Rental property loans

Conventional investment loans require full income documentation and typically limit borrowers to 10 financed properties. DSCR loans bypass personal income verification and focus on property cash flow, making them a better fit for investors scaling a portfolio or those with complex tax situations.

The tradeoff is that DSCR rates tend to be slightly higher, but the faster qualification and fewer documentation requirements often make up for the difference.

Experienced investors often use a combination of loan types. They might use conventional financing for the first few properties when rates are lowest, then switch to DSCR loans as they scale beyond the conventional property limit. Some also use portfolio lenders who hold loans on their own balance sheet and can offer more flexible terms.

Many rental investors refinance periodically to pull out equity, lower their rate, or consolidate short-term debt. Cash-out refinances on stabilized rentals are one of the most common uses of DSCR loans, especially for investors executing a BRRRR strategy (buy, rehab, rent, refinance, repeat).

There is no single best rental property loan. The right one depends on how you earn your income, how many properties you already own, and what shape the property is in.

The property type changes how the loan is underwritten. A single-family rental is the simplest: one lease, one rent figure, and plenty of comparable sales for the appraisal. A 2-4 unit property is still treated as residential, but every unit's rent counts toward qualification, which often makes the numbers work better than a single-family home at the same price.

Condos and townhomes add a layer of review on the building itself. Lenders look at the homeowners association's budget, insurance, the share of units that are rented out, and any pending litigation. A condo that fails those checks is called non-warrantable, and it needs a lender with a program built for that, usually at somewhat lower leverage.

Once a property reaches five or more units, it moves out of residential lending and into commercial multifamily financing, which is underwritten on the building's net operating income.

A rental loan is approved on whether the rent covers the mortgage payment, taxes, insurance, and any association dues. That is the lender's test, but it is not the same as the property making money. Owners also pay for vacancy between tenants, repairs, eventual big-ticket replacements like roofs and HVAC systems, and property management if they do not self-manage.

Before you buy, set aside a share of the monthly rent for each of those costs and see what is left. A property that barely passes the lender's coverage test can still lose money in a year with a long vacancy or a major repair.

As a portfolio grows, financing each property separately means a separate closing, appraisal, and set of fees every time. A blanket or portfolio loan covers several rentals under one loan, with one payment and one maturity date. It can simplify management and make it easier to pull equity across the whole portfolio at once.

The tradeoff is flexibility. Selling one property out of a blanket loan usually requires a partial release, which pays down part of the loan. Investors who expect to sell individual properties often keep them on separate loans for that reason.

With BRRRR, the profit comes from the refinance at the end, when a long-term loan is sized on the renovated value and pays off the short-term purchase and rehab loan. Two details decide whether that works. First, many lenders want a minimum period of ownership before they will lend on the new value rather than the purchase price. Second, the property should be rented with a signed lease, because the rent is what the new loan is qualified on.

Plan both before you buy. Pick a short-term loan with enough term to cover the renovation, the lease-up, and the ownership period, so the refinance is ready before the first loan matures.

Relip is a direct lender that operates 100% wholesale. Investors work with their mortgage broker, and the broker prices rental loans in the Relip Loan Pricer, then runs the term sheet, appraisal, credit and title from one platform. You stay your broker's client for this rental and every one after it. We never compete with brokers.