Investment Property Loans: Buy, Rehab, Flip or Keep
Short-Term Loans for Flips, Long-Term Mortgages for Rentals
Disclosure: We work with many of the lenders below, both to exchange educational content and in some cases as affiliate partners. So while we may be compensated for referring you if your loan closes, we keep the numbers and facts below transparent and objective, and we don’t specifically endorse any one lender.
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Real estate investing takes money. A lot of money.
But one of the greatest advantages in real estate is that you can leverage other people’s money to build your investment portfolio.
As we’ve talked to investors over the years, one of the most common questions (and complaints) is “Where can I find reliable loans for investment properties?” For your first few deals, you can probably get away with a conventional mortgage, at low-ish interest rates. But conventional lenders don’t like seeing multiple mortgages on your credit report, and quickly stop lending.
So at Spark Rental, we’ve reviewed dozens of industry lenders, and reached out to form partnerships with several lenders who specialize in investment property loans.
Here’s everything you need to know to get started, from long-term landlord loans for 15-30-year mortgages to short-term fix ‘n flip loans and even rotating lines of credit.
Long-Term Landlord Loan Options
Looking for a 15-30-year mortgage to buy a rental property? Or to refinance for a long-term landlord loan, after renovating a fixer-upper?
All are collateral-based lenders, more interested in the property itself than they are in you as a borrower. In fact, they don’t ask for any income documentation at all!
We could wax poetic… but you’d probably rather just see the loan comparison chart:
|Conventional Mortgage Lenders||Visio||LendingHome||LendingOne||RCN Capital|
|Where to Check Rates||Try Credible or LendingTree||Visio Lending||LendingHome||LendingOne||RCN Capital|
|# of Units||1-4||1-4||1-4||1-4||1-4|
|Loan to Value (LTV)||80-97% owner-occ, 75-80% investors||Up to 80%||Up to 75%||Up to 75%||Up to 75%|
|Down Payment||3%+ (owner-occupied/house hacking), or 20%+ (non-owner-occupied)||20%+||25%+||25%+||25%+|
|Credit Score||580+||680+||680+ (no hard credit pull)||680+||680+|
|Debt-to-Income Ratio (DTI)||28% - 36%||No income docs required||No income docs required||No income docs required||No income docs required|
|Cash Reserve Requirements||6-12 months' payments||6 months' payments||None||6 months' payments||9 months' payments|
|Interest Rates||4-7.5%||5.1%+||4.95%+||5.99%+ (variable), 6.49%+ (fixed)||6.25%+|
|Loan Points||0-3||1-4 (borrower can buy down interest rate)||1.5+||1.99+||1-2 (borrower can buy down interest rate)|
|Repayment Term||15 or 30 Years||5/1 ARM, 7/1 ARM, or 30-year fixed||3/1 ARM, 5/1 ARM, 7/1 ARM, or 30-year fixed||3/1 ARM, 5/1 ARM, 7/1 ARM, or 30-year fixed||3/1 ARM, 5/1 ARM, 7/1 ARM, 30-year fixed, or 10-year interest-only|
|Time to Funding||30-60 Days||21 Business Days||10-30 Days||10-30 Days||14-21 Days|
|Loan Limits||$50,000 - $424,100||$75,000 - $2M||$75,000 - $2M||$75,000 - $2M||$55,000 - $1M|
|Prepayment Penalties||Varies by lender; as high as 5% within 1 year||5 years typical, 3 years optional||3% first year, 2% second year, 1% third year, none after 3 years||80% of 6 months' interest within first 3 years||5 years typical, 3 years optional|
|States Serviced||All||AL, AR, AZ, CA, CO, CT, FL, GA, HI, IA, IL, IN, KS, KY, LA, MA, MD, ME, MI, MO, MS, MT, NC, NH, NJ, NM, NY, OH, OK, PA, SC, TN, TX, VA, WA, WI, WV, WY + DC||AZ, CA, CO, CT, DC, FL, GA, KY, MA, MD, MI, MN, MO, NC, NJ, NV, NY, OH, OK, OR, PA, SC, TN, TX, VA, WA, WV||All Except: AK, NV, ND, SD & UT||All Except: AK, HI, MN, NV, ND, SD & VT|
|Report to Credit Bureaus?||Yes||No||No||No||No|
|Where to Apply||Try Credible or LendingTree||Visio Lending||LendingHome (no hard credit pull)||LendingOne||RCN Capital|
Not sure what all these terms mean? Don’t sweat it – we have a Mortgage Glossary at the bottom of the page!
