Buying rental properties for $0 out-of-pocket is the brass ring of real estate investing. What limits your ability to scale if you can buy rental property with no money down? No limit at all. You can buy as many properties as you can get your hands on, compounding cash flow and equity appreciation into true financial freedom and generational wealth.

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However, most mortgage lenders will tell you that this is impossible. You have to have “skin in the game,” they say — otherwise your deal is too big of a risk, no matter how impressive the financials or how under-market the purchase price. Most lenders have specific clauses built into their loan contracts that require you to put some of your own money into the deal, limiting your ability to scale to the depth of capital in your bank account.

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There are legal ways around the “skin in the game” requirement, though. Munoz Ghezlan Capital helps real estate investors do it all the time with a variety of financing structures — with a special emphasis on DSCR loans stacked with business working capital loans (“DSCR + WC”). We’ll explain in depth how this method of creative financing works, as well as several other methods of 0% down real estate financing we help real estate investors execute to grow their portfolios — and their passive cash flow — fast. 

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Key Takeaways

• Numerous established creative financing strategies exist to help real estate investors buy rental property with no money down. Examples include working capital loans, DSCR + working capital loans, seller financing, hard money lending plus seller financing, subject-to financing, wraparound mortgage, private money lenders, and partnership/joint venture or syndication.

• In the experience of Munoz Ghezlan Capital, a DSCR + working capital loan structure is the most consistent, reliable form of 0% down real estate financing available to the largest number of investors for the maximum number of deals — provided that you can connect with lenders who will consider such a deal.

• Challenges to zero-down rental property deals include overleverage, cash flow management, experience/track record requirements, finding a lender who will agree to the deal, and securing a low-enough price with a high-enough ARV.

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Method 1: DSCR Loan Plus Working Capital Down Payment Loan

Stacking a DSCR (debt service coverage ratio) loan with a business working capital loan is the most common method Munoz Ghezlan Capital uses to help real estate investors buy rental property for no money. For the sake of brevity, we will call this method “DSCR + WC.” 

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Let’s first understand the moving parts of this strategy:

DSCR Loan

A DSCR loan is a type of investment mortgage available to real estate entrepreneurs who intend to use the property as a source of long-term rental income. This could mean a typical long-term rental property, or a short-term or vacation rental like the ones listed on Airbnb and VRBO.

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DSCR stands for “debt service coverage ratio.” The loan gets its name because the DSCR is one of the most important factors in underwriting or approval. We explain DSCR calculation in more detail in this article, but in a nutshell it’s a measurement of the ability for the owner to cover the full mortgage payment with just the anticipated rental income of the property.

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Unlike Fannie Mae-conforming loans, this means a DSCR loan …

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• Does not depend on the buyer’s employment history.
• Does not depend on the buyer’s personal work income.
• Does not depend on the buyer’s debt-to-income ratio.
• Does not require the buyer to submit W-2s, pay stubs, or personal tax returns.

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The buyer’s personal credit is a factor, as is an analysis of the pro-forma income and expense projections for the property.

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In other respects, DSCR loans resemble conventional mortgages in many other ways: 

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• Long amortization periods (30 years being the standard)
• Often fixed interest rates
• The property itself acts as collateral for the loan. 

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The interest rates and closing costs tend to be higher, the down payment requirements larger, but these loans represent a significant financing source for investors who have outgrown or don’t fit into the box of Fannie Mae-conforming loans.

Working Capital Loan

A business working capital loan is a kind of business loan meant to provide companies with the working capital they need to expand, scale, and preserve liquidity. 

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These loans are usually unsecured, meaning there is no collateral. The property itself has no lien on it from the working capital loan, nor does any other real or personal property. Instead, lenders use as security for the loan:

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• The company’s business credit score.
• The amount of time the business has been in operation (usually 12 months minimum).
• The company’s annual revenue, as reported in income statements, bank statements, and tax returns.

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Business working capital loans can either be lump-sum loans or revolving lines of credit. For the purpose of acquiring rental property, Munoz Ghezlan Capital typically recommends an unsecured lump-sum term loan. Characteristics of these loans can include:

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• Between $50,000 and $500,000 or more in maximum loan balances.
• Repayment terms of 3-10 years.
• Interest rates vary by credit rating, time in business, and market interest rates, but are typically higher than mortgage interest rates due to the extra risk of an unsecured loan.

Can You Use a Working Capital Loan as a Down Payment on a Property?

The most obvious use of the DSCR + WC strategies is to finance the majority of the purchase — say, 80% LTV — with a long-term, low-interest DSCR loan, and then use the proceeds of a working capital financing as your down payment loan.

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This, however, begs the question — can you use working capital loan proceeds for the down payment? 

