If the road to real estate riches were an easy one, everyone would be a millionaire landlord or house-flipper.

Making big money from investment property (real estate purchased for the purpose of earning rental income or a profit from reselling it) is rarely as simple as “buy low, sell high.” It requires careful research, planning, hard work, and a dollop of good luck.

But as long as you make real estate investment decisions with your eyes wide open, the financial rewards could surprise and delight you.

Check your eligibility to purchase investment property. Start here (May 14th, 2025)

---

In this article:

• Pros and cons of buying an investment property
• Should you flip or rent your investment property?
• Hard money loans
• Conventional mortgage loans
• FHA mortgage loans
• VA mortgage loans
• Home equity lines of credit (HELOCs)
• Our recommended lenders for home loans

---

What is an investment property?

An investment property is a real estate asset you purchase with the express intent of earning a profit by flipping it or renting it out.

Generating income with investment properties

In 2023, the average gross return profit margin of house flipping — purchasing, renovating, and quickly reselling homes — was 29.8%.

In other words, the average house-flipper earned $29,800 for every $100,000 invested.

The average return on rental properties in 2023 was 10.6%. This means the average buyer of a $500,000 apartment building earned $53,000 in a single year.

By contrast, the average stock market return over the past 50 years was about 10% while the average investor’s return on mutual funds was between 4-5% over the last 50 years.

The numbers make it easy to see why so many investors are drawn to the world of real estate.

What is the difference between an investment property and a second home?

You buy an investment property with the primary goal of making a profit, typically by renting out the space for most of the year or flipping the home. A second home is one that you intend to visit on a regular basis.

This distinction matters when you buy property because mortgage lenders treat investment properties and second homes differently. Second homes are subject to lower interest rates and easier requirements, but you must prove you plan to live there at least part of the year. By contrast, investment properties — which you plan to sell or rent out full-time — have slightly higher interest rates and stricter mortgage guidelines.

What to consider before buying an investment property

The excitement of purchasing your first investment property is compelling. But before you jump into the process, there are a few important points to consider.

Housing market trends

Like other types of investments, the value of home prices rises and falls based on broad economic trends. It’s not unusual for the housing market in an area to go through boom and bust cycles.

As you consider areas to invest in, look for indicators of the long-term housing market trends. If an area is growing, that might be a more prudent investment than a dying small town.

Buying with a partner

If you choose to jump into real estate with a partner, make sure that you are both on the same page about your investment goals and risk tolerance. Before finalizing any property purchase, get legal paperwork in order to indicate your separate ownership percentages.

Property taxes and insurance

As a property owner, you’ll face property taxes. Take a look at this expense before moving forward with a property. You don’t want to get stuck in a place with sky-high property tax obligations.

Investment properties also require homeowners insurance, and you may be required to purchase additional coverage if you plan to rent the home out. Make sure you get quotes from homeowners insurance companies before buying so you can factor in this ongoing cost when estimating your investment property expenses.

Property management companies

A property management company can take some of the hassle out of being a landlord. But it’s critical to find the right property management company, otherwise, your potential headaches will multiply. Explore the options in your area and the cost before moving forward with a particular deal.

Check your eligibility to purchase investment property. Start here (May 14th, 2025)

Pros & cons of buying an investment property

For small-scale investors, the most common real estate strategies come in two flavors:

1. Rental property
2. House flipping

Here are the biggest benefits and drawbacks of each.

House flipping pros & cons

Pros	Cons
Handsome profits are delivered in lump sums	High rewards come with high risks
Potential for quick and large returns	Big returns can be deceptive due to the high cost of acquiring and renovating the property
Can be creatively satisfying	Your profits will be subject to capital gains taxes

Rental property pros & cons

Pros	Cons
Create a passive income stream	Maintaining a property is expensive
Tax advantages	Property management services can be expensive
Tenants are helping to pay your mortgage and build your equity	Unforeseen tenant issues

Should you flip or rent?

Should you flip houses or purchase rental properties?

