SHOP

Guide to Financing Your Investment Property: Down Payments and Loans

Redacted is an independent platform, unencumbered by external factors or restrictive policies, on which Clayton and Natali Morris bring you quality information, balanced reporting, constructive debate, and thoughtful narratives. Stay informed by visiting Redacted for the latest insights.

When it comes to buying rental real estate, savvy individuals have multiple funding options they turn to for investment property down payments and the loan itself. However, most people don’t realize there are a wide variety of options available to them. Those who don’t do their research think there’s only one way to fund a purchase, which would be to use your savings for the down payment and secure a traditional loan for the remaining balance.

This outdated line of thinking can end up putting the breaks on a purchase for those who are not in good financial standing, but it doesn’t have to be this way. I put together this guide for anyone looking for additional ideas for loans for investment property purchases, as well as for individuals who are unaware that there are multiple funding strategies out there that can be taken advantage of even when financial stability is an issue. That said, let’s explore what these options are so you’ll be one step closer to placing a lucrative rental property in your investment portfolio.

1. Investment Property Down Payment Options

Most loan terms require a down payment of 20% for a single-family home and possibly 25% for a multi-family unit. This can certainly vary, though, depending on the loan type and lender terms. For example, when a VA loan is used to fund a real estate purchase, a down payment typically is not required, and if it ever is, it would be much lower, possibly 3-5%. Or, if non-recourse financing is used, the down payment may be more, possibly 30% and higher.

Also, keep in mind that the amount of the deposit can impact the interest rates. If more money is put down, the lender will view the deal as less risky and possibly lower the rate.

Ok, now let’s see what options are out there for coming up with an investment property down payment:

Home Equity Line of Credit (HELOC)

A common strategy for coming up with a down payment is to utilize a HELOC. This is possible for those who own a personal home or investment property that has built up equity. A HELOC is basically a line of credit that draws off a property’s equity and the credit line begins with a zero balance, just like a credit card does.

The money is accessed via a debit card or checks during the withdrawal period, and at this time, interest-only payments are made. Full payments begin after the draw period ends, which can be up to 10 years.

If you have bad credit and no liquid reserves (funds that can be quickly converted into cash), then this might not be the option for you. The reason I say this is because the lender will typically require at least 18 months of liquid reserves as a backup, and they also would like to see a good credit score as well.

Lenders will allow the borrower to take around 85% of the property’s equity, and you’ll find that most HELOCs will have a variable interest rate. I actually have a video that discusses how the interest rates work on a HELOC if you’d like to learn more about it:

For those who don’t have equity they can tap into or who may not qualify for a HELOC, a 401(k) loan may be a good alternative.

Borrowing from Your 401(k) to Fund an Investment Property Down Payment

Most people either shutter at the thought of using their 401(k) for anything but saving for retirement, or they are unaware the funds can be borrowed, and without penalty.

Borrowing from your 401(k) is typically done by those who have their retirement account attached to an employer who won’t allow for the funds to be simply rolled over to a self-directed IRA. In the end, it allows you to take around $50,000 of 401(k) funds that are exposed to the risks of the volatile stock market, and place them into a secure asset such as a rental property.

So, how do you go about borrowing from your 401(k)?  As a brief summary, you can contact your 401(k) holder and arrange to borrow the funds or complete the process through the web portal associated with your retirement account. Also, it’s worth noting that the loan will accrue interest, but the good news is that the interest is actually paid back to your 401(k) account.

When it comes to retirement accounts, your best option is to utilize a self directed IRA, which allows you to hold a rental property within the account itself. I encourage you to watch the following video I put together on the topic so you’re well-informed on SDIRAs.

Fund & Grow – Unsecured Business Credit for Investors

One thing I always tell those interested in rental real estate is that having no money for a deposit shouldn’t stop you because there’s always a way to come up with the funds, and Fund & Grow is one of them. This is a company that has helped many of my clients find the funds to make a purchase happen, even those with not-so-good credit scores.

Fund & Grow works with you to obtain unsecured, zero percent interest introductory offer business credit cards that can be used to make the investment property down payment. The investor then pays down the balance before the introductory offer expires. If you feel that your credit isn’t up to par to get approved for these cards, know that Fund & Grow can work with you to clean up your credit.