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For many lenders, the answer is no — which is why you will find a great deal of content claiming that DSCR + WC is impossible. In fact, many lenders have specific clauses in their loan contracts stating that you cannot use borrowed funds for the down payment. To attempt to do so might put you at risk of rejected loan applications and even allegations of mortgage fraud.

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However, there are exceptions. Because DSCR loans are not “qualifying mortgage” (QM) lenders — meaning they don’t adhere to the guidelines set by Fannie Mae and Freddie Mac — they have much more leeway in deciding the terms of their loans.

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There are certain DSCR lenders who will accept working capital loan proceeds as down payment, though they require that this be disclosed and it will be a factor in their underwriting and risk assessment. 

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Munoz Ghezlan Capital keeps a proprietary list of lenders who are open to down payment loans. They are a key source of financing for Munoz Ghezlan clients who want to buy rental property with no money down.

Pros of DSCR + WC

• Potential for no-money-down property acquisition. 

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• The majority of the capital stack is long-term, low-interest financing with minimal monthly payments.

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• No need to verify personal income, employment history, or debt-to-income ratios.

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• Applicable to nearly every deal, though limitations may apply based on the investor and the lender.

Cons of DSCR + WC

• Only a limited number of DSCR lenders will accept borrowed funds as down payment.

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• The property itself is used as collateral for the DSCR loan.

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• Not every company will qualify for a working capital loan — lenders have requirements regarding time-in-business, revenue minimums, and establishment of business credit. Munoz Ghezlan keeps track of working capital lenders that work with real estate investors, even newer investors with less revenue.

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• Some portion of the capital stack is shorter-term, higher-interest debt with higher monthly payments (but fast principal paydown) — a potentially significant hindrance to short-term cash flow and solvency. 

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• Potential for over-leverage — if the property loses value and the cash flow can’t cover the debt service, the buyer risks default, foreclosure, and total loss.

Method 2: Business Working Capital Loan Only

If the acquisition price is low enough and the investor qualifies for a high-enough working capital loan balance, the investor can acquire the property using nothing but the proceeds from a working capital loan.

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Many DSCR lenders don’t allow investors to use working capital loans to fund the down payment, but this method does not require the cooperation of the DSCR lender because there is no DSCR lender involved — meaning there is no mortgage clause against borrowed funds to violate. To the seller and the escrow office, money from a working capital loan is just as good as money from a mortgage lender.

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This method has the advantage of putting no lien on the property. Assuming you choose a lump-sum unsecured term loan, no collateral is required at all — meaning if you default on the loan, the working capital lender cannot automatically foreclose on the property. Granted, most working capital loans include clauses that allow the lender to target the borrower’s assets in the event of default (including, potentially, the property) but it is a more complicated process for the lender.

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Of course, lump-sum working capital loans have shorter terms, shorter amortization schedules, and higher interest rates — all of which add up to higher monthly payments. This method is best reserved for properties with enough cash flow potential to justify the payment, or if the investor expects to add enough value with the rehab, renovation, or reposition to refinance into a long-term mortgage loan. If enough value is added, the investor may well be able to refinance with no extra down payment.

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Again, not every business working capital lender will want to lend against a deal like this, but Munoz Ghezlan Capital keeps track of those that will consider it.

Pros of Business Working Capital Only

• Potential for the investor to acquire property with no personal capital in the deal.

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• No lien on the property — the lender cannot easily foreclose on the property in the event of default.

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• Typically faster underwriting and funding than any mortgage loan — often as little as 3-10 business days.

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• Working capital funds can be used for purchase and rehab.

Cons of Business Working Capital Only

• Shorter terms, shorter amortization periods, and higher interest rates result in higher monthly payments, which can impact cash flow.

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• Limited number of working capital lenders will consider such a deal.

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• May require a company that has been in business for a while, with a track record of revenue, business credit, and success with this kind of deal.

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• Potential risk of over-leverage.

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Method 3: Hard Money Loan Plus Seller Financing

For investors who intend to rehab or renovate the property, an effective way to buy property for no money can be to secure a hard money loan and combine it with seller financing. 

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A hard money loan is a type of short-term non-conforming mortgage intended for renovations, especially for flix-and-flip or BRRRR investments. The terms are short and the interest rates are high, but the intention is to sell the property quickly or refinancing it into a long-term, low-interest loan.

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Hard money lending limits are typically:

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• 85-90% of the purchase price
• Up to 100% of the rehab costs
• Capped at 65-75% of the ARV.

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With the rehab costs covered, that leaves a minimum 10% of the purchase price in need of financing. Some sellers — though not all — will agree to carry back that 10% of the purchase price as a note that they hold with the buyer as the borrower. We will talk about the mechanics of this in the next section.

