There’s a Chinese saying that goes:
“The best time to plant a tree was 20 years ago. The second best time is now.”
This saying is applied to investing all the time. And when it comes to wealth accumulation through real estate investing, it couldn’t be more accurate.
But here’s the problem.
Not everyone who wants to invest in real estate has enough capital. In fact, the average savings account balance across all Americans is around $8,000 – a figure that falls far short of the six figures typically required to close on a property.
So, do you need to wait until you have more savings?
Or can you get into real estate without a lot of capital?
The answer is “yes!”
In this blog post, we’ll explore the 7 most popular real estate investing loans and what types of investments they’re best suited for. Let’s get into it.
Are Real Estate Investing Loans a Smart Idea?
Many real estate investors hesitate to dive in. They think they need to accumulate capital first.
But it’s not necessarily a barrier.
When purchasing a primary residence, most Americans rely on financing. In fact, at least 74% of homebuyers in the US finance their home purchases.
Even experienced real estate investors use loans to fund deals.
There are reasons for this: their capital might be tied up, they may need funds more quickly than they can liquidate assets, or the deals are good enough that paying interest is a worthwhile expense.
Check out the video below to see how Ryan Dossey (co-founder of Call Porter) acquired over $8 million worth of property in just two years.
He used the “BRRRR” strategy, which relies almost entirely on real estate loans.
5 Main Types of Real Estate Investments
Before we get into real estate investment loans, it’s worth looking at the different investment strategies.
The most appropriate loan will depend on your type of investment.
Five of the most popular strategies include:
- Fix-and-Flip
Buy undervalued properties, renovate them and sell them for a profit. This strategy needs a good eye for renovating distressed properties and increasing their value. It focuses on short-term, lump-sum returns. - Wholesale
Find properties under market value and sell the contract to another investor for a fee. Wholesale deals involve different types of properties, such as single-family homes, multi-family buildings, or even vacant land. The strategy focuses on short-term returns and needs a lower amount of capital. - Buy-and-Hold
Purchase properties to generate rental income and long-term appreciation. Investors can choose from various property types, including single-family homes, multi-family units, or commercial real estate like office buildings or retail spaces. It’s a long-term investment strategy. - Commercial Real Estate
Invest in properties like office buildings, retail spaces or industrial facilities. These properties often have longer lease terms and can provide stable income streams from business tenants. - Short-Term Rentals
Rent out properties on platforms like Airbnb for short stays, targeting vacationers or business travelers. This strategy can provide high cash flow potential but requires active management and knowledge of market demand.
7 Most Common Real Estate Investing Loans
1. Conventional Bank Loan (Mortgage)
A conventional bank loan is a mortgage offered by banks and credit unions.
The loans come with fixed or variable interest rates. If you’re purchasing a primary residence, you may qualify for a down payment as low as 3%, but for investment properties lenders require a 20-30% down payment.
Additionally, lenders will assess your credit score – generally requiring a score of at least 620, but a higher score (700+) can secure better terms and lower interest rates.
Lenders also look at your income and financial stability.
You may need to show proof of having at least six months’ worth of cash reserves to cover mortgage payments.
Is This Loan Right For You?
Conventional bank loans are ideal for buy-and-hold investors looking to acquire rental properties such as single-family homes, multi-family units, or even commercial properties with strong financials.
But you’ll need a good credit history, stable income and enough cash reserves to meet lender requirements.
2. Hard Money Loan
A hard money loan is a short-term loan provided by private lenders or investors.
Unlike conventional loans, hard money loans are secured by the property itself. This means you don’t need perfect credit or a lengthy financial background to qualify.
Hard money loans are known for their quick approval times. Sometimes as quick as 1-2 weeks. But they come with high interest rates that range from 12-18%, along with higher origination fees and closing costs.
Hard money loans also have shorter repayment periods within 6-24 months.
NOTE: The loan amount is based on the after-repair value (ARV) of the property rather than its current market value (usually 65-80% of the ARV). This means you could be approved for an amount higher than the purchase price of the property.
Best Suited For
Hard money loans are best for fix-and-flip investors who need quick access to capital for distressed properties.
3. Private Money Loan
A private money loan is where funds are borrowed from individuals – rather than financial institutions.
Private money loans don’t have fixed interest rates. The terms are negotiated directly between the borrower and lender. The agreements are usually secured by a contract that allows the lender to foreclose on the property in case of default.
The advantage of private money loans is their speed and flexibility. But the risks are less oversight and regulation. Also, borrowing from friends or family can carry personal financial risks if things don’t pan out.
A popular approach to securing private money is through real estate networking, such as attending local investor meetups. There are also mastermind programs like Ryan Dossey’s Create Cash Flow (CCF) which connect you with a network of experienced professionals who collaborate and finance each other’s projects.
Check out this video of Ryan Dossey sharing a deal he financed for a CCF member.