 If you decide that you would like to move forward, we’ve partnered with this company to get you $500 off their start-up costs; visit our main Funding page for information.

Connect Invest – Save for a Down Payment with High-Yield, Short-Term Investments

We partnered with Connect Invest to help our clients start investing in real estate and also have the ability to save for a down payment for a rental property. Many of our team members invest with this company, so we’re speaking from experience when we recommend them.

What exactly does Connect Invest do? Well, they allow you to earn passive income by investing in real estate short notes. You can start with as little as $500 dollars and work your way up, as much as you would like to invest. In doing so, you buy a fraction of real estate loans for residential and commercial rental properties that you’ll earn monthly returns on that accumulate over time, and this allows you to save for a down payment on an investment property.

They offer flexible terms of 6, 12, and 24 months, with fixed annual interest rates of 7.5-9% that will earn you great returns. Additionally, there are no fees to open an account or maintain one. If this has sparked your interest, then be sure to check out Connect Invest, where you’ll find a video that covers all the details.

Now that you have more than a few ways to fund the down payment of an investment property, let’s move on to some options for securing a loan for the rest of the balance.

2. Exploring Loans for Investment Property Purchases

The go-to loan option that everyone first considers is the traditional recourse loan. As you may know, this type of loan is based on an individual’s income, credit score, employment, value of assets owned, and the like.

I won’t add a dedicated section on this because it’s well-known how a traditional mortgage loan works. However, I will mention that there are many people who would like to become financially free, but they don’t meet the requirements for a traditional loan and don’t realize there are other options out there. That said, I’d like to skip straight to an option that’s best for a situation such as this, which is a non-recourse loan.

Non-Recourse Loan – Bases the Approval on the Property Not Your Financial Situation

When it comes to loans for investment property purchases, I’d say that a non-recourse loan is ideal for those with a subpar financial standing, but it’s also a loan that’s used by those with exceptional financial stats as well.

I prefer non-recourse loans and SDIRA Wealth incorporates this funding strategy into all the new construction properties we offer to our clients. Basically, they offer built-in non-recourse financing. This means that the bank has already approved the loan on the property, which is pretty convenient for the buyer. Keep in mind that the down payment may be higher than the typical 20% that’s tied to a traditional recourse loan, but the team of experts at SDIRA Wealth work with many lenders to try and get the best terms on that.

The lender is able to skip your credit standing by basing the loan qualifications on the property itself. This means that if mortgage payments stop, the lender can take possession of the home but not your personal assets.

The approval process includes evaluating the property, looking at the factors that will impact its ability to appreciate, checking if there’s a tenant already in place, determining if the location has a steady demand for rentals, and so on.

Utilizing a Home Equity Loan

Just like a HELOC, a home equity loan borrows against the equity of a property that the investor owns. Most home equity loans have a fixed interest rate with 15 to 30 years to pay the balance off. Also, the investor must have at least 15 to 20% of equity in the home to qualify and can borrow up to 80% of that amount. Another qualification is that the borrower must be in good financial standing with a credit score in the 600s and an acceptable debt-to-income ratio.

When the investor is approved, they’ll receive one lump sum for the entire amount of the loan. This may sound good and well, but it means that the clock starts ticking on interest from day one on the entire loan amount. In addition to this, you’ll want to keep in mind that loans for investment property purchases such as this set the investor up for having to pay off two loans at the same time. The reason for this is that the original mortgage will still exist alongside the new loan.

With all that said, there are many elements to a home equity loan that I just don’t find very attractive. In fact, I would utilize a HELOC over a home equity loan any day. The main reason for this preference is that I wouldn’t want to start accruing interest on such a large amount of money on day one when I could use a HELOC instead and begin with a zero balance. The bottom line is that I can control my financial situation a bit more with a HELOC.

Veterans Affairs Loan – Government Backed

VA loans, which are backed by the U.S. Department of Veterans Affairs, are popular among veterans and active-duty service members because the requirements are not as rigid, and in most cases, no down payment is required. Along with having an easier entry point by not being required to come up with a down payment, VA loans also offer lower interest rates, and typically don’t have the standard requirement of obtaining private mortgage insurance.

