How to Get Into Real Estate Without a Lot of Cash: Creative Financing

It’s easy for prospective real-estate investors to get discouraged by sticker shock.

Many lenders require a down payment of at least 20% for an investment property. With the median US home price hovering around $400,000, that can mean coming up with $80,000 — and that’s without factoring in closing costs, repairs, and cash reserves.

If you don’t have tens of thousands of dollars in cash at your disposal, investing in real estate isn’t necessarily out of reach. Business Insider spoke with four investors who found creative ways to use assets they already had — from retirement savings to a paid-off truck — to help finance their first deals.

Lucy Zheng borrowed from her 401(k)

When Lucy Zheng wanted to buy her first rental in 2023, she was cash-strapped and living in California, where prices felt unaffordable. She began looking at cheaper Midwest markets, eventually focusing on Detroit, where she found homes selling for about $60,000.

To fund the purchase, Zheng put in about $15,000 of her own money and borrowed the rest from her 401(k), allowing her to buy the property in cash. Under the rules of her employer-sponsored plan, she could borrow up to $50,000 or 50% of her vested account balance, whichever was less.

For Zheng, the appeal was speed and cost. She said she received the money within a few business days, paid a $75 fee, and closed on the property within two weeks.

She also liked that the interest on the loan went back into her own retirement account. To make the monthly repayments manageable, she temporarily reduced her regular 401(k) contributions so the loan payments roughly replaced what she had already been setting aside from each paycheck.

The major caveat, she noted, was the job-related risk: If she left or lost her job, she would have had to repay the balance immediately.

Mark Kearney used a HELOC to buy his first rental

Florida-based investor Mark Kearney never earned more than $52,000 a year and didn’t think real-estate investing was a viable path to wealth, but he was able to use a home equity line of credit, or HELOC, to help fund his first investment property.

A HELOC lets homeowners borrow against the equity in their primary residence — the difference between what the home is worth and what they still owe on it — and it works similarly to a credit card: The lender approves a maximum credit line, and the homeowner can draw from it as needed during a set period.

Kearney said his paid-off home was worth about $200,000 at the time. Rather than borrow close to the maximum amount available, he opened a $30,000 line of credit — about 15% of his home’s value — to help purchase a $100,000 single-family house in Virginia’s Shenandoah Valley.

After finding a tenant, Kearney said the rental generated about $220 a month in profit. He used some of that cash flow to pay down the HELOC balance and put some into savings.

Kent He took out a home-equity loan to fund a short-term rental

Kent He tapped into the value of his San Diego home using a different product: a home-equity loan.

He and his wife bought their primary residence in 2019. As it appreciated, they built substantial equity and eventually took out a home-equity loan, which provides a fixed amount of cash upfront.

“When we bought, our home was $800,000, but it went up $200,000 in value,” he said. “Because we’re able to take out 80% of that, we could take out up to $160,000 of home equity to use it towards whatever we wanted.” They chose to use the money to invest in a short-term rental.

A home-equity loan is similar to a HELOC in that both products let homeowners tap their home equity, but they distribute the money differently. A home-equity loan provides a lump sum upfront, while a HELOC provides a credit limit that borrowers can draw from during a set period.

Think of your primary home as “another tool in your tool belt,” said He. “With all this equity, maybe you can take it out and put it into an investment, as long as the investment makes sense and it fits your risk appetite.”

Mike Savage took a loan against his paid-off truck

Mike Savage used a more unconventional asset to fund his first deal: his paid-off truck.

After using retirement savings to relocate his family to Charleston, South Carolina, Savage said he and his wife had little left in the bank, but he owned his truck outright.

When he found a three-bedroom, one-bath house in South Carolina for $49,000, he took out a loan against the truck to cover the roughly $10,000 down payment. It gave him a way to enter the market without waiting years to save the money in cash.

Like borrowing against a home or retirement account, the strategy created another debt obligation tied to an asset he already owned. Still, Savage was determined to find a way into real estate.

His mindset, he said, was: “This is what I want to do. I just have to figure out how to make it happen.”