Rental Property Loans: How to Scale
You’re already familiar with traditional banks and mortgage lenders. They typically offer reasonable interest rates and 75-80% LTV (loan-to-value ratio).
That’s the good news.
The bad news comes in three stripes:
- They often won’t lend to LLCs or other legal entities,
- They report the loan to the credit bureaus, and
- They don’t allow more than a few (usually four) mortgages reporting on your credit report.
While one mortgage, maybe two, reporting on your credit can improve it, five mortgages is good way to wreck your credit.
So where can you get a rental property loan, if you already have a mortgage or two reporting?
Easy: online portfolio lenders who specialize in landlord loans. We’ve vetted the lenders above, and found them all to be transparent about pricing and fees, and relatively easy to close with.
If you’re buying your first rental property, consider a traditional mortgage through Credible (ideally by house hacking). But you’ll quickly want to graduate to portfolio loans through landlord lenders like Lending One and Visio .
Short-Term Purchase-Rehab Loans
Looking to flip a house, or buy a rental property using the BRRRR method?
Sometimes you just need a quick loan to buy a new property and renovate it. For that, look to purchase-rehab loans.
While Visio only offers landlord loans, LendingHome and LendingOne both offer great fix-and-flip options, in addition to landlord loans. If you want to go the local hard money loan route, try asking around locally to find a few nearby hard money lenders to price them out for short-term renovation loans.
We condensed the loan terms and info for you in a compact comparison chart:
|203K Loan from Bank||LendingHome||LendingOne||Patch of Land||RCN Capital|
|Where to Check Rates||Credible or LendingTree||LendingHome||LendingOne||Patch of Land||RCN Capital|
|# of Units||1-4||1-4||1-4||1-4||1-4|
|Occupancy||Owner-occupied (house hacking)||Non-owner-occupied||Non-owner-occupied||Non-owner-occupied||Non-owner-occupied|
|Loan to Value (LTV)||90-97.5%||Max. 90% (Preferred), 85% (Standard)||Max. 80%||Max. 85%||Max. 85%|
|Debt-to-Income Ratio (DTI)||31% front-end, 43% back-end||No income docs required||No income docs required||No income docs required||No income docs required|
|Cash Reserve Requirements||3 Months||$0-25K depending on # of properties flipped in last 2 years||6 Months per property||6 Months per property||6 Months per property|
|Loan Points||0-2 (varies by borrower qualifications)||1-4 (varies by borrower qualifications)||1.75+ (varies by borrower qualifications)||1-2 (varies by borrower qualifications)||1-2 (varies by borrower qualifications)|
|Closing Costs||Varies by borrower qualifications||Varies by borrower qualifications||$2500+||Varies by borrower qualifications||Varies by borrower qualifications|
|Repayment Term||15-30 Years||12 Months||12 Months||12 Months||12 Months|
|Time to Funding||30-60 Days||5-15 Business Days||10-14 Business Days||5-15 Business Days||14-21 Business Days|
|Loan Limits||Varies by # of units||$50,000-$1M||$75,000+||$50,000+||$50,000+|
|States Serviced||All||AZ, CA, CO, CT, FL, GA, IL, KT, MA, MD, MI, MN, MS, NC, NJ, NV, NY, OH, OR, PA, SC, TN, TX, VA, WA, WV||All except: AK, NV, ND, SD & UT||All except: AZ, NV, SD & UT||All Except: AK, MN, NV, ND, SD & VT|
|Where to Get a Quote||Try Credible or LendingTree||LendingHome (no hard credit pull)||LendingOne||Patch of Land||RCN Capital|
Short-Term Purchase-Rehab Loans for Real Estate Investors
Typically, the process works like this: you settle within 10-14 days, with money escrowed for renovation draws. You do the first round of work (AKA the first “draw”), and the lender sends an inspector out to review the work.