There’s actually a catch to all this – VA loans must be used for properties where the applicant will reside, and they must live in the property for up to one year. There are ways around this, though. For example, an investor could buy a duplex and live on one side of the property.

Or, the investor could buy a single-family home and rent out one of the rooms. This fulfills the requirement of living in the property all while ensuring cash flow is coming in until the year is up. Although this may not be the ideal situation, it does allow investors with fewer options a way to get their foot in the door, so to speak.

If you think you might be a good fit for this type of loan, you can view all the requirements on the VA home loan program’s page.

You Have a Variety of Options When Funding an Investment Property Purchase

As you can see, there are several excellent funding possibilities available for both the investment property down payment and the loan itself. It’s evident that there really is no reason to put the brakes on moving forward with your dream of owning a cash flowing rental property.

Bad credit won’t stand in the way because a non-recourse loan doesn’t take creditworthiness into account. Also, not having the funds for a down payment shouldn’t stop you either because Fund & Grow is designed to help those who need to drum up the money, and they’re good at it.

All the ideas I covered in this article on how to come up with the down payment and also the various loan type suggestions we went over, should set you on the path to owning a lucrative investment property sooner rather than later.

It’s never a good idea to wait because that perfect time may never come. On top of this, when you delay investing, you’re missing out on valuable equity growth, and with home prices continually rising, you’ll most likely end up paying more if you buy later.

A Full-Service Investment Company

If your interest has been piqued by knowing you have multiple funding options on the table, but you’re not sure how to make a purchase happen, our friends at SDIRA Wealth can help. SDIRA Wealth offers build-to-rent properties with non-recourse financing built right in. Remember, this means the loan has already been approved based on the property. All you would need to do is provide the down payment, which you now have several ways of doing so.

SDIRA Wealth’s goal is to make the process super simple for you, not only by providing great funding options, but also by placing a tenant in each rental and assigning a property manager. This way, you’re cash flowing right from the start. If this sounds like something you’d like to look into further, feel free to schedule a 30-minute call with their team of experienced industry professionals.

In the meantime, you can get started with our Freedom Number Cheat Sheet that will provide you with the number of rental properties needed to become financially independent. This will give you a goal to work toward, and also serves as a great motivator.

Before you go, dive into the following video that provides more information on my favorite funding source, a non-recourse loan:

Join the Redacted Community

Don’t miss out on the latest news and in-depth stories. Subscribe to Redacted newsletter for daily insights that matter, delivered directly to your inbox.

Build Sustainable Wealth
with Real Estate
Transform your financial future in three months flat
Join Clayton and Natali’s nine-module online program featuring bite-sized video lessons, actionable exercises, and an exclusive mastermind community so you can crush debt, create passive income, and secure your family’s financial future…All at your own pace.

Hot Off The Press

Fresh intel from our blog, podcast and news channels, sorted
newest first. Always see what just dropped.

Updates
Clayton Morris

Iran Calls U.S. Bridge Strikes a ‘War Crime’

Just one day after President Trump publicly floated the idea of bombing Iran’s bridges and critical infrastructure, Iranian officials say that’s exactly what happened. In Trump’s own words: “We’re not attacking at the highest level. The highest level is the bridges, which we can knock down. I would say in one day we could knock down every bridge in Iran, there’s not a thing they can do about it.” Iran’s Foreign Ministry is now accusing the United States of committing a “blatant war crime” after airstrikes damaged two railway bridges, including one connecting Iran with Turkmenistan and China. Iranian media also says another strike disrupted passenger rail service between Tehran and Mashhad, where millions of mourners gathered ​​​​​for the funeral procession of Ayatollah Ali Khamenei. The timing isn’t going unnoticed. Targeting transportation routes during one of the country’s largest public gatherings raises obvious questions about whether the strikes were directed solely at military objectives.

