Financing determines investment success as much as property selection. Understanding all available options—from traditional mortgages to creative structures—enables investors to optimize returns and execute deals competitors cannot.
Conventional Mortgages
Fannie Mae and Freddie Mac loans offer lowest rates for qualified borrowers. Investment properties require 20-25% down with rates 0.5-1% above owner-occupied. Maximum 10 financed properties per borrower (though portfolio lenders exceed this).
Portfolio Lenders
Local and regional banks keep loans on their books rather than selling to Fannie/Freddie. More flexible on credit, debt-to-income ratios, and property types. Typically require existing banking relationship and strong financial position.
Creative Financing Strategies
Seller financing: Owner carries note, often with lower down payment and flexible terms. Subject-to: Taking over existing financing (requires careful legal structuring). Hard money: Short-term loans at 8-12% interest for quick closes or properties needing renovation. Private money: Individuals investing in real estate debt for higher returns than bonds.
Optimal Capital Structure
Balance leverage against risk tolerance. Conservative investors use 50-60% loan-to-value. Aggressive investors maximize 75-80% LTV for greater returns. Consider debt service coverage ratios—lenders typically require 1.25x minimum.