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7 Creative Ways to Finance Your Rental Properties

So you want to finance a rental property and join the increasing ranks of people in the rental property business?

Well, the first thing you are going to have to do before officially becoming a Howard County landlord is finance the property you are interested in leasing.

The traditional way to finance a rental property is to contact your bank, credit union, or home mortgage company and get approval for a home loan.  With rates as low as 3.48% for a 30-year fixed rate loan or 2.71% for a 15-year fixed rate, now is definitely the time to invest.


However, investing may not be as easy as it seems.  Before approving any loans, most lenders are requiring a credit score in the high 600s or better, at least 10% for a down payment, and some even require proof of a substantial savings dedicated to things such as maintenance and repairs of the property.  In addition, as the amount of rental properties you own increases you may find it more difficult to be approved for additional loans.

This leaves many to wonder if they will ever be able to finance their first rental property or continue to grow their rental property business.

Today we will look at some of the most creative ways to finance a rental property using a variety of non-traditional methods just in case your credit isn’t up to par, your savings are a bit slim, or you are looking for new ways to add to your investment portfolio.

7 Creative Financing Ideas

Use Current Equity

Although not as creative as some of the other options we will discuss, borrowing against the equity in a home you already own, such as your primary residence in Columbia, is definitely non-traditional.  This quick and easy way of financing a property will give you a way to purchase another property and get your rental business underway.



Home equity is determined by the fair market value of your home, less the balance of an existing mortgage or lien against it.  For instance, if your home is worth $200,000 and you owe $120, 000, you may be eligible to use the $80,000 available equity to finance your next purchase.

This strategy is good for those who do not have a sizeable down payment or can be used as a ladder strategy to purchase additional rental properties.

Hard Money Loan

Also known as a private mortgage, a hard money loan is an easy way to bypass conventional loan processes.  Sometimes qualifying in as little as 72 hours, these loans are designed to help those with credit problems qualify for a mortgage.  Having fewer restrictions then a bank loan, hard money lenders usually base the loan amount on the quick-sale value of a property already owned by the interested borrower.

Although the interest rates are often higher (approximately 10-18%) with a hard money loan, this option provides those who would otherwise not be able to qualify a way to finance properties.

Find Partners

One good way to finance rental properties is to go in with a partner(s).  Providing flexibility, more financial backing, and the knowledge of another in the real estate industry, can make financing your property a breeze.  Going into an investment with another person means your name never goes onto the mortgage agreement.  This is especially helpful for those that have reached their loan lending limit but wish to continue to expand their portfolio.

You can enter this partnership with a family member, friend, or even a business colleague.  Using this strategy you could potentially purchase as many rental properties as you wish so long as you have a partner backing your finances.

However, it is important that you pick you partner(s) wisely because this is a business deal you are entering with another person.  There is a certain element of risk to consider and a loss of control when it comes to the loan process and the ownership of the property.

Seller Second

This method of financing rental properties is done often and can be very helpful for those looking to invest that cannot qualify for the entire loan amount or for those who have a small down payment.  The seller second option means that the seller provides a second mortgage on the property to cover most, if not all, of the down payment required for loan approval.

The one thing to make sure of before jumping into this option is to make sure the loan you are qualifying for will allow a second mortgage to be attached to it.  Although most loans do, there are those that do not.  If that’s the case, you will not be able to finance the property and you will lose the deal.

Lease Option

Another popular creative financing option is the lease option.  This allows you to get into a property, say in Elkridge, MD, with little to no down payment and provides you the option to buy the house at a later date, usually two to three years later.  During this time you will be able to get your affairs in order so that you can acquire the financing required to make the purchase investment.

Other Options

There are so many creative financing options, it would impossible to cover every different scenario. However, here are some additional quick ideas for obtaining the necessary money to finance a rental property that might just work for you:


Retirement Accounts – Although dipping into your retirement funds is not always recommended, for some, the benefits outweigh any negative effects.  Most retirement accounts will let you borrow from yourself with a low interest repayment plan put in place afterwards.

Loans from Friends and Family – Ok, not everyone has family that has extra cash just lying around ready to be used for a rental property venture.  However, for some this is a viable option and definitely a creative one as well!


Financing a rental property, whether it is your first investment or your tenth, can prove to be difficult at times.  No down payment, poor credit, lender blocks, and more can prevent you from following the path to financial freedom using rental properties.

Luckily, there is a way around traditional financing and it takes many creative forms.   If you are struggling to finance your first rental property, or are simply trying to expand your rental property portfolio, consider using one of the non-traditional financing options mentioned above.

If you plan on financing rental properties in the Howard County area, consider contacting Bay Management group for all of your property management needs.  From tenant placement, to lease agreements, to routine inspections and 24 hour maintenance services, Bay Management Group has you covered after your property is financed and is ready for tenants.