Can’t Afford A Rental Property? 4 Ways To Make It Happen
Rental properties are a great choice for property investments as they offer high returns within a short period of time. However, investing in rental properties isn’t easy. The cost, for one, would discourage most people from dipping their toes in it. Investing in real estate usually requires a huge down payment, and in most cases, investors need to take out loans to be able to pay off the property. Fortunately, there are ways around this. Interested individuals can start investing in real estate through various methods regardless of the amount of cash they can initially set aside. Here are four ways to make that happen:
- Fractional Real Estate Investment
If you want to invest in a rental property but don’t have enough cash to start with, you can opt for fractional real estate investment instead.
Fractional real estate investment is where you can own a fraction of a piece of real estate property. You can consider it like a crowdfunding model where a group of investors buy shares in an industrial complex, apartment building, or vacation rental and divide not only the cost of the property but also the yields.
With fractional real estate investing, you don’t need a huge amount of down payment or even have a good credit score to start investing in the real estate market. You can buy a property share affordably and add more as your funds increase.
Moreover, with a management company that oversees both the financing and purchase of the rental property, you can comfortably depend on their experience and begin to invest without conducting considerable research and learning. You don’t even have to worry about maintenance expenses, unlike the traditional way of real estate investing.
- Form A Partnership
Forming partnerships is another way to gain enough funds or resources to purchase a new rental space. You don’t have to do this single-handedly, and you can explore other ways to double 10k if you really need more. In a real estate partnership, you and your partner will agree to have shared ownership of a property. If you lack cash, you can look for a reliable investment partner who can contribute to the down payment or total cost of the property.
Note that you can tap as many people as you can to be your real estate partners. They could be your family members, friends, or colleagues. You could also choose a private lending company. These companies provide loans that are the same as banks but are more flexible.
Likewise, you can consider a more experienced real estate investor to become your partner if you’re just starting with rental property investments. With their resources and experience, they can be the best partners to work with.
Attending conferences and networking events such as real estate training and webinars is ideal. This way, you’ll find like-minded people who might potentially become your partner. You can also gain insights and learn a lot from their experiences.
- Use Hard Equity Line Of Credit Or Cash-Out Refinance
Using a cash-out refinance or home equity line of credit (HELOC) to purchase a rental property is a financing approach that you can consider if you’re an aspiring real estate investor with little to no cash.
HELOC loans help buyers make use of their home equity as collateral for a new property. Using your home equity, you won’t have to withdraw more cash from your bank to purchase another real estate property. Rather, you can use the funds as a down payment and secure the rental property you’d like to invest in.
With cash-out refinance, you can loan up to 80% of your home’s value to buy another property. For instance, your lender will notice that the property value of your home is around USD$300,000. With such, they will subtract 20 percent of the total value of your house, which will result in around USD$240,000 that can be used for a loan. First, this USD$240,000 mortgage will be directed to pay your existing loan of USD$150,000. The money that will carry on, which is USD$90,000 in this type of scenario—is the cash available for use.
With this method, you can acquire more real estate investments faster and even diversify your portfolio more quickly. Especially if your investments are near prime locations, the returns may come earlier than expected.
- Consider House Hacking
House hacking is a common investing approach that involves converting a single-family home into a multi-family home by renting out some parts of the house to tenants. This space could be an extra guest house, basement, or garage apartment. You could even remodel the place to have an actual multi-unit living space like a duplex.
Converting your family home into a multi-unit space would still entail renovation costs, but it won’t be as huge as purchasing another real estate property. Besides, you can control the extent of the renovations you’d want to implement on your property to accommodate the budget that you have set for it. This method is a great idea—especially if your home is located near universities, colleges, and offices which usually attracts people from various locations who might be looking for a place to rent.
What stops most people from investing in rental properties is the cost. Many just don’t want to take risks on expensive rental property investments, while others simply don’t have the financial capability to do so. Aside from that, real estate investments usually require management and maintenance expenses—adding to the initial costs of investing.
If lack of cash is the issue, the good news is there are various ways to invest in rental properties, even if you have little or zero cash. Some of your options include fractional real estate investing, using HALOC or cash-out refinance, forming partnerships, and house hacking.
Exploring these methods allows you to invest in real estate that can further increase your financial resources. Once you gain income from your initial real estate investments, you might be able to increase your assets and later have the means to invest in another property without worrying about where to get funds for the down payment.