It all depends on your goals, and to what degree you can leverage your skills, expertise (construction skills are very helpful), and your current financial situation.

In general, house flipping is usually the bigger gamble because these deals hinge on whether property values will rise in the near future. Although price depreciation is never a good thing for property owners, stable and/or falling prices have less impact on someone whose main source of income comes from rents versus a fast resale of a property.

In 2021, the highest flipping returns were in Akron, OH (114 percent); Flint, MI (114 percent); Canton, OH (70 percent); Augusta, GA (94 percent); and York, PA (107.5 percent), according to ATTOM Data Solutions. These cities topped the list because they had lots of affordable, older homes that could be quickly renovated. At the same time, housing prices there were also rising.

For rental properties, the best markets in mid-2023 were Indian River County, FL, in the Sebastian-Vero Beach metro area (15 percent); Collier County, FL, in the Naples metro area (14.7 percent); Wayne County, MI, in the Detroit metro area (13 percent); Mercer County, NJ, in the Trenton metro area (12.7 percent) and Charlotte County, FL, in the Punta Gorda metro area (12 percent). The worst markets were generally located in the biggest cities on either coast, where real estate prices have long been sky-high.

But local markets are always changing. Like any other type of investment, real estate carries both risks and rewards. You can reduce the risks by thoroughly researching markets and your financing options, but you can never entirely eliminate them.

Check your mortgage rates. Start here (May 14th, 2025)

Step-by-step guide to buying an investment property

If you’re interested in purchasing an investment property, here is the process for purchasing it.

• Determine your preferred strategy: Before you start shopping for a home, decide if you want to flip or rent the property.
• Research the market: Scope out where you want to buy a property. Run the numbers for a few properties in the area to make sure the venture would be profitable.
• Make your offer: When you find a deal that suits your needs, submit an offer to the seller.
• Inspect the property: Unless you are prepared for a higher level of risk, don’t waive the right to inspect the home. If you find a big problem, reevaluate the deal.
• Finalize your financing: The lender will ask for all sorts of documents about your finances during the underwriting process. Be prepared to send along everything they need for a quick closing.

Investment property mortgage requirements 2025

If you want to obtain a mortgage for your investment property, the requirements vary based on the type of loan you pursue. But in general, here’s what lenders may require:

• A credit score of at least 700
• A down payment of at least 20%
• A carefully thought-out plan for the property

You’ll need to prove to the lender that your finances are robust enough to handle this new debt.

Check your eligibility to purchase investment property. Start here (May 14th, 2025)

How to get the best property investment loan

The best investment property financing for you will depend on your particular financial situation. That said, these simple tips should help you finance more property for less money.

Shop around for the best rates

Contact multiple lenders, starting with the bank that issued your first mortgage, to compare interest rates and terms, as well as the closing costs and other fees.

Check the fine print

Always read the “fine print” to uncover any large fees and extra costs, including extra costs triggered by the number of existing loans/mortgages you already have.

Opt for a larger down payment where possible

Whenever possible, reduce the interest rate in exchange for a larger down payment. In some cases, it might also make sense to pay upfront fees (“points”) to lower the rate. If you apply for a big loan and plan to hold the property for a long time, paying upfront fees and/or a higher down payment could trim thousands of dollars from your repayment total.

Build your credit score

In the months before you launch your property search, check your credit report to learn which types of loans you qualify for. If your score is a bit anemic, take steps to improve it before buying— e.g., by paying down (or paying off) as much debt as possible.

Have cash on hand

Be sure you have ample reserves of cash or other liquid assets. Six months’ cash reserves are usually required to qualify for investment property mortgages.

Focus on long-term goals

Consider your long-term goals to determine which type of loan would work best in your current, and possible future, situation. For example, what would you do if your company made you relocate while you were in the middle of a fix-and-flip venture? Did you borrow enough to hire contractors to finish the job? (If so, by how much would that reduce your profits – and ability to repay the loan?)

