How To Buy A Rental Property With No Money Down In Florida

Investing in a rental property can be a smart way to build your financial portfolio. Your renters will pay the mortgage while you gain equity in the home - and eventually own the property free and clear. However, many people hesitate to buy a rental property because they may not have the extra cash to make a down payment.

You can use several strategies to purchase a rental property in Florida with no money down, such as using seller financing or assuming the seller’s mortgage. You could even tap into your own home’s equity to make the purchase. However, there are risks associated with buying a rental with no money down, so you should carefully weigh the pros and cons—and consult with a financial professional—before doing so.

At Eaton Realty, we represent buyers, sellers, and landlords in all types of real estate transactions in Hillsborough County. If you want to get into the property investment game, we can help you evaluate properties and understand various financing options. Reach out today to talk to a Tampa real estate agent about buying investment property in West Central Florida. Our Tampa property management team can then help you manage your rental once you buy one to keep your income source passive and stress-free.

Have Questions About Buying A Rental Property? Speak With A Tampa Realtor › 813-672-8022

Options for Buying a Rental Property with No Money Down

For many people, owning investment property is a great way to grow their net worth. Yet, if you don’t have a lot of spare cash, you might think this dream is out of reach. While it certainly is easier to purchase real estate with a down payment, it is still possible to buy a rental property with no money down. In fact, many real estate investors get started with very little cash.

Typically, banks want a down payment of 20% of the purchase price to issue a mortgage. If you have a down payment of less than 20%, the bank may require you to purchase private mortgage insurance (PMI). However, you generally cannot get PMI for an investment property - which means that you may need to put 20% down.

20% down often adds up to quite a lot of money. For example, if you find a duplex in an up-and-coming area at a great price of $350,000, you would need to put $70,000 down to purchase it. For many people, that amount of money is out of reach—particularly if they already paid a down payment for their primary residence.

Below, we outline some options for buying an investment property in Florida for no money down. Keep in mind that each of these options has its pros and cons. You should carefully evaluate your finances and talk to a professional before deciding to buy a house this way.

Leverage Your Home Equity

If you own a home with some equity, you could use it to purchase an investment property. Your home’s equity is the difference between the current market value and your mortgage amount. For example, if your home’s current market value is $500,000 and you owe $300,000 on your mortgage, you have $200,000 in equity.

You can access your home’s equity through a home equity loan, a home equity line of credit (HELOC), or a cash-out refinance. With a loan, you will get a lump sum of cash borrowed against the equity in your house that you can use for a down payment. You will then pay the amount back over time.

A HELOC is somewhat like a home equity loan. You borrow against the equity in your home, but instead of getting a lump sum, you can take withdrawals against a credit limit. This option can be good for both buying the property initially and then making improvements to it.

A cash-out refinance effectively replaces your current mortgage with a new loan for more than what you owe on your home. You can then take the difference in cash, which can be used to purchase a rental property. This option works for both conventional mortgages and government-backed loans (such as a VA loan).

Try House Hacking

If you don’t currently own a house or are willing to sell your home, you might try house hacking. While the name makes it sound somewhat complicated, the concept is straightforward. Instead of buying a single-family home, you purchase a multi-family unit. You can then live in one of the units while renting out the others.

In this way, rent payments can be applied toward your mortgage. Over time, you may even be able to pay off your mortgage, which could allow you to purchase a single-family home and rent out all of the units in your initial investment.

Use the BRRRR Method

The BRRRR method is a favorite strategy for real estate investors. BRRRR stands for “Buy, Renovate, Rent, Refinance, Repeat.” While it does require some money upfront, it can be a great way to build a real estate empire (especially if you are handy).

This method involves buying a property that is dilapidated or in poor condition. Because the property will likely be distressed, you can usually get it for a fairly low price. Next, you renovate the property - which may include cosmetic updates or major structural work. This rehab work will increase its value and what you can charge for rent.

Once the property is renovated, you can rent it out to tenants. This rent will hopefully be enough to cover all expenses (mortgage, insurance, property taxes, etc). You can then refinance the property with a new mortgage based on its increased value. Finally, you take the cash-out funds from the refinancing and purchase a new distressed property to start the cycle again.

