Creative ways to cover the down payment on a rental property

With approximately 1,000 people moving to The Sunshine State each day, it is no surprise that the rental market is thriving in South Florida. In particular, the single-family home rental market is as strong as it has ever been. Oftentimes, private investors would like to either build or expand a rental property portfolio but are met with some challenges covering the down payment for the purchase. We will briefly discuss a few creative ideas that may assist you with coming up with the down payment for the purchase of your next income-producing property.

Financing the down payment

  • Home equity line of credit (HELOC): Typical homeowner mortgages do not allow you to borrow any part of the down payment. With this said, investment property lenders do typically allow this. The most common approach typically involves a HELOC against your primary residence. However, many investors do not realize that they may also take out HELOC’s against other rental properties with equity. This may done to not only finance a down payment, but also to perform any property upgrades as well.
  • Seller financing: Although not as commonly seen, the seller may be approached about financing part of the transaction. This may alleviate some or all of the down payment burden on the buyer, while allowing for a passive income opportunity for the seller.
  • Use Unsecured Business Credit Lines and Cards: If you are a real estate investor with an LLC, you should be able to qualify for business credit cards and credit lines. Most commonly, these credit lines are used for financing any property upgrades after the purchase. Thus, this will free up more cash for the down payment for the purchase.
  • Pull money form a Roth IRA: One of the benefits of the Roth IRA is that you may withdraw contributions tax-free and penalty-free. For this reason, these are the most flexible retirement accounts available. Of course, utilizing this approach may result in missing out on future tax-free compounding.
  • Finding a qualified business partner: Most often seen with first-time investors, you may consider partnering up with a seasoned investor that not only will assist in funding the transaction, but will also share his/her knowledge and experience with you. Even if only for your first investment, the knowledge you may gain from this partnership will benefit you for years to come.
  • Obtain a owner-occupied mortgage: Rental property mortgage lenders typically require a 20% down payment and oftentimes even a 25% – 30% down payment. Needless to say, this can amount to a large sum of money. However, owner-occupied mortgages may require substantially less for the down payment. A classic approach here is referred to as “house hacking”. In this scenario, the investor buys a duplex or triplex and lives in one of the units while renting out the other(s). Actually, residential mortgage loans allow up to four units to qualify. Another common example of “house hacking” involves buying a property and living in it for a year before renting it out. This will still meet many lenders’ occupancy requirements.


Investing in rental properties can be one of the best ways to build wealth and even fund a retirement. It is important for investors to think of a rental property portfolio as its own financial ecosystem. Ideally, the rental amounts that are collected are covering all expenses such as mortgages, taxes, insurance, and maintenance. In addition, the goal is for some steady passive income each month while the properties are appreciating over time. It is not uncommon for this passive income to cover your primary residence’s mortgage as well.

Do you have questions about investing in rental properties in South Florida? At Live South Florida Realty, Inc. we have been assisting clients supplement their incomes through real estate investing for many years. Contact us today for a free consultation to get you on the path to financial freedom.


REALTOR® with Live South Florida Realty, Inc.