Down Payment on a Rental Property: How Much You Need
The cash you pay up front when you buy a home. The rest of the price comes from your loan.
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The down payment is the share of the purchase price you pay in cash, with the loan covering the rest. On an investment property it is the largest single number you need, and it is higher than on a home you live in.
How much, by loan type
| Loan type | Typical down payment |
|---|---|
| Conventional, 1-unit investment | 15% – 25% |
| Conventional, 2 – 4 unit investment | 25% |
| DSCR loan | 20% – 25% |
| Foreign national loan | 25% – 40% |
| Hard money | 25% – 35% of ARV |
| House hack (owner-occupied 2 – 4 unit) | 3% – 5% |
| FHA (owner-occupied) | 3.5% |
Most investors land at 20% to 25% on a straightforward rental. Below 20% on an investment property triggers mortgage insurance, which is expensive enough that the saving rarely pays.
The trade-off with return
A bigger down payment raises monthly cash flow but usually lowers cash-on-cash return, because you have put more cash in to earn it.
On a US$150,000 house renting at US$1,450, at 7% over 30 years:
| Down | Cash in | Monthly cash flow | Cash-on-cash |
|---|---|---|---|
| 20% (US$30,000) | US$36,000 | US$87 | 2.9% |
| 25% (US$37,500) | US$43,500 | US$137 | 3.8% |
| 40% (US$60,000) | US$66,000 | US$287 | 5.2% |
| 100% (cash) | US$156,000 | US$885 | 6.8% |
Which to choose depends on what you are optimizing. More leverage spreads the same capital across more properties and amplifies appreciation; less leverage gives a thicker safety margin and a lower break even ratio.
It is not the whole cash requirement
The down payment is the biggest line but never the only one. Add closing costs, any immediate repairs, and reserves. Together these make up your cash to close plus a buffer.
Related reading
How much cash do you need lists every line. Try different down payments on a real listing in the calculator to see the trade-off on your own numbers.
Longer reads on this
Related terms
Run the number on a real listing
The free calculator works out cash-on-cash return, cap rate and DSCR from a price and a rent.