The Best Mortgage Options for Real Estate Investors

Real estate investing can be one of the most powerful wealth-building strategies available—if you know how to finance it correctly. The difference between scaling to multiple properties and getting stuck at one or two often comes down to how you structure your financing.

Unlike buying a primary residence, financing rental properties requires a different strategy, a deep understanding of rental income calculations, and knowing which mortgage products can maximize your borrowing power.

In this guide, we’ll cover:

• How to finance multiple properties
• How lenders calculate rental income for mortgage approval
• The pros and cons of using a HELOC vs. a mortgage for investment properties

By the end, you’ll have a clear roadmap for financing and growing your real estate portfolio like a pro.

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How to Finance Multiple Properties

If you plan to own more than one investment property, you need a strategy that lets you keep borrowing power intact while optimizing cash flow.

Here are some of the best mortgage options for real estate investors:

1. Conventional Mortgages (Best for Your First Few Properties)

Most investors start with traditional mortgages, where you:

• Put 20% down (to avoid mortgage insurance)
• Get a fixed or variable rate
• Qualify based on personal income and rental income

Pros:
✔️ Best interest rates compared to other financing options
✔️ Can use rental income to help qualify
✔️ Allows for a mix of fixed and variable rates

Cons:
✖️ Lenders often cap you at 4-5 properties before they stop lending
✖️ Strict lending rules based on personal income and debt-to-income ratios

Example:
Emma buys her first investment property with a 20% down conventional mortgage at 5.5%. Because the rental income covers the mortgage, she can qualify for another property within a year.

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2. Portfolio Lending (For Investors With 5+ Properties)

Once you own 5 or more properties, big banks often stop approving new mortgages. That’s where portfolio lending comes in.

✔️ Portfolio lenders assess your full real estate portfolio instead of just personal income
✔️ Allow you to bundle multiple mortgages together
✔️ Use rental cash flow rather than personal debt-to-income ratios for approval

Best for:
✔️ Investors who want to scale past 5+ properties
✔️ Those who reinvest rental cash flow into new properties

Example:
Mark owns six rental properties, and traditional lenders won’t approve more financing. He switches to a portfolio lender, who offers him a single blanket mortgage for all properties, freeing up borrowing room.

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3. Commercial Mortgages (For Multi-Unit or Mixed-Use Properties)

If you’re financing apartment buildings (5+ units), commercial buildings, or mixed-use properties, you’ll need a commercial mortgage.

✔️ Qualification is based on the property’s cash flow, not personal income
✔️ Requires a larger down payment (25-35%)
✔️ Typically comes with higher rates but longer amortizations (30-40 years)

Example:
Kevin buys an 8-unit apartment building. Instead of using his personal income, the lender evaluates the building’s rental income, helping him qualify without affecting his personal borrowing power.

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4. Private Lending (Short-Term Financing for Flips or BRRRR Strategy)

Private mortgages are high-interest, short-term loans that investors use when:

• Doing a flip and selling within a year
• Using the BRRRR method (Buy, Renovate, Rent, Refinance, Repeat)
• Buying a property that doesn’t qualify for traditional financing

✔️ Fast approvals, little paperwork
✔️ Can be used for distressed properties that need renovation
✔️ Can refinance into a conventional mortgage after improving the property

Example:
Lisa buys a run-down duplex using a private mortgage at 9% interest. She renovates it, increases the value, then refinances with a conventional lender at 5.5%, pulling out her initial investment.

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Understanding Rental Income Calculations for Mortgage Approval

Lenders don’t just take your rental income at face value—they apply specific rental offset or rental add-back calculations to determine how much of that income counts toward mortgage qualification.

1. Rental Offset Method (Most Common for Big Banks)

Lenders take 50-80% of your rental income and subtract it from your expenses before calculating your debt-to-income ratio.

✔️ Helps lower your reported expenses, improving qualification chances
✔️ Works well for cash flow positive properties

Example:

• Rental income: $2,000/month
• Rental offset: 75% = $1,500
• If your mortgage payment is $2,200, the lender calculates your debt-to-income ratio based on $700, not $2,200.

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2. Rental Add-Back Method (Used by Some Alternative Lenders)

Instead of subtracting rental income from expenses, lenders add a percentage of rental income to your personal income.

✔️ More beneficial for borrowers with strong personal income
✔️ Allows higher loan amounts in some cases

Example:

• Rental income: $2,000/month
• Add-back: 50% = $1,000/month added to your personal income

This helps increase your income on paper, making it easier to qualify for larger mortgages.

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HELOC vs. Mortgage for Investment Properties – Which Is Better?

A Home Equity Line of Credit (HELOC) vs. a Mortgage for investment properties depends on your goals.

Using a HELOC for Investment Properties

✔️ Flexible – Borrow as needed, repay anytime
✔️ Interest-only payments – Lower carrying costs
✔️ Great for quick purchases or renos

✖️ Higher interest rates than mortgages (usually Prime + 0.5% or more)
✖️ Doesn’t pay down principal unless you convert to a mortgage

Best for:

• Investors using HELOC funds as down payments
• Short-term purchases, flips, and BRRRR deals

Example:
Jack has $300,000 in home equity. He takes out a $150,000 HELOC, uses it to buy and renovate a rental, then refinances into a traditional mortgage to pay off the HELOC.

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Using a Mortgage for Investment Properties

✔️ Lower interest rates than HELOCs
✔️ Fixed monthly payments
✔️ Helps pay down principal over time

✖️ Less flexibility – Funds are locked in once borrowed
✖️ Harder to access equity without refinancing

Best for:

• Long-term buy-and-hold investors
• Those looking for stable, predictable payments

Example:
Lisa buys a duplex using a conventional mortgage at 5.5% instead of a HELOC. While she loses flexibility, she locks in a lower rate and builds equity faster.

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Final Thoughts: The Best Mortgage Options for Investors

✔️ Conventional mortgages work best for your first few properties.
✔️ Portfolio lending is ideal for 5+ properties.
✔️ Commercial mortgages are needed for multi-units and mixed-use.
✔️ Private lending helps with flips or BRRRR deals.
✔️ A HELOC is great for short-term flexibility, while a mortgage is best for long-term stability.

If you’re serious about growing a real estate portfolio, choosing the right mortgage strategy can make or break your ability to scale.

Want to see which mortgage strategy works best for your investment goals? Let’s talk!