Updates
Clayton Morris

A Nation Left in the Dark

Cuba has suffered yet another nationwide blackout, with Union Electrica (UNE), the state electricity company, announcing a “total disconnection” across the entire island on Monday, leaving the country’s 9.6 million inhabitants without power. For many Cubans, this isn’t an occasional inconvenience like a California rolling blackout. It’s a way of life. Some have electricity for only a few hours a day, while others go days without power, and this was all before the latest nationwide outage. No electricity means no refrigeration, no lights, no internet, no running businesses, and often no reliable access to food or clean water on a regular basis. Officials blame the blackouts on a lack of fuel, and it’s not hard to see why when the U.S. has imposed the longest-running trade embargo in history on Cuba. Since January, the U.S. has tightened its oil restrictions, allowing just one Russian oil tanker to dock on the

Updates
Clayton Morris

The Intelligence Was Outdated. They Fired Anyway.

A CNN report released Tuesday suggests the deadly strike on an Iranian elementary school that killed 168 children was not the unavoidable mistake the government portrayed it to be. Nor did President Trump’s claim hold up when he said, “Based on what I’ve seen, that was done by Iran.” According to multiple sources familiar with the investigation, senior U.S. military commanders were warned that the information used to identify targets inside Iran was based on intelligence that was years old. Those warnings were embedded directly inside the Pentagon’s targeting databases, flagging that the information needed to be re-vetted before strikes were approved. Instead of re-vetting the intelligence before unleashing a deadly missile strike, commanders reportedly signed off anyway because it was faster and they were on a timeline. This information was never disclosed to those demanding accountability, even when military officials reportedly determined within days that outdated intelligence

Updates
Clayton Morris

Trump Declares Fertilizer Emergency

For months, warnings about fertilizer shortages were treated as if they were overblown. Not anymore. It seems things have gotten bad enough that President Trump has declared a national emergency over America’s fertilizer supply. The White House is temporarily lifting tariffs on phosphate fertilizer imported from Morocco to help farmers, but that’s not a solution. It’s an admission that the supply chain is already breaking down. The administration wants Americans to believe this is simply about getting more fertilizer into the country. It’s not, though. The real problem is that fertilizer production depends on far more than phosphate. Sulfur, ammonia, natural gas, and shipping routes are all essential pieces of the puzzle, and many of those supply lines were disrupted after the conflict surrounding the Strait of Hormuz escalated. This is impacting everyday people. You can’t interrupt the global supply of fertilizer ingredients and expect grocery store shelves to remain

Updates
Clayton Morris

Alzheimer’s Disease – Another Big Pharma Goldmine

How much confidence would you have in an Alzheimer’s blood test that incorrectly tells 40% of healthy people they may have the disease? A new FDA-cleared blood test designed to detect Alzheimer’s disease, Fujirebio’s Lumipulse plasma test, is drawing criticism after Mayo Clinic researchers found it produced an alarming number of false-positive results when used in real-world patients. Considering these tests can cost between $500 and $1,000, you’d think the accuracy rate would be a little more impressive. Instead, people who don’t actually have Alzheimer’s could be told they might, triggering fear, additional medical tests, spinal taps, and potentially life-changing medical decisions. The researchers noted that the faulty results were linked to differences in testing reagents, prompting a Class II recall of some components, and urged doctors to interpret positive results cautiously. Where does that leave us today? The test is currently being used as a gateway to Alzheimer’s drugs

Updates
Clayton Morris

Rewriting the 4th of July

You’d think a Fourth of July celebration would focus on America’s founding. Not in Democrat-run San Diego County, where officials have turned the America 250 event into a showcase for DEI initiatives. Instead of celebrating the founding of the United States, attendees will sit through a tribal blessing, a land acknowledgment, performances of both the National Anthem and the Black National Anthem, followed by nearly two hours devoted to stories from tribal, Latino, Pacific Islander, African American, and LGBTQIA+ communities. Then… the fireworks. As David McIntosh, president of Club for Growth, put it: “The official government July 4th itinerary of San Diego reads like the opening ceremony of the Democratic Socialists of America convention.” Meanwhile, Bill Wells, the mayor of El Cajon, who released the minutes from the SD County Board of Supervisors meeting, said he had alternative plans: Acknowledge America and its greatness. Celebrate with fireworks and the American National Anthem. On

Join the Redacted Rebellion

Get insider knowledge, bold strategies, and the truth they don’t want you to know–delivered straight to your inbox.