Rental property loans: Finance your long-term rentals

Financing long-term rental properties

Long-term rentals remain one of the most reliable paths to building wealth through real estate. Monthly cash flow, mortgage paydown, appreciation, and tax benefits combine to create returns that are hard to match elsewhere.

But financing investment properties works differently than buying your primary residence. Here's what you need to know.

Loan options for rental properties

Conventional investment loans The most common option for investors with W-2 income or strong tax returns. You'll need:

• 15-25% down payment
• 680+ credit score (better rates at 720+)
• 6 months reserves
• Debt-to-income ratio that works with both properties

Conventional loans limit you to 10 financed properties per borrower.

DSCR loans (Debt Service Coverage Ratio) These loans qualify based on the property's income, not yours. Perfect for:

• Self-employed investors with complex tax returns
• Investors scaling past conventional limits
• Those who want to keep personal finances separate

DSCR loans typically require the rent to cover 1.0-1.25x the mortgage payment.

Portfolio loans Some lenders keep loans on their books, allowing more flexibility on terms and qualification. Useful for investors with unique situations or large portfolios.

Down payment requirements

Investment property down payments are higher than primary residences:

Property Type	Minimum Down
Single-family rental	15-20%
2-4 unit property	20-25%
DSCR loan	20-25%

The more you put down, the better your rate. But many investors prefer to put down the minimum to preserve capital for the next deal.

Using rental income to qualify

Here's the good news: lenders can use the rental income to help you qualify.

For properties you're buying, they'll typically count 75% of the projected rent (per comparable rentals in the area) as income offset. This 25% haircut accounts for vacancies and expenses.

For existing rentals you already own, they'll use actual rental history from your tax returns.

This income offset makes it possible to grow a portfolio even with a moderate W-2 income.

Property types we finance

Single-family homes: The most common rental property type. Easy to manage, liquid if you need to sell.

2-4 unit properties: Duplexes, triplexes, and fourplexes. These can be financed with residential loans (5+ units require commercial financing).

Condos: Investment condos are possible, though some condo associations have rental restrictions that affect financing.

Townhomes: Similar to single-family, with HOA considerations.

The numbers that matter

Before buying any rental, you should know:

Cash flow: What's left after mortgage, taxes, insurance, and expenses? Positive cash flow from day one is ideal.

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

Cap rate: Net operating income (before mortgage) divided by purchase price. Useful for comparing properties regardless of financing.

Rent-to-price ratio: Monthly rent divided by purchase price. The "1% rule" (1% monthly rent) is a common benchmark, though it's flexible in appreciating markets.

Building a portfolio

Your first rental is the hardest. After that, you have options:

Refinance and repeat: Build equity, refinance to pull out cash, use that cash for the next property.

Save and buy: Continue saving while your first rental pays down its mortgage, then buy the next one.

Partner up: Bring in partners with capital while you bring expertise and time.

Creative financing: Seller financing, subject-to deals, and other creative structures (these require more expertise).

Tax benefits

Rental properties offer significant tax advantages:

• Depreciation deductions (paper losses without actual cash outflow)
• Mortgage interest deductions
• Operating expense deductions
• 1031 exchanges to defer capital gains when selling

We're not tax professionals, but these benefits are a major part of why real estate investing is so powerful.

Getting started

If you're buying your first rental, start with these steps:

1. Get pre-qualified to know your budget
2. Analyze deals in your target market
3. Make offers on properties that meet your criteria
4. Close and find a tenant (or inherit existing tenants)
5. Build toward your next property

We work with investors at all stages, from first-time landlords to those building serious portfolios.

See your financing options

Let's figure out what you qualify for and what your purchase budget looks like. Get pre-qualified to see your numbers, or schedule a call to discuss your investment strategy.