How to Finance Investment Properties: 6 Proven Strategies (2025)
The biggest myth in real estate is that you need to be rich to get started. While you do need capital, it doesn't always have to be your capital. Successful investors master the art of OPM (Other People's Money). Here are the 6 most effective ways to finance your next deal.
Table of Contents
1. Conventional Loans: The Gold Standard
This is the most common route. You go to a bank, put down 20-25%, and get a 30-year fixed-rate mortgage.
- Pros: Lowest interest rates, long amortization (30 years).
- Cons: Requires good credit (620+), significant down payment, and strict debt-to-income (DTI) ratios.
2. FHA Loans: The House Hacker's Best Friend
If you are willing to live in one of the units (e.g., a duplex, triplex, or fourplex), you can use an FHA loan with a down payment as low as 3.5%.
- Pros: Extremely low down payment, easier credit requirements.
- Cons: Must live in the property for at least one year; includes Mortgage Insurance Premium (MIP).
3. Hard Money Loans: Speed and Rehab
Hard money lenders are private companies that lend based on the property's value, not your personal credit. They are ideal for fix-and-flip projects or the "Buy" and "Rehab" phases of the BRRRR method.
- Pros: Fast funding (days, not weeks), covers rehab costs.
- Cons: High interest rates (10-15%), short terms (6-12 months), and high points/fees.
4. Private Money: Relationship-Based Lending
This is borrowing from individuals—friends, family, or other investors—who have cash sitting in a bank account earning very little interest. You offer them a better return (e.g., 8-10%) secured by a mortgage on your property.
- Pros: Flexible terms, no corporate red tape, can be 100% financing.
- Cons: Requires building strong relationships and trust; you must protect their capital.
5. Seller Financing: The Creative Solution
In this scenario, the seller acts as the bank. You make monthly payments directly to the seller instead of a mortgage company. This is common with older sellers who own their properties free and clear and want monthly income without the headaches of being a landlord.
- Pros: No bank qualification, highly negotiable terms (interest rate, down payment).
- Cons: Harder to find; requires a seller who owns the property outright.
6. HELOC: Tap Your Existing Equity
If you own your primary residence and have significant equity, you can open a Home Equity Line of Credit (HELOC). This acts like a giant credit card secured by your home. You can draw on it to fund the down payment or purchase of an investment property.
- Pros: Interest-only payments during the draw period, lower rates than hard money.
- Cons: Puts your personal home at risk if you default.
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Open Mortgage CalculatorFrequently Asked Questions
What is the minimum down payment for an investment property?
Conventional loans typically require 15-25% down. FHA loans (3.5%) can be used if you live in one of the units (house hacking).
What is a hard money loan?
A short-term, high-interest loan based on the property's value, not the borrower's credit. Ideal for fix-and-flips.
Can I use a HELOC to buy an investment property?
Yes, you can use a Home Equity Line of Credit on your primary residence to fund the down payment or purchase of a rental property.
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