Stick to a budget

Determine how much property you can afford, and stick to your budget. First-time real estate investors frequently underestimate their costs. If you purchase only those properties you can afford, cost overruns may result in annoyance and a minor reduction of your profit margins. If you fall in love with a property and exceed your price caps, any additional expense may spell catastrophe.

Best loans for investment property

Getting an investment property loan is harder than getting one for an owner-occupied home — and usually more expensive.

Many lenders want to see higher credit scores, better debt-to-income ratios, and rock-solid documentation (W2s, pay stubs, and tax returns) to prove you’ve held the same job for two years. (This last requirement can make things difficult for retirees and the self-employed.)

Additionally, most will insist on a down payment of at least 20%, and many want you to have six months of cash reserves or easily-liquidated assets available.

Things can be harder when you have a few outstanding home loans already. If you already have four mortgages, you’ll need some savvy to get a fifth. Most banks won’t issue new mortgages to investors who already have four, even when the loans will be insured by a government agency.

Some lenders won’t even care about your credit or employment history, as long as they see lots of potential profits in the investment property you’re considering.

Hard money loans

These loans are mostly used by house flippers and professional real estate investors. Also known as commercial real estate loans and “fix and flip” loans, they have three main advantages:

1. Faster approval and funding. In some cases, loans will be approved on the same day the application is submitted, and funding can take as little as three days. Thanks to this speed, hard money loans are ideal for investors who want to buy a property fast – before the competition can scoop it up.
2. Easier to qualify. If you make a down payment of 25% to 30%, have sufficient cash reserves and a good track record as a real estate investor, many lenders will overlook a subpar credit score. And they may not care that you already have 4+ mortgages
3. Short-term loans. Most hard money loans have terms of 1-2 years or 3-5 years. For someone buying a rental property, this would be a deal killer. Few rental property buyers want to pay back the loan within a year or two. But for house flippers, these terms are perfect, which is fortunate, because there’s no such thing as a 12-month mortgage. Even if banks wrote short-term mortgages, most would never loan money for a property that needed significant repairs — one that might not qualify as inhabitable.

Other than the 25% to 30% equity requirement, the biggest downside of a hard money loan is the cost. Interest rates typically range from 9% to 14%, and many also carry upfront fees (in the form of “points”) of 2% to 4% of the total loan.

Conventional mortgages

Compared to hard money loans, conventional mortgages are relatively cheap. However, they are more expensive than loans for owner-occupied properties. In general, you’ll probably pay a one-half to one percent higher interest rate for an investment property conventional mortgage.

For some future real estate moguls, however, the issue with conventional mortgages is not their cost, but getting approved.

Assuming you will not occupy a unit in the building, most banks will want to see the following to approve a mortgage for a rental property:

• A down payment of at least 20%. If you’d like a lower rate, make a 25%+ down payment. (On the plus side, there is no mortgage insurance when you put down 20% or more.
• A credit score of 720 or higher. Scores below 720 won’t necessarily doom your application, but they will trigger higher interest rates, higher fees, and lower LTVs.
• Six months of “liquid reserves” (cash or assets that can be easily converted to cash).

Once you have four mortgages on your credit, many conventional lenders won’t approve your fifth mortgage.

Although a program introduced by Fannie Mae in 2009 does allow 5-10 mortgages to be on a borrower’s credit, finding a bank that will give you a mortgage can be difficult, despite the guarantee from Fannie Mae.

The program requires six months’ payments held as a liquid reserve at the time of settlement. It requires at least 25% down for single-family homes and 30% down for 2-4 unit properties. If you have six or more mortgages, you must have a credit score of 720 or more. No exceptions.

Check your conventional mortgage eligibility (May 14th, 2025)

FHA mortgages

To finance a rental property, an FHA mortgage may be the perfect “starter kit” for first-time investors.

But there’s a catch. To qualify for the generous rates and terms of an FHA mortgage, you must buy a multifamily property of 2-4 units and occupy a unit in the building. Then the property qualifies as “owner-occupied.”