Best Suited For
Private money loans are ideal for investors looking for quick and flexible funding, especially for wholesale deals or fix-and-flip deals.
4. Home Equity
Home equity allows real estate investors to leverage the value of an existing property.
There are three main types of home equity financing options:
- Home Equity Loan (HEL) – Provides a lump sum upfront, which is repaid over a fixed term with consistent monthly payments, making it ideal for large, one-time expenses.
- Home Equity Line of Credit (HELOC) – Works like a credit card, allowing you to borrow as needed up to a set credit limit during a draw period. You only pay interest on what you borrow.
- Cash-Out Refinance – Allows you to replace your existing mortgage with a new, larger loan, and you receive the difference in cash.
HELs and HELOCs
Home equity loans and HELOCs let you access capital based on your home’s value, usually up to 80% of the home’s equity.
To qualify, lenders require:
- At least 15% equity in your home.
- A good credit score, typically 620 or higher.
- Sufficient income to cover your mortgage and loan payments.
Home equity loans have repayment terms of 5 to 20 years with predictable, fixed monthly payments. In contrast, HELOCs have a 10-year draw period where you can borrow as needed.
Both options provide lower interest rates compared to other loan types.
But they come with risks: your home serves as collateral, meaning failure to repay could result in foreclosure.
Cash-Out Refinancing
A cash-out refinance allows you to take out a new mortgage for a larger amount than your existing loan balance.
The difference between the two amounts is given to you in cash.
(EXAMPLE: if your home is worth $300,000 and you owe $150,000 on your current mortgage, you could refinance for $240,000 (up to 80% of the home’s value). This pays off your existing loan, and you get $90,000 in cash.)
Unlike a HEL or HELOC, a cash-out refinance replaces your existing mortgage. This can lower your interest rate but it means extending your loan term.
Many real estate investors use this strategy as part of the BRRRR (Buy, Rehab, Rent, Refinance, Repeat) method—leveraging the increased value of a renovated property to pull out equity and fund their next investment.
Best Suited For
Home equity financing options are ideal for buy-and-hold investors looking to expand their portfolios by leveraging existing home equity.
5. Commercial Loan
A commercial loan is a type of financing designed for purchasing or developing properties like office buildings, retail centers, multi-family apartments and industrial spaces.
Commercial loans have higher interest rates (ranging from 5% to 12%) and require a larger down payment, usually 20-30%. Lenders place emphasis on the property’s potential cash flow and profitability rather than just the borrower’s creditworthiness.
To qualify, investors need a business plan, a solid credit profile and proof of income.
In addition to the down payment, lenders may require you maintain cash reserves to cover operational costs and loan payments for several months.
The approval is complex and time-consuming compared to residential loans.
Best Suited For
Commercial loans are for buy-and-hold investors seeking to purchase multi-family properties, office buildings, retail spaces or industrial facilities.
They’re best for experienced investors or business owners looking to scale an existing real estate portfolio. And also investors who can afford to have patience.
6. Business line of credit
A line of credit allows real estate investors to borrow funds up to a predetermined credit limit.
You only pay interest on the amount you use.
To qualify you’ll need to have an established business, consistent revenue and a solid credit score. Many lenders also evaluate the Debt Service Coverage Ratio (DSCR), which measures your business’s ability to cover your debt obligations. A DSCR of at least 1.25 is usually required, meaning the business must generate 1.25 times the income needed to cover its debt payments.
Best Suited For
A line of credit is best for fix-and-flip investors, short-term rental property managers or investors handling multiple projects at once.
7. Seller Financing
Seller financing is an alternative financing method where the property seller acts as the lender.
Unlike conventional loans, seller financing eliminates the need for banks or lenders. This means fewer credit requirements, lower closing costs, and flexible terms. You negotiate directly with the seller.
Seller financing can also be combined with creative investment strategies such as “subject-to” deals or lease options – check out the video below to find out more.
Best Suited For
Seller financing is ideal for investors looking to acquire properties without bank approval, those with limited capital for a down payment, or those seeking flexible terms that align with their investment goals.
How to Find Profitable Real Estate Investment Deals
We’ve explored various real estate investment loans and strategies – but the element that determines success is finding the best deals.
For any real estate investment loan to be worth its interest and fees, your earnings must exceed your costs. It sounds simple. But your profitability relies on securing quality deals.
So, how do you consistently find high-value real estate investment opportunities?
The #1 method for generating seller leads is combining direct mail marketing with Call Porter’s automated call answering service. Using direct mail from Ballpoint Marketing ensures a steady flow of high-converting leads, while Call Porter makes sure you never miss a call—even when you’re busy.
Our trained, US-based team qualifies leads and books them straight into your calendar.
All you have to do is show up and close.
If you’re serious about growing your wealth through real estate investing then you need to have access to good deals. It’s better to pass on a property that puts you in a difficult financial position due to the investment loan requirements.
Ready to take your investing to the next level?
Schedule a Call Porter demo today and see how it can transform your deal flow.