Investment property financing: Build your real estate portfolio

Financing your first investment property

Real estate investing has created more millionaires than almost any other asset class. But getting started requires understanding how investment property financing differs from buying a primary residence.

Whether you're purchasing your first rental or adding to an existing portfolio, the financing landscape has options for different investor profiles and strategies.

Investment property requirements

Down payment: Plan on 15-25% down for investment properties. The exact amount depends on the property type:

• Single-family rentals: 15-20% down
• 2-4 unit properties: 20-25% down
• Some programs allow 10% with strong reserves

Credit score: Most investment property loans require 680+. Higher scores (720+) get better rates and more options.

Reserves: Lenders want to see you can weather vacancies. Expect to show 6 months of reserves for the investment property, plus reserves for your primary residence.

Experience: First-time investors face more scrutiny. Having some landlord experience (even informal) helps your application.

Loan options for investors

Conventional loans: Traditional financing with competitive rates. Works well for investors with strong W-2 income and good credit. Limited to 10 financed properties per borrower.

DSCR loans: Debt Service Coverage Ratio loans qualify based on the property's rental income, not your personal income. Great for self-employed investors or those with complex tax returns.

Portfolio loans: Some lenders hold loans on their books rather than selling them, offering more flexibility for unique situations or larger portfolios.

Commercial loans: For 5+ unit properties or investors scaling beyond conventional limits.

Hard money/bridge loans: Short-term financing for fix-and-flip projects or quick acquisitions.

Using rental income to qualify

Here's where things get interesting. Lenders can use projected rental income to help you qualify for the loan. Typically, they'll count 75% of the expected rent (accounting for vacancies and expenses) as income.

For properties you already own, they'll look at actual rental history. For new purchases, they'll use comparable rents in the area.

This rental income offset makes it possible to buy investment properties even when your W-2 income alone wouldn't qualify you.

House hacking: Live in one, rent the rest

One popular strategy for first-time investors: buy a 2-4 unit property, live in one unit, and rent out the others. This lets you:

• Put down just 3.5% (FHA) or 5% (conventional) instead of 15-25%
• Get primary residence interest rates
• Have tenants help pay your mortgage
• Build landlord experience before scaling up

After a year, you can move out and convert it to a pure investment while buying your next property.

Numbers that matter

Before buying any investment property, run these calculations:

Cash-on-cash return: Annual cash flow divided by total cash invested. Most investors target 8-12% minimum.

Cap rate: Net operating income divided by purchase price. Helps compare properties regardless of financing.

1% rule: Monthly rent should be at least 1% of purchase price for cash flow. In high-appreciation markets, this can be flexible.

50% rule: About half of gross rent goes to expenses (excluding mortgage). Use this for quick estimates.

Building a portfolio

Your first investment property is just the beginning. As you build equity and track record, you can:

• Refinance to pull out equity for the next purchase
• Use blanket loans to finance multiple properties
• Partner with other investors
• Scale into commercial properties

Each lender has limits on how many properties you can finance. We work with multiple investors daily and know which lenders are most investor-friendly.

Tax benefits

Investment properties come with significant tax advantages:

• Depreciation deductions
• Mortgage interest deductions
• Operating expense deductions
• 1031 exchanges to defer capital gains

We're not tax advisors, but we work alongside many who specialize in real estate. The tax benefits often make the real returns even better than the cash flow alone.

Ready to invest?

Whether you're buying your first rental or your tenth, we have financing solutions for your investment strategy. Get pre-qualified to see what you qualify for, or schedule a call to discuss your investment plans.

For more investor-specific options, explore our investor hub.