Financing multiple rental properties: A beginner's guide

Buying rental properties is one strategy real estate investors use to build a steady stream of income and long-term wealth. But financing multiple rental properties isn’t always as straightforward as you may think.

The good news is that, with the right preparation and a clear understanding of your options, you can put yourself on the path to growing a profitable real estate portfolio – whether you're financing your second property or your 10th.

Core takeaways:

• Financing multiple rental properties is one strategy investors use to earn a consistent stream of income. As with any investment, it comes with risks such as declining property values and higher interest rates.
• Financing several properties is possible. However, lenders usually have stricter approval requirements for borrowers, like higher down payments and bigger cash reserves.
• If you have a strong credit profile and experience with rental properties, you may have access to more loan options, including conventional, blanket, and portfolio mortgages.

Benefits of financing multiple rental properties

Owning multiple rental properties can create steady income while your tenants help pay down your loans. It also helps you build equity. By financing these properties, you can leverage your investment with the goal of potentially increasing your return. Plus, it allows you to preserve your savings for other investments or emergencies.

Before you apply for more than one mortgage, it’s important to understand both the potential rewards and the risks that come with this investment decision.

The benefits of financing multiple rental properties can include: 

• Consistent monthly cash flow: Renting out multiple units means you’re collecting income from more than one source, which can help you generate a steady stream of income.
• Less financial stress during vacancies: If one of your units sits empty, income from your other properties may help fill the gap until it’s leased.
• Reduced risk of income loss: Financing rentals in different locations and having tenants on staggered lease schedules can help spread out your risk – making your rental portfolio more resilient if issues arise.
• Tax advantages: Taking advantage of tax breaks like mortgage interest deductions and depreciation benefits can help lower your tax bill.
• Potential inflation buffer: As the cost of living increases, rent prices and property values tend to rise as well, which can help your investments keep pace with inflation over time.

There is certainly a learning curve when it comes to real estate investing and managing multiple properties. But depending on your financial goals, you may find that the benefits outweigh the extra effort and risks.

Challenges to financing multiple properties at once

While financing multiple rental properties can be rewarding, there are also a few challenges and risks to be aware of. Typically, one of the biggest hurdles for investors is the stricter lending requirements that apply after you get your first mortgage. This is because lenders may see you as a higher-risk borrower, which means you’ll likely need to meet higher approval standards like more significant down payments, larger cash reserves, and stronger credit scores (typically 720 or above).

However, stricter financing requirements aren’t the only hurdle investors can face. Other challenges real estate investors run into include:

• Higher interest rates: Since lenders often view additional properties as a higher risk, you may end up paying more in interest compared to your first mortgage. According to Experian^TM, you’ll typically pay 0.25% – 0.875% more in interest on an investment property than you would on a primary residence.
• Limits on how many properties you can finance: Many lenders cap the number of mortgages they’ll approve for one borrower, which can slow down your portfolio growth. For example, Fannie Mae limits the number of financed properties you can have to 10.
• Risk of negative cash flow or declining property values: If rent doesn’t fully cover your expenses – or if your property values drop – you could end up losing money on your investment.
• More time and effort spent on property management: Whether you take care of maintenance yourself or hire a property manager (usually costing 5% – 10% of rental income), handling multiple rental units requires more of your time and attention.
• Tenant issues can be costly: Missed rent payments, property damage, and legal action resulting from evictions can all add to investment costs and cut into your profits.

Remember, once you have a mortgage in your name, it can be more challenging to find a lender willing to finance additional rental properties. But financing options are available. Finding the right fit might take some extra effort, but being financially prepared can help.

Loan options for financing multiple investment properties

Just because it’s more difficult to finance multiple properties doesn’t mean it can’t be done. For investors with good credit scores, enough cash to offer larger down payments, and a proven track record of managing their existing properties profitably, it’s possible to get multiple loans.

Keep in mind that while some lenders will finance more than one property at once, most will have a limit. In many cases, you can get up to four mortgages using traditional financing. Talking with a lender is the best way to figure out what’s possible based on your situation.

Traditional mortgage

Traditional mortgages are a popular choice among real estate investors. Most lenders base these loans on guidelines from Fannie Mae and Freddie Mac.