If the work in the first draw is complete, the lender releases the money for that draw, to reimburse you. Then you do it all over again for the second draw, and so forth.
For example, you borrow $75,000 for the purchase, plus $30,000 for renovations. That $30,000 is split into five $6,000 draws.
The first draw may involve replacing the furnace, updating the ductwork, and replacing the air conditioning condenser. You and/or your contractors do that work, the lender comes out and inspects, then releases the first $6,000 to you. And so on.
If you talk to banks, make sure they lend to legal entities (like LLCs), if you use them to help protect against lawsuits. Many conventional lenders and banks will only lend if you own the property under your individual name.
Landlord lenders, hard money lenders, and most investment property lenders have no problem with lending to legal entities.
Rotating Lines of Credit
Mortgage loans are all well and good, but they’re not exactly flexible.
Many investors love the flexibility to draw money as they need it, then pay it back on their own schedule. You can draw money to buy a new property, or to make renovations (or both). Then you can refinance with a long-term rental property mortgage (as with the BRRRR method), or just pay off the balance as you can.
Here are three of the most common options for rotating credit lines. Note that you can still get a HELOC against rental properties, but the LTV tends to be lower and the interest rates higher.
|HELOC (Against Home or Rentals)||Business Credit Lines & Cards||Personal Credit Card|
|Where to Check Rates||LendingTree||Fund & Grow||Credit.com|
|Maximum Credit Line||65-85% of Property Value||$150,000-250,000 typically (depends on credit)||$10,000-100,000 typically (depends on credit & income)|
|Income Documentation||3 months' bank statements, 3 years' tax returns||None||Varies|
|Secured by Lien Against Property?||Yes||No||No|
|Interest Rates||5-12%||0% initial, then 7-22%||8-25%|
|Cash Withdrawal Fee||0% (usually)||2-2.5%||3-6%|
|Draw Period||5-10 Years||Indefinite||Indefinite|
|Initial Application Timeline||30-60 Days||0-7 days||0-7 days|
|Prepayment Penalties||Varies by lender||None||None|
|Report to Credit Bureaus?||Yes||No||Yes|
|Where to Apply||LendingTree||Fund & Grow (Business Credit Concierge)||Credit.com|
Unsecured Business Credit Lines, Cards, and Concierges
Here’s where things get interesting.
As a real estate investor with an LLC, you’re a small business owner. You qualify for rotating business credit lines, in the form of either a traditional line of credit or a series of business credit cards.
We’ve partnered with Fund & Grow to help you navigate this process and get between $50,000-$250,000 in combined business credit lines. They charge a (hefty) up-front fee, but they guarantee three rounds of financing over 12 months. And they get results.
It works like this: for a one-time fee, they connect you with the best business credit cards available currently. They aim for 0% interest on all cards, for the first 9-12 months. They negotiate with the credit card companies on your behalf, helping you get the largest possible credit line.
Once approved for your first round of cards and funding, they then help you scrub your credit report to remove the “dings” from the first-round credit inquiries. A few months later, they do it all over again, raising another round of credit lines through new cards. Then they scrub your credit again, and repeat it a third time.
No income documentation required. But your credit does matter – the higher your credit score, the higher the lines of business credit they can secure for you.
Oh, and they also show you how to pull cash from these cards to pay for real estate settlements, with only a 2.5% fee.
Get prequalified here with a soft credit inquiry with no ding, to get a sense for how much business credit you can qualify for.
Free Webinar: Real Estate Investor’s Guide to $50k – $250k in Business Credit
Our own Brian Davis joins Ari Page, CEO of Fund & Grow, and Mike Banks, COO of Fund & Grow, to walk through exactly how real estate investors can get up to $250,000 in unsecured business credit lines and cards for real estate investing.
Commercial, Apartment Building, and Construction Loans
Looking to buy an apartment building with five or more units? How about an office building, retail space, or other commercial property?
Or perhaps build your own from the ground up?
