Buying a rental property can require a significant amount of money upfront, but a large down payment is not the only path to becoming a landlord. Depending on the property, financing, and your financial situation, there may be ways to reduce the amount of cash you need upfront or share the cost with someone else.
From purchasing an owner-occupied multifamily property to partnering with another investor, here are three strategies to consider if you want to buy a rental property with limited funds.
Ways to Buy a Rental With Little Money
As you compare your options, consider both the upfront costs and the long-term financial commitments involved. The right approach will depend on your finances, investment goals, and the type of property you want to purchase.
1. Consider buying an owner-occupied multifamily property
An owner-occupied multifamily property is a building with two or more separate housing units in which the owner lives in one unit and rents out the remaining unit(s). Examples include a duplex or a triplex..
Keep in mind: With an owner-occupied multifamily property, you may share walls, entrances, outdoor areas, or other common spaces with your tenants. This arrangement can make you more accessible when questions, maintenance requests, or disagreements arise, so consider whether you are comfortable managing landlord-tenant interactions while living on the same property.
2. Partner with a real estate investor
Buying a rental property with a partner can reduce the amount of money each person needs to contribute upfront. However, a partnership needs to benefit both parties. If one investor contributes most of the capital, the other might contribute time, property-management responsibilities, real estate knowledge, or another resource that brings value to the investment.
In return for contributing more money, the capital partner might receive a larger ownership stake or an agreed-upon share of the property's rental income and future proceeds. Before purchasing a property together, put the terms of the partnership in writing, including each person's financial contribution, ownership percentage, responsibilities, how income and expenses will be divided, and what happens if either partner wants to sell.
Keep in mind: Even if you are partnering with a close friend or family member, formalize the business arrangement in writing. Clearly define each person's financial contributions, ownership interest, responsibilities, how profits and expenses will be divided, and what happens if one partner wants to leave or the partnership ends. Depending on how you structure the investment, you may also want to consider forming an LLC and creating an operating agreement with the help of an attorney.
3. Build a dedicated rental property fund
Setting aside money specifically for a future rental property can help you build the funds needed for a down payment and other purchasing expenses. In addition to regular contributions, consider directing occasional larger amounts—such as a tax refund, work bonus, commission, or proceeds from selling an asset—into the fund.
Before setting a savings target, research the type of property you hope to purchase and the financing you may qualify for. Remember that the down payment is only one upfront expense. You may also need money for closing costs, inspections, initial repairs, and financial reserves.
Keep in mind: While tempting, avoid putting every available dollar toward the purchase. Maintaining funds for unexpected repairs, vacancies, and other expenses can help you manage the property after you become a landlord.
It All Begins With a Plan
Buying a rental property with limited funds may require some creativity and careful planning. Once you become a landlord, use Apartments.com free Rental Tools for landlords to advertise your property, screen applicants, create leases, collect rent online, and manage your rental in one place.
