due.

If you decide to try to use a hard-money loan to flip a property, it’s important you know you’ll be able to sell the property relatively quickly to repay the lender. If you can’t repay the loan, you could risk losing your primary residence. Some house flippers use the 70% rule, which suggests that the purchase price shouldn’t be more than 70% of the after repair value (ARP) of the property. The idea is that this will leave enough room for a profit when the house is sold. Buying a fixer-upper house can be stressful and full of surprises, so investors should proceed with caution and connect with real estate market experts before buying a property.

8. Explore real estate crowdfunding platforms

Real estate crowdfunding platforms are another way investors can pool their money together to invest in commercial real estate. Platforms like Fundrise, Realty Mogul, and Concreit can help you get started in real estate investing with little upfront cost and allow you to diversify your portfolio. These investing opportunities also come with less risk and responsibility because you aren’t taking on a mortgage and are sharing the cost with others.

Keep in mind there is always additional risk when you share your investment with strangers.

Other creative strategies

If none of the above options are for you, there are still other ways to get started in real estate investing:

• Leases: Some property owners are willing to rent a property with the option to purchase it later at a predetermined price, also known as rent-to-own. Some investors also build homes with the goal of renting them out. These are known as build-to-rent (B2R) homes or build-for-rent (BFR) properties.
• Assumption of seller’s mortgage: An assumable mortgage allows you to buy a home by taking over the seller’s loan with the same interest rate and terms, potentially with no money down. Conventional loans are not assumable, but government-backed loans typically are assumable.
• Government loans: Because these loans are backed by the government, lenders offer looser eligibility requirements. VA loans and USDA loans do not require a down payment, but they still have closing costs, credit requirements, and are only available to certain borrowers. VA loans are offered to eligible military servicemembers, veterans, and their surviving spouses. FHA loans have lower down payment requirements if you meet their conditions.

The bottom line: Building a real estate portfolio without up-front capital

Investing in real estate does not always require high upfront costs. Like other types of investing, there is always some risk. Buying and renting an investment property has other costs and responsibilities, and you have to be prepared for the potential of negative cash flow before you make money on your investment. Joint ventures and equity partnerships can give you the opportunity to pool your resources, but be sure you lay the terms out in writing before you put down any money.

To learn more about how you can get started investing in real estate, take a look at our real estate investing tips. If you’re looking to borrow against your equity to invest in real estate, get started with a cash-out refinance with Rocket Mortgage^®.