Try RCN Capital to buy multifamily or mixed-use properties. If you’re looking to buy a larger apartment building, try Commercial Loan Direct for affordable, flexible financing for commercial properties. They put no upper limit on financing, but they do have a minimum loan amount of $1,000,000. These loans aren’t for your typical triplex!
We also included unsecured credit lines as an alternative option, for smaller funding projects. And because we love the flexibility of rotating credit accounts!
How to Apply to LendingOne in Under 90 Seconds
What Types of Lenders Work with Landlords & Investors?
What’s the difference between private money and hard money? How do conventional loan programs differ from community bank portfolio loans?
We’ve got you covered. Here’s a breakdown of the different types of lenders who fund landlords and real estate investors, and the pros and cons of each.
Conventional lenders follow strict loan program guidelines, so they can turn around and sell the loans on the secondary market to large servicing companies like Chase or Wells Fargo.
Pros: There are a lot of cons, but one really big advantage: conventional loans are usually the cheapest loans available to landlords and real estate investors.
Often these loans feature interest rates only one point higher than homeowner loans. Lender fees are also cheaper, usually in the 0.5-2 points range. You can compare multiple mortgage quotes at LendingTree.
Cons: Conventional loans are slow. Plan on at least 30 days to close.
Typically, these conventional loan programs also have tighter credit and income requirements. They’ll also require lots – lots – of documentation and paperwork from the borrower.
Unless you are planning on house hacking, landlords usually need to make a down payment of at least 20%. Consider moving into the property yourself for at least a year, whether in a small multifamily so you can rent out the other unit(s), or as a single-family that you can keep as a rental after you move out. (Pro Tip: For owner-occupied mortgages for house hacking, try Credible.)
Likewise, if you’re not house hacking and using a 203K loan, conventional loans are not good for buy-and-rehab renovation financing.
Lastly, conventional loans report on your credit, and place a cap on the number of mortgages borrowers can have showing on their credit. That cap varies by loan program, but don’t count on having more than four conventional loans at a time. Besides, you don’t want eight mortgages on your credit, chewing up your credit score.
Bottom Line for Landlords & Investors: Conventional lenders are great for house hacking, and potentially for a real estate investor’s first or second rental property.
Online Portfolio Lenders
Online lenders are increasingly becoming a mainstream, go-to funding option for landlord loans and fix-and-flip loans.
Because online lenders keep the loans within their own portfolios, they are far more flexible than the rigid conventional lending programs. They also cost more.
Pros: Faster settlement: online landlord lenders can often settle within 10-14 days.
Less documentation: online lenders often don’t require any income documentation, and focus less on credit history. Their focus lies more on the collateral, the property itself.
They have no limit on the number of mortgages on a borrower’s credit, and many offer more attractive pricing to experienced, proven investors. Often these lenders don’t report payments to the credit bureaus, either.
Online lenders can also handle buy-and-rehab scenarios well. They’ll create a draw schedule with you for the required repairs.
Cons: Online landlord lenders and fix-and-flip lenders are more expensive than banks and conventional lenders.
Expect a down payment of at least 10%, usually in the 20-30% range. (Although you can try these down payment hacks to put down less!)
While they are far more flexible than conventional mortgage lenders, they may not be as flexible as a local hard money lender.
Bottom Line for Investors and Landlords: Be sure to vet online lenders carefully, but they can be excellent sources of ongoing funding for real estate investors. Online lenders often represent a nice balance between cost, speed and flexibility. The three best that we’ve found are Visio, LendingOne, and LendingHome.
Hard Money Lenders
The line between traditional hard money lenders and online real estate investor lenders has become blurry in recent years.
Hard money lenders are individuals or companies who lend private funds to real estate investors. They can be local, regional, or national. They could have a physical office location, or be completely online nowadays.
Pros: Hard money lenders are fast and flexible. I started my career working for a hard money lender, and we closed a loan in three days once (and charged accordingly).
Hard money lenders lend largely based on collateral, so credit and income are less important to them than conventional lenders.
They don’t report on borrowers’ credit and have no limits on existing mortgages.
Cons: They are expensive. While some hard money lenders charge as little as 8-9% interest, they can charge 16-18%, too.
And lender fees? Expect a bare minimum of two points, and as high as eight.
