Investors

How much down payment does an investment property need?

By Steve Lockhart

The short answer

Down payment is where the difference between an owner-occupied home and an investment property shows up clearly.

Full answer

Down payment is where the difference between an owner-occupied home and an investment property shows up clearly. An investor buying a single-family rental under conventional programs faces a 15 percent minimum down payment at the loan program level, and many lenders overlay their own floor of 20 to 25 percent along with higher rates and reserve requirements, because investment loans are riskier for the lender. Two to four unit investment properties generally require 25 percent down.

DSCR loans, which qualify on the property's rental income, typically land in the 20 to 25 percent down range, with larger down payments available as a way to improve the terms. Hard money lenders for fix-and-flips often take 10 to 20 percent down, but they lend short-term at higher rates and points, and their approval is about the deal and the after-repair value, not your income.

The one path to a small down payment is owner-occupied small multifamily: with an FHA loan, a buyer who lives in one unit of a duplex, triplex, or fourplex can put as little as 3.5 percent down, with rental income from the other units helping qualify. That is the classic route for first-time investors precisely because the lender gets a homeowner who has a mortgage reason to take care of the building. Whatever route you choose, the down payment is only part of the cash you need, because closing costs, reserves, and initial repairs all have to be funded too.

A note from Steve: nothing on this page is investment, legal, or tax advice. Markets move, and every property is different. Run your own numbers on the specific deal, and talk to your CPA and attorney before you commit.

Go a little deeper

Frequently asked

Questions investors often follow up on

Can I put less than 20 percent down on a rental?

Sometimes, 15 percent is the conventional minimum for a single-unit investment, and some lenders or programs allow it. Below that becomes very difficult for a true rental, which is why the small down payment routes all involve living in the property.

Do I need cash reserves beyond the down payment?

Yes. Lenders commonly require several months of mortgage payments in reserve for investment loans, and your own cash flow model needs a repair and vacancy fund on top of that. A leveraged investor with no reserves is one vacancy away from trouble.

Can I finance two properties at once with small down payments?

It is hard to do two true rentals at small down payments, because owner-occupied programs assume you live there. The practical pattern is one owner-occupied small multifamily at a time, building equity and repeat buying from there.

The Lockhart Method

Your Home | My Strategy | Proven Results

My strategy: we match the down payment path to your situation honestly. If you can live in one unit, small down payments open the door; if you cannot, we plan for 20 to 25 percent plus reserves, and we make sure the cash flow works with the cash you actually have.

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