Unconventional Financing Options for Your First Rental Property

Rental income can be an important part of a portfolio, providing a steady stream of income and potential appreciation to the investor. Often, the focus when looking to buy rental properties is traditional financing options such as taking out equity from an existing property. Here are some less common methods to consider when investing in rental properties.

Vendor Take Back Mortgages can be one of unconventional ways to get financing for your first rental property. Vendor take back mortgages (or vendor financing) are when the seller of a property provides part or all of the financing to the buyer. This type of financing is typically used when the buyer has difficulty obtaining traditional financing from a lender. The seller agrees to provide financing to the buyer, often at a higher interest rate than the buyer could receive from a mortgage lender. This can be in the form of a lump-sum payment or a series of payments over a specified period of time.

Credit used to book builder properties. When a builder sells a new home to a buyer, the buyer usually pays a certain percentage of the purchase price as a down payment, then signs a contract agreeing to pay the remaining balance over a period of years. Many builders offer to finance a portion of the down payment, allowing the buyer to use the credit from the builder to purchase the property which can then be rented out.

Crowdfunding – This is another interesting and increasingly popular way to buy rental properties. Crowdfunding is the practice of pooling funds from a large group of people. In the case of real estate investing, the crowdfunders (or “investors”) will pool their money together to purchase a rental property. The benefits of this approach are that the investors are able to invest smaller amounts of money than if they were investing on their own and can spread the risk across multiple properties. Additionally, crowdfunding can also be used to buy distressed properties that need significant repairs, as well as to fund renovations on existing properties.

Buy Renovate, Refinance, Rent, Reinvest (BRRRR) Strategy – This strategy is more commonly used to acquire single family and multi-family properties. It can also be used to acquire rental properties as well. It involves buying a property, renovating it, refinancing the property with a conventional loan, and then renting it out. The proceeds from the refinance can then used to reinvest in other rental properties.

In conclusion, there are many unconventional ways to buy your first rental properties. This list is by no means exhaustive but provides some ideas of ways to finance your first rental property. It is always important to carefully weigh the pros and cons of any financing arrangement and to consult with a financial advisor before making any decisions.

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