Seven Tips For Investment Property Loans

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If you need a loan on an investment property, the following tips will help you get the most favorable rates and terms.

  1. It helps to be precise in your terminology.  Investment property loans include, not only (non-owner-occupied) residential loans, but also multifamily loans and commercial loans.  For which kind of income property loan are you looking?

  2. Even if you are renting the property out for investment purposes, a loan on a house, a condo, a duplex, a triplex, or a fourplex is still considered a residential loan. Why? Fannie Mae and Freddie Mac will buy mortgages on non-owner-occupied (rental) one-to-four family residences. That's an important term of art: one-to-four family. A single family home or a condo is a one-family residence. A triplex is a three-family residence. Got it?

  3. Investment property loans on residential properties are cheaper than multifamily loans or commercial loans. The reason why is because such loans are liquid. Suppose you're a bank, and you make a loan on a rental fourplex.  If suddenly there is a run on the bank, you can quickly sell that loan to Fannie Mae or Freddie Mac to raise cash.  In other words, loans on one-to-four family dwellings are liquid investments because you can quickly convert them to cash.  Liquid investments are more desirable, so the bank will give you a better rate.  Important Note: The key issue is the number of units in the property, NOT whether the property is owner-occupied.  Surprising, huh?

  4. If you need an investment property loan on a one-to-four family dwelling - in other words, a residential loan - then you do NOT need a commercial loan. You should simply go back to the same home loan mortgage company that helped you buy your personal residence.

  5. But what if the investment property that you are buying has more than four units - perhaps a 5-plex or larger. These loans are called multifamily loans, and you should apply to a commercial mortgage company, like Most commercial mortgage companies make both multifamily loans and commercial loans.

  6. Properties like office buildings, strip centers, and industrial buildings are considered commercial properties, and to finance one of these properties, you will obviously need a commercial loan.  If you are buying a strip center, for example, not to house your business, but rather just to earn rental income, then this strip center is considered to be a commercial-investment property.  Obviously you would apply to a commercial mortgage company, like, for a loan on a commercial-investment property.

  7. What if you are buying a warehouse that your company intends to use? (The term "use" is arguably better than "occupy" because you don't intend to actually live there; but a great many commercial mortgage professionals will describe commercial properties as "owner-occupied".)  If you intend to move your company into the building, then you should strongly consider an SBA loan.  Most commercial mortgage companies, including, offer SBA loans.  In fact, when you submit a commercial loan using, you can submit that one mini-app to hundreds of different SBA lenders.

  8. One final thought.  Even though you are on the web tonight looking for a commercial loan, you still have money virtually rotting in the bank, in your IRA, and in your pension plan earning a very paltry rate.  Is the bond portion of your investment portfolio earning 7% to 12% interest or is it losing money every month as interest rates march upwards?  You should seriously consider trust deed investing.


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