While there's no limit on the number of mortgages you can have for your primary residence, Fannie Mae does set limits when it comes to financing rental properties. Depending on the type of mortgage you're applying for, you can have up to 10 mortgages for financed rental properties.

To qualify, you'll need to meet your lender's specific requirements, including:

• Credit score
• Down payment
• Proof of income
• Debt-to-income (DTI) ratio
• Cash reserves

Lenders will also want to see that your current investment properties are performing well before they approve you for more loans. If you’ve missed payments or had a foreclosure in the past, that could hurt your chances of qualifying.

Remember that the more loans you have, the more of a risk you are for the lender. That could mean higher interest rates or tougher requirements – like a stronger credit score or a bigger down payment. For example, Fannie Mae loans typically require borrowers to have a credit score between 620 and 680 if you have up to six financed properties. But if you’re applying for loans on seven to 10 properties, you’ll likely need a score of 720 or higher.

Blanket loan

Instead of taking out separate loans for each rental property, a blanket mortgage allows investors to group multiple properties under one financing agreement. Like a traditional home loan, it’s secured by the properties being purchased.

But since it covers several properties, it can be divided into portions – so if you sell one property, you only need to repay the part of the loan tied to that specific property.

Rocket Mortgage^® does not offer blanket loans, but we want to help you explore all your options.

Blanket loans can simplify the lending process by combining multiple property purchases into one mortgage. That means a single monthly payment instead of several, which can make managing your finances easier. However, there are trade-offs. These loans often come with higher interest rates and fees. And because all the properties are tied to the same loan, falling behind on payments could put your entire portfolio at risk. Some blanket mortgages may also come with a balloon payment. This means you’ll make smaller payments upfront but owe a large lump sum at the end of the loan term. This setup can be a drawback for some investors.

There’s no set limit on how many properties you can finance with a blanket mortgage–it depends on how much your lender is willing to approve. Not all lenders offer these loans, but some commercial banks might. Requirements like credit score, down payment, and cash reserves vary by lender.

Blanket loans are typically better suited for experienced investors, builders, or developers. So, if you’re new to investing or just looking to purchase a rental property alongside your primary home, this type of loan may not be the best fit.

Portfolio loan

If you’re looking to finance more than 10 rental properties, Freddie Mac and Fannie Mae’s programs may not be enough. That’s where a portfolio loan might come in.

A portfolio loan works like a traditional mortgage – you borrow against your property – but instead of selling the loan, the lender keeps it in-house. Since the loan stays in the bank’s portfolio, lenders don’t have to follow conventional mortgage rules set by Fannie Mae and Freddie Mac. That means they may offer more flexible terms when it comes to credit scores, down payments, or DTI ratios.

The trade-off is that portfolio loans usually come with higher interest rates and fees since lenders see them as riskier. They can also be harder to find, as many lenders only offer them to long-time or financially strong clients they already know and trust.

Other options for financing multiple rental properties 

If the options above don’t work for you, there are still other ways to finance your investment. You might be able to tap into the equity in your current home, take out a cash-out refinance, or use a hard money loan. In some cases, the seller may be willing to finance the property directly.

• Home equity loans: You can borrow against the value of your primary home. This option usually offers lower interest rates but puts your home at risk if you can’t make payments.
• Cash-out refinancing: Replace your current mortgage with a new, larger one and take the difference in cash. This gives you money to invest in new properties, but you’ll have to start over with a new loan term.
• Hard money loan: These loans have higher interest rates but faster approval times, which makes them a good option for fix-and-flip projects.
• Seller financing: The property seller acts as the lender instead of a bank. Terms can be flexible, but sellers often charge high interest rates and require large down payments. The terms are also typically short.

All financing options have their advantages and disadvantages, and the right one for you depends on your long-term investment goals and risk tolerance. 

The bottom line: Investors need lenders who understand their goals

Financing multiple rental properties can be more complex than securing your first mortgage – but it’s not out of reach. Lenders typically look for well-qualified borrowers with strong financials, so preparation matters. With the right strategy and credentials in place, it’s possible to find a financing option that supports your long-term goals.

At Rocket Mortgage, we’re here to support your goals and guide you through the process. Start an application today and take the first step toward building your future through real estate.