If you're considering buying a property, you're probably assuming that you'll need a down payment to do so. Lenders don't like to give you a loan worth 100% of the value of the property because this increases their risk -- and it means you don't have any skin in the game.
But you shouldn't be discouraged if you don't have money to put down. There are a number of options available to you to gain exposure to real estate in your investment portfolio even if you have little to no cash to put down on a property. Let's take a look at the different possibilities to see which might work best for you.
Partner with an investor who does have cash
Just because you don't have a lot of money to put down doesn't mean you have nothing to bring to the table.
If you're skilled at DIY projects or are great at finding properties to buy at a bargain price, you may be able to work with a partner to make real estate investments. That partner could put up the cash, you could find or fix up the properties, and you could split the profits.
The catch, of course, is that this can be a risky approach, and you'll need to ensure that your co-investor is trustworthy. To protect your interests, you'll need to put a lot of legal details in writing. But it is one option if you're committed to owning properties directly and you don't have the money to buy them.
Look into loan options with no down payment
Another option that is available to you if you want to buy physical properties is to explore loan options that do not require a down payment or that only ask you to put very little money down. These loans can be a little harder to find and often come with higher interest rates and more up-front fees -- but they are out there.
If you do find a loan that requires a low down payment, or none at all, just be sure to read the fine print and confirm that you know how it works, what your payments will be for the life of the loan, whether those payments can change, and what your total borrowing costs will add up to. Be sure the loan is affordable both up front and over time.
Invest in real estate without buying properties directly
Finally, one of your best options if you don't have a down payment but want to invest in real estate is to gain exposure to this asset without actually buying properties of your own.
If you buy a real estate investment trust (REIT), you can indirectly profit when the real estate sector does well since you'll have an ownership stake in a company that owns, manages, or finances properties. You can earn reliable dividends and, eventually -- hopefully -- sell your REIT at a profit. This gives you the chance to earn steady income over time as well as to receive a payout when you sell -- just like if you owned a property of your own.
You can usually get started investing in a REIT with a very small amount of up-front cash -- much less than you would need for a down payment. And the process of buying one is simple and easy. Since a REIT can also enable you to buy into a company that owns multiple properties, your risk is reduced compared to what it would be if you just bought a single investment property of your own.
As you can see, you do have a few options for investing in real estate with no money down -- some of which are better than others. Take the time to consider which is right for you so you can make the most informed choices when building your portfolio.