Buy a Rent-To-Own Property

Not every property is purchased using a traditional mortgage. Some sellers are willing to effectively lease a property to a buyer, with each rental payment going towards the purchase price. This is commonly known as a rent-to-own home. While the payments are typically higher than rent will be, this offers a path towards purchasing an investment property with no money down.

Take on the Seller’s Mortgage

Instead of renting to own, you may be able to take on the seller’s mortgage for them. Some mortgages can be assumed, which means that the buyer can get title to the property in exchange for making monthly payments on the seller’s mortgage.

This option can work if the seller has favorable mortgage terms (such as a low interest rate). However, you should have a lawyer review the mortgage for a due-on-sale clause, which would prohibit you from assuming the lease. The lender will also typically have to approve the assumption of the mortgage.

Consider Seller-Financed Homes

Similar to rent-to-own, seller financing is sometimes available. In effect, the seller issues a loan to the buyer, who then makes mortgage payments to the seller. While many sellers aren’t willing to finance the purchase of a house—especially if they still have a mortgage—it can be enticing for sellers who own a property outright and want to sell it quickly.

Rent Out Your Current Home

If you own a home, you could finance an investment property by renting it out. With this option, you turn your primary residence into a rental property. You will then purchase another property as your primary residence (i.e., where you will live full-time).

This strategy can work well because investment property loans often have higher interest rates and a higher down payment requirement. By renting out your current home and purchasing a new primary residence, you can end up paying a lower interest rate for both properties.

Seek a Hard Money Loan

A hard money loan involves taking on a loan from someone other than a bank - such as an investor, a friend or family member, or an organization. These types of loans usually have less strict standards compared to traditional mortgages. However, a hard money loan usually has higher interest rates and shorter loan terms.

Purchase with a Partner

If you are interested in buying an investment property but don’t have the spare money for a down payment, you could form a partnership with someone who can contribute the cash. This person may not be interested in the day-to-day work of managing a rental property but would like to build equity while receiving rental income. Purchasing a property together allows you to pool your resources and qualify for a mortgage.

Is It a Good Idea to Buy an Investment Property with No Money Down?

Buying a rental property with no money down is possible. There are numerous benefits to going this route, including:

A low initial investment means you can start investing in real estate without waiting until you have saved enough money for a down payment. This allows you to start paying off the mortgage and building equity early - which can help your financial stability in the long term.
With little initial investment, the potential for high returns is greater. This is particularly true as the property's value grows over time.

However, there are some drawbacks to buying a rental property with no money down. The biggest con is that the risk is much higher—especially if you choose to take out a high-interest loan or use a credit card to access cash for a down payment. In addition, there is the risk that your property won’t always have tenants, which can put you in the red.

You should think carefully about whether or not it makes sense to purchase an investment property if you don’t have the money for a down payment. If you are already financially stable and trust that you can cover the mortgage even without tenants, then it may be worth exploring a no-money-down option for a rental property in Florida. You should always consult a financial and legal professional before signing an agreement or taking on a loan for an investment property.

Looking at Investment Properties? Give Eaton Realty a Call

Purchasing an investment property can be an incredibly smart financial decision. However, it isn’t without risks - especially if you don’t have money for a down payment. While there are options for buying a rental property in Florida with no money down, you should carefully consider your options before moving forward.

At Eaton Realty, we represent buyers and sellers in all types of real estate transactions in Hillsborough County, Florida. We also offer property management services for property owners. We have years of experience in the Tampa housing market and are familiar with the different financing options available to our clients. We use our knowledge and experience to help our clients make the best possible real estate investment. To learn more, fill out our online contact form or call our office at 813-672-8022.

Daniel Rothrock

Director of Property Mgmt., MPM

Daniel is the Director of Property Management at Eaton Realty. He is a Master Property Manager, which is the highest level of recognition you can receive in the field. When he's not covering property management developments and insights on the Eaton blog or managing Eaton's property management team, Daniel can be found serving as the Southeast Regional Vice President/Ambassador for the National Association of Residential Property Managers. You can find Daniel on LinkedIn.