Bottom Line for Landlords and Investors: Hard money lenders are great for short-term fix-and-flip loans. Use them when you need to settle lightning fast, and the property needs significant repairs. Don’t use them for long-term landlord loans!
Local Community Banks
I’ve used local community banks successfully in the past for long-term landlord loans. They keep the loans in-house, on their own portfolios, so they’re far more flexible than conventional loan programs.
Pros: Local community banks often don’t report on credit, and have no limits on the numbers of mortgages a borrower can have.
They’re not cheap, but not outrageously expensive, either. Shop their rates against online landlord lenders.
The best community banks are flexible, and may even offer a single “renovation-perm” loan that lets investors buy and renovate a property, then shift into a long-term landlord loan without refinancing first.
Cons: They usually don’t move as quickly as hard money lenders or online mortgage lenders. Expect settlements closer to the traditional 30 days.
And, of course, they’re local. You’re often limited to whatever community banks happen to service your market.
Bottom Line for Real Estate Investors and Landlords: Local community banks can sometimes be a viable alternative to online landlord lenders. Shop their rates in your market, and especially keep an eye out for singular renovation-perm loans.
Private Funds (Friends & Family)
Borrowing privately from friends and family is the holy grail of funding for landlords and real estate investors.
It requires experience, trust, and confidence. That takes time, and it requires a proven track record of success.
Pros: You negotiate your own pricing and terms. That means it could be cheaper than other landlord loans, and you have the ultimate flexibility.
Private funds can also be as fast and flexible as you can raise it!
Cons: You must first establish yourself as a successful real estate investor. Don’t expect to raise $100,000 from friends and family on your second or third real estate deal.
It also comes with more dire consequences for your personal life if disaster strikes and you default. Borrower beware…
Bottom Line for Landlords and Investors: Gradually start accruing more private funds over time from friends and family. Eventually, you may be able to finance entire deals with private money, but in the beginning just use them for help with the down payment or renovation costs.
A Path Forward for Rental Investors
While every real estate investor follows a different path, here’s a sample outline for how a rental investor might finance their first rental properties:
Property 1: House hack a 2-4 unit property with conventional or FHA financing (3.5-5% down).
Property 2: Use either a conventional bank or online landlord lender (10-25% down).
Properties 3-4: If you’re getting more ambitious with the renovations, use either an online buy-and-rehab loan, a community bank loan, or a hard money loan for the purchase and renovation. Then refinance it using an online landlord loan. (Or, if you’re lucky, avoid refinancing altogether with a renovation-perm loan from a community bank.)
Properties 5-8: Start raising some capital from friends and family. Use this to help with the down payment and/or renovation costs. Use either a local community bank or an online landlord loan for long-term financing.
Properties 9+: Try to increasingly use private funds. To free up some of the private funds tied up in your existing portfolio, consider refinancing several of your properties under an umbrella loan to cash out and use the money towards new acquisitions. Use either community banks or online landlord lenders for financing as needed.
Financing Investment Properties with Bad Credit
Glossary of Landlord Loan Terms
DSCR: Debt service coverage ratio. The ratio between a rental property’s net rental income and the full (PITIA) loan payment. For example, if the net rental income is $1,000, and the monthly loan payment is $800, then the DSCR is 1.25. ($1,000 divided by $800).
DTI: Debt-to-income ratio. There are two ratios used: a front-end ratio, which only looks at the loan’s monthly payment compared to your gross monthly income, and a back-end ratio, which takes all of your debt into account. This is used primarily by traditional banks and lenders, but not used as frequently by landlord lenders.
LTV: Loan-to-value ratio. The percentage that the lender will lend against the value of the property (e.g. a lender who goes up to 75% LTV will lend $75,000 against a $100,000 property).
PITIA: The full monthly mortgage payment, including principal, interest, taxes, insurance and HOA or condo association fees (if any).
Transparency Disclosure: We have affiliate relationships with some (but not all) of the lenders summarized on this page, and we continue to update this page as we evaluate more real estate investor lenders. While we have vetted these lenders carefully, always make sure you do your own due diligence before borrowing from hard money, fix-and-flip, and landlord lenders!