FHA mortgages are not directly issued by a government agency. Instead, the loans are made by private lenders, and the FHA insures those lenders against losses. This gives banks more incentive to lend to borrowers who might otherwise be seen as too risky.

Thanks to government backing, FHA mortgage lenders are lenient with regard to minimum credit scores, down payment sizes, and the borrower’s previous real estate experience.

The down payment requirement for FHA mortgages is just 3.5% for buildings with one to four units. (But remember you have to buy a 2-4 unit property to use FHA for investment properties). By contrast, a conventional loan might require 20% down on a two-unit purchase and 25% down on the purchase of a 3-unit or 4- unit home.

Because the FHA allows cash gifts for down payments and the use of down payment grants from a municipality, it’s even possible to get an FHA-financed home with no money of your own.

Just as important, the agency states that it will insure loans to borrowers with credit scores as low as 500. This is more than 100 points below the minimums for conventional and VA mortgages.

The FHA also makes allowances for home buyers who have experienced a recent foreclosure, short sale, or bankruptcy because of “extenuating circumstances,” such as illness or loss of employment.

FHA mortgage lenders would like applicants to have a minimum credit score of 580, but most lenders will require a much higher score to qualify for a 2-4 unit property in which you are renting out one or more of the additional units.

Check your FHA eligibility. Start here (May 14th, 2025)

VA mortgages

According to a 2016 study by the National Association of Realtors, 16% of active duty military personnel own investment properties compared with 9% of the general public.

There are two reasons for this:

1. Because active-duty personnel are frequently forced to move, they are often unable to sell their current homes at a price that would let them recoup their investment. So instead of selling the houses, they become absentee landlords.
2. VA mortgages allow veterans, active-duty service members, and their surviving spouses to obtain investment property loans with no money down and low mortgage rates. As with FHA loans, the only requirement is that the borrower lives in one of the building’s units (in this case, for at least one year). After that, they can rent out the entire building and live somewhere else.

Rental properties can have as many as four units or can be a duplex or triplex. The property can even be a home in which a room is rented or a home with a separate apartment on the property.

Borrowers can even buy one property, live there for a year and then repeat the process with multiple buildings until they reach a financing maximum known as the entitlement limit.

Another advantage of VA mortgages: borrowers can use the rents from other units in the building to qualify for the loan by including that rent as income. Typically, they can add 75% of the market rents toward their qualifying incomes.

On the downside, the rental property must be in move-in condition and receive approval from a VA home appraiser before the loan can be approved.

Click here to check your VA home loan eligibility. Start here (May 14th, 2025)

Home equity lines of credit (HELOCs)

Home equity lines of credit — known as HELOCs — are revolving credit lines that usually come with variable rates. Your monthly payment depends on the current rate and loan balance.

HELOCs are similar to credit cards. You can withdraw any amount, any time, up to your limit. You’re allowed to pay the loan down or off at will.

HELOCs have two phases. During the draw period, you use the line of credit all you want, and your minimum payment may cover just the interest due. But eventually (usually after 10 years), the HELOC draw period ends, and your loan enters the repayment phase. At this point, you can no longer draw funds and the loan becomes fully amortized for its remaining years.

Compared with conventional mortgages, HELOCs offer more flexibility and lower monthly payments during the draw period. You can borrow as much or as little as you need — when you need it.

The potential drawbacks are the variable interest rates (which rise in tandem with the Federal Reserve’s prime rate) and the possibility that the monthly payments could skyrocket once the repayment phase begins.

In some house-flipping situations, a HELOC could be a lower-cost alternative to a hard money loan.

But unlike a hard money loan, a HELOC could have more risk attached: if you don’t already own an investment property, you’ll secure the HELOC with your primary residence. If you default on the loan, the lender will foreclose on your home, not the investment property.

If you already own an investment property, you can overcome this problem by applying for a HELOC on one or more of those properties. The only trick is finding a lender.

