Down Payment Requirements for Investment Properties

Down Payment Minimums by Loan Type

The down payment is typically the largest barrier to acquiring investment properties. Unlike primary residences, where 3% to 5% down is common, investment properties require significantly more cash upfront. Here is what to expect across the major loan categories.

Conventional loans. Single-family investment properties require 15% down. Two to four-unit properties require 20% to 25%. For properties 5 through 10 under Fannie Mae guidelines, the minimum increases to 25% regardless of unit count. On a $250,000 single-family rental, that is $37,500 at 15% or $62,500 at 25%.

DSCR loans. Most DSCR lenders require 20% to 25% down. Some lenders offer 80% LTV for strong DSCR ratios (1.25 or higher) on single-family properties, but 75% LTV (25% down) is more common. A few niche lenders now offer 85% LTV DSCR products, though with higher rates and stricter credit requirements.

FHA (owner-occupied multi-family). Just 3.5% down with a 580 or higher credit score. On a $300,000 fourplex, that is only $10,500. The catch is that you must live in one of the units for at least 12 months. This is the lowest down payment path to owning an investment property.

Hard money loans. Down payments of 10% to 25% of the purchase price, though the lender evaluates based on LTV against after-repair value (ARV). If you are buying a $150,000 property with an ARV of $220,000, a lender willing to go to 70% of ARV ($154,000) may fund the entire purchase price plus some rehab costs.

Commercial loans. Expect 20% to 30% down, depending on the lender, property type, and borrower experience. SBA 504 loans require only 10% down for owner-occupied commercial properties.

Strategies to Reduce Out-of-Pocket Costs

House hacking with FHA. Purchase a 2 to 4-unit property with FHA financing at 3.5% down, live in one unit, and rent the others. After 12 months, move out and rent your unit as well. You now own a fully rented investment property with minimal initial capital. Repeat with your next primary residence.

HELOC on your primary residence. If you have equity in your home, a home equity line of credit can provide the down payment for an investment property. A HELOC at 8% costs money, but if the rental property generates a 12% to 15% cash-on-cash return, the spread is profitable. Be cautious: you are putting your home at risk to fund an investment.

Seller financing with low down payment. Some sellers will accept 5% to 10% down when providing owner financing. This is common with owners of free-and-clear properties who want monthly income rather than a lump sum. The trade-off is typically a higher interest rate (6% to 8%) compared to conventional financing.

Partnership capital. Bring in a partner who provides the down payment while you contribute deal-finding expertise and property management. A 50/50 equity split with zero down payment from your side effectively gives you ownership in a property with no cash invested.

Gift funds. Conventional loans allow gift funds for down payments from family members, though the gift donor must provide a letter confirming the funds are not a loan. This does not work for all loan types, so confirm with your lender.

The True Cost of Your Down Payment

The down payment is your initial equity in the property, and it directly affects your return on investment. A $50,000 down payment on a $250,000 property (20% down) that generates $400 per month in cash flow produces a 9.6% cash-on-cash return. The same property with $37,500 down (15%) produces a 12.8% cash-on-cash return, assuming the same cash flow with a slightly higher monthly payment.

Lower down payments increase your leverage and potential returns, but they also reduce your equity cushion. If property values drop 10%, a buyer who put 15% down is nearly underwater, while a buyer who put 25% down still has 15% equity. Match your down payment strategy to your risk tolerance and the stability of the local market.

Also account for closing costs (typically 2% to 4% of the purchase price) and initial reserves (6 months of expenses per property for conventional loans). A $250,000 purchase with 20% down, 3% closing costs, and 6 months of reserves may require $70,000 to $80,000 in total capital, not just the $50,000 down payment.

For general tips on getting approved for investment property financing, see Tips for Getting Approved for an Investment Property Mortgage.