No, you cannot use the tenant's deposit for your own down payment. Lenders want to see that you have skin in the game and are putting down 20% from your own resources. If you attempt to use the tenant's money, the lender will decline the deal because it is not your own money.
You can use cash, a secured line of credit, liquidated investments, or a combination of these. The key requirement is that the funds must come from your own resources to satisfy lender requirements and demonstrate your skin in the game.
You should connect them with a mortgage broker or advisor upfront to review their finances early on. This helps determine if they can qualify for the purchase price, if they will have sufficient down payment, and if they need to pay down debts before closing.
You earn returns through multiple mechanisms. The tenant pays an upfront deposit, rents the property at a rate above typical long-term lease rates for better cash flow, and commits to purchasing the property at a preset price that is higher than your original purchase price.
The predetermined timeframe for the tenant-buyer to purchase the property from you is typically two, three, or four years. This gives the tenant time to improve their credit, save additional down payment, or increase their income to qualify for a mortgage.