Because many real estate investors defaulted during the 2008 housing bust, a lot of banks won’t approve home equity lines of credit that are secured by investment properties. The few banks that do offer these HELOCs make it much harder to qualify for them than they once did.

Lenders will want to see lower debt-to-income ratios (30% to 35% for investment property borrowers versus 40% for someone borrowing against a primary residence). And they will also charge higher interest rates or require you to pay 2-3 “points” upfront.

However, you can take a HELOC out on your primary residence at much better terms. Then, use the proceeds to make a down payment on an investment property.

Other options if you have equity built in a primary residence or other investment properties include a home equity loan or cash-out refinance.

Seller financing

In rare circumstances, you might be able to obtain seller financing for an investment property. Also known as owner financing, a land contract, or a contract for deed, this is an arrangement in which the seller acts as the bank, providing you with a private mortgage.

Instead of getting a traditional loan through a mortgage company or bank, you finance the purchase with the existing owner of the home.

Seller financing isn’t easy to come by. The vast majority of sellers want to be paid in full at the closing in order to pay off their own mortgages.

Also, a home can’t legally be seller-financed unless it’s owned free and clear. Relatively few homes are owned free and clear. Most owners have some sort of mortgage.

Owner-financed land contracts are often structured on a 5-year balloon mortgage. This means they are due in full after just five years, no matter how much or how little the buyer has paid off.

Some come with a 10-year amortization, meaning a schedule of payments that completely pay off the loan in 10 years. This option results in very high mortgage payments.

In some instances, seller financing might make sense for a house flipper. But in most cases, this type of loan is neither possible nor desirable.

Apply for an investment loan

Ready to start investing? See what loan programs are available to you, and find out what rates are available. In just minutes you’ll be narrowing the search for your own investment property.

Check your eligibility to purchase investment property. Start here (May 14th, 2025)

Investment property FAQs

Is it harder to get a mortgage for an investment property?

In general, it is more challenging to get a loan for an investment property than an owner-occupied property. That’s because lenders often require a higher down payment and more financial stability than they do for a primary home purchase.

What credit score is needed for an investment property?

You’ll likely need a credit score of at least 700 to obtain a loan for an investment property. However, you might be able to get away with a lower credit score if you are planning to make a down payment of 25% or more.

What type of loan should you get for an investment property?

The type of loan you should get for an investment property varies based on your goals for the property. For example, a conventional bank loan might make the most sense for a buy-and-hold plan. But a hard money loan could be more appropriate for a flip. Ultimately, you’ll have to decide which lending option works best for your situation.

Can you deduct mortgage interest on an investment property?

Unlike mortgage interest paid for your primary residence, the mortgage interest tax deduction doesn’t apply to an investment property. However, mortgage interest payments on a loan for investment properties are considered a business expense, which can be deducted to lower your taxable income.

Can you get a 30-year mortgage for an investment property?

Yes, it’s possible to get a 30-year mortgage for an investment property. You’ll likely find loan terms ranging from 10 to 30 years. The right loan term will vary based on your goals and our budget.

Are investment property mortgage rates higher?

In general, mortgage rates for investment properties are a half to full percentage point higher than mortgage rates for a primary residence. That’s because lenders perceive a higher risk.

What is the best down payment for an investment property?

The best down payment for an investment property varies based on your situation. Usually, a down payment between 20% to 25% is ideal. However, the right down payment will depend on your investment goals and budget.

What type of mortgage can be used for investment properties?

When seeking a loan for an investment property, you can pursue conventional mortgages, hard money loans, and private money loans. If you are willing to live in a part of your investment property, you could also pursue an FHA loan or VA loan.

Do you need to put 20 percent down on an investment property loan?

In most cases, you’ll need to put down at least 20% on an investment property loan. But the exact requirements vary based on your lender.

How much can I borrow for an investment property?

The dollar amount you can borrow varies based on the home and your budget. Depending on the situation, it’s possible to borrow up to 80% of the home’s value.

Check your investment property loan eligibility. Start here (May 14th, 2025)