Nothing is free, or so the saying goes. When it comes to real estate, some things can be free, or cost-neutral. Strategies such as small-town vacant land, house hacking, using other people's money, and seller financing are all ways real estate investors can essentially obtain a free property to add to their portfolios.
Here's an overview of what free property is, the pros and cons of each type of cost-neutral acquisition, and whether real estate investors should try to get in on the action.
Free vacant land
In hopes of raising the populations in small towns where economic activity has been limited, many states and municipalities offer land free of charge. These policies aim to attract newcomers to an area to help stimulate local economies. Conduct research on your state's homesteading or free land policies, and you may uncover some unique opportunities to acquire new assets.
Here are some current examples of state- and municipal-level free-land policies.
The City of Mankato is offering 26 free lots for the construction of new homes.
The town of Lincoln is offering over 20 new lots free of charge to newcomers to the town. Further, all of these lots qualify for a 10-year property tax rebate program.
According to the town's website, newcomers can "construct a single-family home in Curtis (meeting certain specifications) within a specified time period and receive the lot for free."
The township has identified 12 building lots it's willing to provide free of charge to applicants who wish to move to the area. The program website notes: "Lots are available for free or for purchase, depending on an applicants' income qualification. Independent of this program, the purchase price for a housing lot is $28,637."
The free land program in this town also includes businesses willing to set up shop in the town. The town website notes, "The amount of land offered will be determined by the number of jobs the business will employ."
The Buying Into Baltimore program offers forgivable loans for eligible applicants looking to move to that city. This will cost you $1,000, so not technically free, but still fairly low cost to obtain housing.
A state statute commission authorized a one-year pilot project titled the Dollar House Program to sell single-family residential properties owned by the city of St. Louis for $1.
And the list goes on. Check with local municipalities in your vicinity and your state's website for any housing initiatives involving free property or buyer incentives.
Another great way to live for free and get a free property is house hacking. The idea behind this is to purchase a small multifamily property, such as a duplex, triplex, or fourplex, to live in and rent out the vacant units. Although you will need a down payment, you can then live in one of the units and rent out the remaining ones to tenants.
This allows you to create rental income from your primary residence, and in most scenarios of housing hacking, you can live essentially expense-free. Consider a triplex that you buy as a primary residence with a 5% down payment:
- Assume a $200,000 purchase price, with a 4% mortgage interest rate.
- Down payment: $10,000.
- Expenses: Taxes, utilities, and insurance add up to $500 monthly.
- The mortgage payment is roughly $900.
- The total cost to you: $1,400 a month.
That said, if you were to rent out the other two units, you would only need to get $700 a month per unit to cover your ongoing costs. If you were to get more, then that's just gravy!