5 Ways to Finance Your Next Rental Property

Financing rental properties isn't like financing your primary home. You'll face higher rates, bigger down payments, and stricter qualification rules.

But you've got options. Here are the 5 methods investors actually use — and when each one makes sense.

I'm Bill McCoy, a California mortgage broker and rental property owner (CA DRE #01212512). I finance my own rentals and help investors across California.

1. Conventional Investment Loans

Traditional Fannie Mae/Freddie Mac loans for investment properties.

Down payment: 15% on single-family, 25% on 2-4 units. Credit score: 680+ (720+ for best rates). Rates in 2026: 6.75-7.25%. Max properties: 10 financed total.

Pros: Lowest rates of any investment option. Can use rental income to offset the payment (with 2-year history).

Cons: Requires W-2 income verification. 43% DTI cap. Counts against your personal debt ratio.

Best for: W-2 employees buying 1-4 unit rentals with traditional income docs.

2. DSCR Loans

Loans based on the property's rental income, not yours.

The formula is simple: Monthly Rent / Monthly Payment (PITIA) = DSCR. Most lenders want a 1.0-1.25 minimum.

Example: $3,500 rent / $2,800 payment = 1.25 DSCR. That qualifies.

Down payment: 20-25%. Credit score: 660+. Rates: 7.0-8.0%. Max properties: Unlimited with many lenders.

Pros: No W-2s, paystubs, or tax returns required. Doesn't hit your personal DTI. Perfect for self-employed investors or anyone with complex income.

Cons: Higher rates and larger down payments than conventional. The property must cash flow.

Best for: Self-employed investors, portfolio builders, anyone past the 10-property conventional limit.

See our full DSCR loan guide | Compare DSCR vs. conventional

3. Portfolio Loans (Bank Statement Loans)

Loans held by the lender — not sold to Fannie/Freddie. The bank sets its own rules.

Qualification: 12-24 months of bank statements, asset-based qualification, or relationship banking. Down payment: 20-30%. Rates: 7.0-8.5%.

Pros: Flexible income documentation. Can exceed the 10-property limit.

Cons: Higher rates, larger down payments, and harder to find.

Best for: Investors with 10+ properties, unique income situations, or strong banking relationships.

4. Hard Money / Private Money

Short-term loans (6-24 months) from private lenders, secured by the property.

Rates: 9-15% plus 2-4 points upfront. Down payment: 10-30%. Qualification: Based on the property value and deal, not your credit or income.

Pros: Fast approval (3-7 days). Minimal docs. Works on properties needing rehab. Bad credit OK.

Cons: Expensive. Short term — you must refinance or sell. Prepayment penalties are common.

Best for: Fix-and-flip, bridge financing, distressed properties, speed deals.

5. HELOC or Cash-Out Refi

Borrow against equity in properties you already own to fund the next deal.

A HELOC gives you a variable-rate credit line (currently 7-9%). A cash-out refinance gives you a lump sum at a fixed rate. Both can cover down payments on your next rental.

Pros: No need to save a fresh down payment. Interest may be tax-deductible if used for investment.

Cons: Puts your existing property at risk. Variable HELOC rates can spike.

Best for: Investors with significant equity using the BRRRR strategy (Buy, Rehab, Rent, Refinance, Repeat).

Quick Comparison

Method	Down Payment	Rate	Best For
Conventional	15-25%	6.75-7.25%	W-2 employees
DSCR	20-25%	7.0-8.0%	Self-employed, portfolio builders
Portfolio	20-30%	7.0-8.5%	10+ properties
Hard Money	10-30%	9-15%	Fix-and-flip, bridge
HELOC/Cash-Out	Equity-based	7-9%	Tapping existing equity

Not sure which method fits your situation? Read how to pick the right rental financing strategy for scenario-by-scenario guidance.

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Better Offers Inc | CA DRE #01212512