Investment property loans help people buy properties beyond their primary residence to rent or flip and sell. A recent examination on rental housing conducted by the National Association of Home Builders (NAHB) using U.S. Census data found 86% of rental properties in the U.S. are single-family residences, with the next most common type of rental property being two- to four-unit residences.
We evaluated over a dozen investment property loan providers for these common rental property types using factors including rates, funding speed, and customer reviews to identify the best ones. All of the best investment property loan providers offer competitive rates, and many can get you funded in mere days or weeks.
The 6 Best Investment Property Loans of 2020
Best Overall: Quicken Loans
Quicken Loans is one of many subsidiaries of the Rock Holdings, Inc., family of companies. A Better Business Bureau (BBB)-accredited business, Quicken Loans is headquartered in Detroit, Michigan, and has been in business for more than 30 years. Quicken Loans offers a full suite of mortgage products nationally, including residential investment property loans, and you can complete the application entirely online. We chose Quicken Loans as offering the best overall investment property loan based on its reputation, simple application process, and competitive rates.
The rate you’ll pay with Rocket Mortgage by Quicken Loans will depend on factors like the loan term, your financial condition, and the property characteristics. Rates with Rocket Mortgage by Quicken Loans were among the best of the companies we reviewed, with stated APRs on their most popular mortgages ranging from less than 3% to just under 3.5%.
Although Quicken doesn’t state how long it’ll take to process your application and get approved, it’s reasonable to expect it to take around 30 days. Customers are generally satisfied with Quicken Loans, as evidenced by good 3.7-star customer reviews with the BBB and an excellent 4.4-star rating with Trustpilot.
Runner-Up, Best Overall: PennyMac Loan Services
PennyMac Loan Services, LLC, offers investment property loans and other mortgage products throughout the United States. Headquartered in Moorpark, California, PennyMac Loan Services has an excellent A+ rating with the BBB and has been in business for 12 years. In addition to financing for residential investment properties, you can also get financing for your primary residence and vacation properties. We chose PennyMacy Loan Services as the runner-up to the best overall based on its competitive rates, good customer reviews, and simple online application process.
You’ll pay a competitive rate, with APRs on PennyMac’s top mortgage products ranging from just under 2.5% to a little over 4.5% as of this writing. Your rate will depend on factors including your creditworthiness, the terms you choose, and the property itself. Although the funding speed isn’t disclosed, conventional investment property loans typically fund in about 30 days. You can speed up the process with any lender by submitting all the required documents when you apply.
PennyMac customers seem pleased with their experience, based on its 3.87-star rating with the BBB and 4.1-star rating with Trustpilot.
Best for Quick Approval: Patch of Land
Patch of Land is an alternative, peer-to-peer lender offering short-term loans for rental properties via crowdfunding. As a BBB-accredited business with an A+ rating, Patch of Land has been in business for seven years and is headquartered in Shermans Oaks, California.
If you need money fast, Patch of Land can get you approved in about 24 hours and funded in as quickly as five to seven days. Although funding typically takes about 10 business days, on average, this is still much quicker than the 30 days you can expect from most lenders. For this reason, we chose Patch of Land as the investment property lender best for quick approval.
A drawback to the quick approval process is you’ll likely pay more than you would with a conventional lender. The rates Patch of Land charges for its short-term investment property loans for rental properties start at 7.99%. You also may need to put some significant cash into the deal, as Patch of Land typically expects the “after renovation value” (a measure of the loan-to-value ratio) to be around 60%.
Overall, customers seem satisfied with Patch of Land, based on an average 3.7-star rating with Trustpilot.
Best Value: LendingHome
LendingHome is a hard money lender offering investment property loans for fix-and-flip properties and one- to four-unit residential rental properties. As a BBB-accredited business with an excellent A+ rating, LendingHome is headquartered in San Francisco, California, with seven years of business operations.
If you’re looking for an alternative investment property loan that offers a good value, LendingHome is a great place to start. This is because it offers interest rates that start as low as 6.5% for fix-and-flip properties and 4.95% for rental properties, which, although expensive compared to conventional loans, are competitive rates for non-conventional loans. This is why we chose LendingHome as the investment property loan offering the best value.
As with the other lenders we reviewed, the actual rate you’ll end up paying depends on such things as the loan term you choose (e.g., fixed-rate or adjustable-rate), your qualifications and experience, and the property itself (e.g., property type and location). You can also get funded fast, sometimes as quickly as five days for bridge loans for experienced investors. Plus, you can apply and track your application progress online.
Although LendingHome isn’t available in every state, it currently offers financing in more than 25 states nationwide.
Best for Easy Administration: Lima One Capital
Lima One Capital offers investment property loans for fix-and-flips, single-family rentals, multi-family rentals, and new construction. A BBB-accredited business with an A+ rating, Lima One Capital is headquartered in Greenville, South Carolina, and has been in business for 10 years.
You can apply for financing and manage your loans online, and you even may be able to get non-recourse loans for portfolios of five or more investment properties, potentially reducing some of the application and loan management burdens. This is why we chose Lima One Capital as the investment property lender best for easy administration.
