Summary of How to Buy a Rental Property with 5% Down or Less (5 Ways)

Overview of How to Buy a Rental Property with 5% Down or Less (5 Ways)

This BiggerPockets Real Estate Rookie episode breaks down five legitimate ways to buy a rental property with 5% down or less, helping investors get into deals faster without waiting years to save a traditional 20% down payment. Ashley and Tony walk through each strategy, explain how they work, and highlight the tradeoffs so rookies can choose the best path based on their goals, budget, and willingness to sacrifice short-term comfort for long-term wealth-building.

The 5 Low-Down-Payment Strategies

1. House Hacking

House hacking means buying a property you live in and renting out part of it to reduce your housing costs.

Common setups include:

• Renting out spare bedrooms in a single-family home
• Living in one unit of a duplex, triplex, or fourplex
• Using an ADU, basement, or separate suite as rental space
• Short-term renting part of the property when allowed

Financing options mentioned:

• Conventional loan: 5% down
• FHA loan: 3.5% down
• VA loan: 0% down
• Some other special programs can also be 0% down

Pros:

• Very low upfront capital required
• Reduces your own living expenses
• Lets you start investing sooner
• Can be used with up to four units in many cases

Cons:

• You share space and/or walls with tenants
• It may feel uncomfortable for families or spouses
• Often little to no cash flow while you still live there

2. Live-In BRRRR

A live-in BRRRR is a primary residence that you buy, renovate, live in, and later refinance or rent out.

BRRRR stands for:

• Buy
• Rehab
• Rent
• Refinance
• Repeat

How it works:

• Buy a property that needs work but is still livable
• Use low-down-payment primary-residence financing
• Renovate while living there
• Refinance later to pull out equity or keep a HELOC in place before moving out

Pros:

• Low entry cost, like house hacking
• More time to complete renovations since you live there
• Can create forced appreciation
• Can help fund the next deal via refinance or HELOC

Cons:

• Living in a construction zone
• More work and longer timelines
• Requires discipline to avoid mortgage fraud if using a HELOC or refinance structure

3. Get a Partner

Partnerships let you combine resources with someone who brings what you lack: capital, experience, time, or confidence.

Common structures:

• Debt partnership: one person lends money and gets interest payments
• Equity partnership: both parties share ownership, cash flow, and appreciation

Pros:

• Helps fill gaps in capital or skill set
• Lets you access deals you couldn’t do alone
• Can speed up your investing career
• Good for rookies who need support or confidence

Cons:

• You give up part of the profits and equity
• Needs clear roles and expectations
• Can become messy without strong communication and legal agreements

4. Seller Financing

With seller financing, the seller acts like the bank and you make payments directly to them instead of getting a traditional mortgage.

Negotiable terms can include:

• Down payment
• Interest rate
• Amortization length
• Balloon payment timing
• Interest-only periods

Why it’s powerful:

• Avoids many bank requirements
• Can be customized to fit both sides
• Especially useful when the seller owns the property free and clear or nearly free and clear

Pros:

• Flexible terms
• Lower barriers to closing
• Can create win-win deals for both buyer and seller

Cons:

• Harder to find
• Requires negotiation skills
• Sometimes more common in larger or more complex deals than in typical single-family purchases

Negotiation tips shared:

• Ask upfront if they’re open to seller financing
• Frame it around tax benefits and ask what their CPA says
• Find out what they need monthly and work backward from there

5. Assumable Mortgages

An assumable mortgage allows you to take over the seller’s existing loan, including its interest rate and remaining balance, with lender approval.

Why investors like it:

• Potentially gives you access to very low interest rates from years past
• Can dramatically reduce monthly payments compared to today’s rates
• Fully legitimate and lender-approved when done correctly

Important note:

• You still need to cover the difference between the loan balance and the purchase price
• Sometimes this requires a second loan or additional cash

Pros:

• Excellent in high-interest-rate environments
• Can make a deal work when a new mortgage would be too expensive
• Great for buyers and sellers when the seller needs to exit

Cons:

• Harder to find
• More complex to close
• Bank approval can take time
• May require a second lender to bridge the equity gap

Key Takeaways

• You do not need 20% down to buy a rental property.
• The best strategy depends on your lifestyle, risk tolerance, and financial goals.
• Several of these approaches are especially useful for rookies who want to start sooner rather than later.
• Some options reduce your housing costs more than they produce immediate cash flow.
• Creativity and flexibility often matter as much as capital.

Practical Advice from the Episode

Think in terms of tradeoffs

Ask yourself:

• Is it harder to live in a property for one year, or save $60,000–$100,000+ for a down payment?
• Do you want immediate cash flow, or are you okay with reduced living expenses first?
• Are you willing to do more work for more upside?

Match the strategy to your situation

• Single and flexible? House hacking may be ideal
• Will renovate anyway? Live-in BRRRR may be the best fit
• Short on cash but strong on skills? Find a partner
• Good negotiator? Try seller financing
• Looking for low-rate debt? Hunt for assumable mortgages

Notable Insights

• House hacking can be a fast path to ownership and wealth-building, especially when paired with government-backed or low-down-payment loans.
• Seller financing and assumable mortgages are especially powerful in a high-rate market.
• Low-down-payment strategies often mean less cash flow upfront, but they can accelerate portfolio growth by preserving capital.

Final Thought

The episode’s core message is simple: if you want to buy rental properties faster, stop assuming you need a massive down payment. With the right strategy, you can get into your first or next rental with 5% down, 3.5% down, or even 0% down—and use that leverage to build momentum much sooner.