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Using seller financing as your down payment loan may be a viable solution if:

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• The seller wants a fast close.
• The seller is willing to accept a price well-below market and the ARV is strong.

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Note that not all hard money lenders will accept this arrangement. Lenders want investors to have “skin in the game” so that they are less likely to walk away from a struggling deal. However, certain hard money lenders may accept the structure for an established investor with a strong track record, especially an investor with whom the lender has done past deals.

Pros of a Hard Money Loan Plus Seller Financing

• Fast closing.

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• Potential to buy rental property for no money.

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• Possibility of favorable terms from seller financing.

Cons of a Hard Money Loan Plus Seller Financing

• Requires a motivated seller who owns the property free and clear.

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• Not all hard money lenders will lend to an investor with no “skin in the game.”

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• Usually requires an acquisition price well below market and a very strong ARV.

Method 4: Pure Seller Financing

Certain sellers may be willing to carry the entire purchase price as a note, eliminating the need for the investor to finance any portion of the deal at all.

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Of course, not every seller will agree to this. The conditions that make it possible are:

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• The seller owns the property free and clear of debt OR is willing to create a “wraparound mortgage” (explained in the next section).
• The seller prioritizes cash flow or passive income over lump-sum payment.
• The seller wants to avoid a large tax bill on capital gains.

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For investors unfamiliar with this method, the buyer and seller agree to a purchase price as is normal. However, instead of requiring payment in cash, the seller creates a kind of “IOU” mortgage. 

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In this arrangement, the seller is the lender, the buyer is the borrower. The buyer then takes title and makes monthly payments on the mortgage to the seller, just like with any other loan. The property is used as collateral, meaning the seller can take the property back in foreclosure in the event of default.

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No institutional restrictions apply; the seller and buyer can agree to any terms they like, including the seller financing 100% of the purchase price. Real-world examples of deal structures include:

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• $0 down, principal-and-interest payments.
• $0 down, interest-only payments.
• $0 down, 0 interest. This does happen, especially when cash flow and not ROI is the goal of the seller.

Pros of Pure Seller Financing

• Fast closing, no bank underwriting, no approval requirements.

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• Potential for extremely favorable financing terms.

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• Potential for 100% financing with zero down.

Cons of Pure Seller Financing

• Requires a properly-motivated seller who prioritizes cash flow and passive income.

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• Requires that the seller own the property free-and-clear or be open to a mortgage wrap with subject-to financing. 

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• Potential for over-leverage with 100% financing. 

Method 5: Subject-To Acquisition

One of the classic strategies of creative real estate financing is the “subject-to” acquisition. Sometimes further abbreviated to “sub2,” this phrase is short for “subject to the original financing.”

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This is a method of acquiring real estate where the seller signs over the title to the buyer, just as in a normal transaction. However, the seller keeps their current mortgage in place, and the buyer simply takes over the responsibility of making the payments on the current mortgage.

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This is technically a violation of the “due-on-sale” clause found in nearly every mortgage note. This means that if the property transfers ownership, the mortgage lender has the right to call the entire loan balance due.

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What many people don’t understand is that while the lender has the right to call the loan due on sale, the lender has no obligation to do so. If the payments continue to be made on time, many lenders won’t go to the trouble of disrupting a performing loan by calling it due, even if the payments are now coming from a different checking account.

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However, the seller takes on considerable risk by agreeing to a subject-to transaction. If the buyer fails to make payments, the seller is technically still responsible as the borrower of record. The buyer could lose the property, but the seller could face credit damage, loss of employment, large tax bills, even lawsuits. 

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As such, sellers are most likely to agree to a subject-to transaction when they are in distress and need to close fast, with little or no expectation of receiving any cash from the deal. NOTE: this may involve the buyer having to help the seller settle past-due mortgage balances and court fees. If the buyer has to settle these fees out of his/her own pocket to keep the deal alive, this could defeat the purpose of trying to buy rental property with no money.

Wraparound Mortgage

Subject-to acquisition may be used to form an integral part of a strategy known as a “wraparound mortgage.” This is a combination of subject-to financing and seller financing.

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In this type of deal, the seller signs the title over to the buyer, keeps the original mortgage as in a subject-to deal, and creates a new seller-financing mortgage with the buyer as the borrower. 

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If the payment on the new mortgage is higher than the payment on the original mortgage, the seller gets to enjoy a little positive cash flow and insulate themselves from the risk of the buyer defaulting on the payments. If the buyer defaults, the seller can foreclose on the wraparound mortgage, take the property back, and either keep it or find a new buyer.