Most of the company’s loan products require quotes, but rates start at 4.95% for portfolios of five or more properties, a relatively competitive rate for a hard money lender. A national lender, Lima One Capital offers financing in 45 states, and can get you funded in as few as 14 days.
Best Conventional Financing: Wells Fargo Bank
Headquartered in San Francisco, California, with locations throughout the U.S., Wells Fargo Bank has been in business for 150 years and is a well-known national bank that offers a full suite of banking products, including investment property loans.
We chose Wells Fargo for best conventional financing because you’ll pay a competitive rate, with the APRs on Wells Fargo’s top investment property loan products ranging from just under 4% to a little over 4.7% as of this writing, and you can evaluate its lending terms online without providing personal information. Note that what you’ll pay will depend on various factors, such as your creditworthiness, loan terms, property type, location, etc.
If you choose Wells Fargo, be aware that it has an F rating and low 1.5-star customer reviews with the BBB, along with a low 2.3-star rating with Trustpilot. However, the bank has been in business for a long time and is heavily regulated by the U.S. government.
What Is an Investment Property Loan?
Investment property loans are commonly used by real estate investors to purchase residential rental properties on a long-term basis or improve properties so they can be sold on a short-term basis. Although this type of loan is typically not intended for people who plan to live in the property, some lenders might make an exception if you’re planning to lease out the majority of the space.
If you want to purchase non-residential property for investment purposes, you’ll need to get a commercial real estate loan.
How Do Investment Property Loans Work?
For investors with only a few residential rental properties vested in their own names, the application process is similar to a personal mortgage. If the investor has many properties or vesting is in a business name (often required for a large portfolio of properties), the application process will likely be heavily focused on the properties and underlying lease agreements. This is particularly true in the case of non-recourse investment property loans.
Fix-and-flip investment property loans are a bit different, as these are loans you can use to make improvements to a home you intend to sell. These loans are short-term in nature, typically less than a year, and the funds will often be released to you incrementally rather than in a lump sum. Plus, instead of fixed interest rates with principal and interest payments, fix-and-flip loans often have variable interest rates with interest-only payments.
Who Can Use Investment Property Loans?
Residential real estate investors typically use investment property loans. You can often get these loans in either your name or in the name of a business (e.g., LLC or LLP). Interestingly, an examination of U.S. Census data on rental properties by the NAHB found that individual investors rather than business entities own the majority of the more than 19 million rental properties in the U.S.
When asked about who can use investment property loans, Aaron Norris, VP Market Insights of PropertyRadar, said:
“This varies by state. After the foreclosure crisis, some states overlaid their own regulations on top of Dodd-Frank rules. The biggest hurdle for a regulated broker/lender is to ensure they are lending for business purposes. Hard money to consumers is often viewed as predatory due to higher interest rates and fees. In this scenario, a lender would really be the lender of last resort. Lenders may require an LLC because they want documented proof the loan was for business purposes.”
How Much Do Investment Property Loans Cost?
If you get a conventional investment property loan for a long-term rental property, the costs will often be slightly higher than primary residence mortgage rates. This is because there is more risk associated with rental properties since the loan repayment is based on the income generated from the property rather than your personal income. In addition to an APR, you might also pay an origination fee and be required to pay a prepayment penalty.
Investment property loans cost even more if you use a hard money lender since loan repayment is heavily dependent on the property. In the current low-interest-rate environment, starting rates above 4% to 5% for a 30-year conventional loan and 7% to 8% for a hard money loan are starting to get expensive. The Federal Reserve Bank of St. Louis keeps track of the average 30-year fixed-rate mortgage cost, which is a great place to go to see if your rate is competitive. Remember, the rate will depend on your qualifications and the property’s characteristics. This means borrowers with the best qualifications and most desirable properties will pay the lowest rates.
John Kilpatrick, Ph.D. and MAI with Greenfield Advisors, Inc., shared this additional information with us about the short-term cost of investment property loans:
“For short-term-ers, the fixed cost of borrowing will kill you. Lenders will generally require closing costs, appraisals, etc., on every property you acquire. Amortized over 30 years, these costs are almost inconsequential, but if you plan to hold a property for six months or a year, these really drive up the cost of borrowing.”
How We Chose the Best Investment Property Loans
We reviewed over a dozen investment property loan providers to understand their rates, funding speed, customer reviews, and more before making our decisions. The best investment property loan providers offer competitive pricing and can get you funded in a month or less, sometimes just a matter of days, have good reputations, and a simple application process.
National Association of Home Builders. "Examining Rental Housing in the US." Accessed November 6, 2020.
Better Business Bureau. "Quicken Loans, Inc." Accessed November 6, 2020.
Better Business Bureau. "PennyMac Loan Services, LLC." Accessed November 6, 2020.
Better Business Bureau. "Patch of Land." Accessed November 6, 2020.
Trustpilot. "Patch of Land." Accessed November 6, 2020.
Better Business Bureau. "LendingHome Corporation." Accessed November 6, 2020.
Better Business Bureau. "Lima One Capital, LLC." Accessed November 6, 2020.
Trustpilot. "Wells Fargo." Accessed November 6, 2020.