Pros of Subject-To Acquisition

• Potential to acquire the property with no down payment or capital commitment.

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• No underwriting or approval necessary.

Cons of Subject-To Acquisition

• Potential to trigger the “due-on-sale” clause of the mortgage.

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• Risk to the seller in the event of default means that the seller must be very motivated, probably in distress.

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• To avoid foreclosure, the investor may have to secure funding to settle past-due balances and judgments, making it less of a “no money down” transaction.

Method 6: Private Money Lending

Banks and lending institutions are not the only entities with the ability to create mortgage loans. Private individuals and families can lend money for any legal purpose they choose, including creating mortgage loans.

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If an investor has a relationship with a private lender, they can agree to any terms they like. Private lenders often require higher interest rates than institutional lenders, but they don’t have policies for LTV or down payments to adhere to. A private lender may be willing to finance 100% of the purchase price plus closing costs.

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Of course, this means the investor has little or no skin in the game. Getting a private lender to agree to 100% LTV financing would require a considerable relationship of trust — possibly the kind reserved for family members and close friends.

Pros of Private Money Lending

• Potential for 0% down real estate financing.

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• Based on relationships and trust, not strict institutional underwriting criteria.

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• Lender and buyer can set whatever terms they want.

Cons of Private Money Lending

• 100% LTV financing requires significant trust, making the most likely lenders close friends or family members.

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• Often carries higher interest rates and cost-of-borrowing than DSCR or other institutional lending models. 

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• Potential for over-leverage with 100% financing.

Method 7: Partnership/Joint Venture, and Syndication

If an investor wants to buy property for no money, that investor will usually need to rely on “other peoples’ money” (OPM, as it is known in the industry). One classic way to do this is to take on a partner – or partners – with money to invest.

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A partnership of two or three people is usually called a “joint venture.” One partner may supply the money for the deal but prefer to be a passive partner; the other may find the deal in the first place and bring to the table a willingness to work and handle day-to-day operations.

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Syndication is when a larger number of money partners come together to buy a larger property — usually a commercial property, financed by a commercial mortgage. The money raised from the capital partners is used for the down payment, closing costs, and renovation expenses.

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In the case of either a joint venture or syndication, there are two core roles (though on smaller two-person joint ventures the lines between the roles can sometimes blur):

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• Active Investor – responsible for operation and often finding of the deal, but often little or none of the financial investment.

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• Passive Investor – capital partner who puts money in the deal.

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The active investor, also sometimes called the “deal sponsor,” will often get an equity stake in the property. The passive capital investors usually get the majority of the equity, but some portion of the equity is reserved for the deal sponsor as part of the compensation for his/her services in finding and managing the deal. In this way, active investors can acquire real estate equity for no money. 

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However, passive investors often like to see their deal sponsors to have “skin in the game” — that is, some of their own money invested in the deal. This is especially true of first-time or less-established deal sponsors, but even established syndicators use their skin in the game as a selling point to attract passive investors to their deals.

Pros of Partnership/Joint Venture or Syndication

• Investor acquires real estate equity without having to commit capital.

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• Partnership creates the potential for force multipliers on experience, talents, skillsets, and network.

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• Potential to pool funds for larger commercial properties, creating extra profit through economies of scale and access to favorable commercial financing. 

Cons of Partnership/Joint Venture or Syndication

• “More cooks in the kitchen” – partnerships create the potential for conflict.

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• Less capital invested usually means more work for the active investor or deal sponsor.

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• Syndication requires adherence to strict Federal regulations from the US Securities Exchange Commission (SEC).

Bottom Line

Contrary to conventional industry wisdom, there are many ways to buy rental property with no money down. How appropriate such leverage is for a deal depends heavily on the deal, but investors use a variety of creative financing structures and strategies, including:

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• DSCR + WC (DSCR loan stacked with working capital)
• Business working capital loan only
• Hard money loan plus seller financing
• Pure seller financing
• Subject-to acquisition (including wraparound mortgages)
• Private money lending
• Partnership/joint venture or syndication

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Munoz Ghezlan Capital has helped hundreds of real estate investors structure creative financing for rental property acquisitions. We specialize in financing deals with DSCR loans stacked with working capital loans (DSCR + WC). We help with the other methods as well, but in our experience, this strategy is the most consistent and reliable for the largest number of deals and the most investors. 

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If you want to buy rental property with no money or capital committed, reach out to Munoz Ghezlan Capital today. Every deal, every investor is different. We offer complimentary strategy calls to determine which strategy best suits you as an investor, as well as any deal you might be contemplating. We invite you to book your strategy call today.

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With access to 100% financing with no money down, unlimited scaling isn’t just a dream — it’s an achievable reality.

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