How to Get a Loan for Rental Property Investment in Indiana

How to Get a Loan for Rental Property Investment in Indiana

Indiana is filled with opportunities for real estate investors. Property values are 51% below the national average and catching up quickly. With a diverse economy and growing population, the Hoosier State might be the ideal place to look for your next rental property.

If you’re looking to finance an Indiana investment property, there are lots of loan options available to you. Let’s look at your financing options and how to get a loan for a rental property investment in Indiana.

If you want to learn more about the basics of different loan types, the two articles below can help you get started:

1. Long-term Rental Loan for a Single-family Home

What this loan is for: Purchasing a single-family residence like a house or condo to be used as a traditional, non-owner-occupied rental property

Minimum down payment: 20%

Maximum term: 30 years

Payment terms: Monthly principal + interest

Maximum loan amount: $2,000,000

Minimum experience: None

Minimum credit score: 640

Many landlords like you start by investing in a single-family home to rent out over the long term.

Let’s say you’ve found a single-family home in Indianapolis that’s ideal for your portfolio: a three-bedroom, two-bathroom split-level house in Galludet, listed for $249,900. Thanks to the home’s proximity to one of the state’s best public schools, Franklin Central High School, you expect to be able to rent the home to a family for $2,000 per month.

With our loan partner, Lendency, you can get a 30-year fixed rental property mortgage with a 20% down payment. At an interest rate of 7.625%, this purchase works out to monthly payments of $1,398.

MetricAmount
Purchase price$249,900
Loan amount$199,920
Interest rate7.625%
Monthly payment$1,415
Closing fees$6,353
Cash needed to close$56,333

Because the mortgage payment is far below what you can charge in rent, you’ll have plenty of cash flow to pay for your expenses. According to Baselane’s rental property ROI calculator, which accounts for monthly expenses like insurance and property tax, this opportunity offers a capitalization rate of 7.7% and a cash-on-cash return of 4.3%.

MetricAmount
Annual gross income$24,000
Annual net cash flow$7,224
Capitalization rate7.7%
Cash on cash return4.3%

2. Personal Loan for a Multi-unit Long-term Rental Property

What this loan is for: Purchasing a residential building with up to 4 units to be used as a traditional rental property

Minimum down payment: 20%

Maximum term: 30 years

Payment terms: Monthly principal + interest

Maximum loan amount: $2,000,000

Minimum experience: None

Minimum credit score: 640

In addition to loans for single-family rental properties, you can get a loan for multi-unit properties with up to four units.

If you’re interested in this type of investment, you might find what you’re looking for in Indianapolis’ Eastside. For example: a brick building with four two-bedroom, one-bathroom units listed for $349,000. As a purpose-built rental building, all four units are already occupied, generating an average rent of $850 per month.

An instant rental property loan quote from Baselane shows that with a minimum down payment of 20%, you can get a 30-year fixed mortgage for a property like this one with a rate of 8%.

MetricAmount
Purchase price$349,000
Loan amount$279,200
Interest rate8%
Monthly payment$2,049
Closing fees$8,239
Cash needed to close$78,039

With this loan on a multi-unit property, you’ll have ample cash flow exceeding $1,000 per month – even after expenses. An investment with these specs works out to a capitalization rate of 11.8% and an impressive cash-on-cash return of 21.2%.

MetricAmount
Annual gross income$40,800
Annual net cash flow$14,447
Capitalization rate11.8%
Cash on cash return21.2%

3. Short-term Rental Property Loan

What this loan is for: Purchasing a single-family residence like a house or condo to be used for short-term or vacation rentals

Minimum down payment: 20%

Payment terms: Monthly principal + interest

Maximum loan amount: $2,000,000

Minimum experience: None

Minimum credit score: 640

If you’re considering investing in a property for short-term rentals, you can get a loan for that, too.

Imagine you wanted to get a two-bedroom condo in downtown Indianapolis within walking distance to Lucas Oil Stadium, Bankers Life Fieldhouse, and the Indiana Convention Center for $275,000. You estimate that you can rent the apartment for an average of 21 nights per month at $135 per night plus taxes and fees.

To get a short-term rental loan for a condo through Lendency, you’ll need a minimum of 25% down (35% if the condo isn’t warrantable). With a competitive commercial interest rate of 7.875%, this 30-year fixed loan is just $1,495 per month.

MetricAmount
Purchase price$275,000
Loan amount$206,250
Interest rate7.875%
Monthly payment$1,495
Monthly HOA fees$569
Closing fees$6,480
Cash needed to close$75,230

While short-term rental income is less predictable than long-term rental income, Baselane’s rental property ROI calculator shows that you’ll need a minimum income of $2,480 per month for positive cash flow. If you plan to rent the apartment for 21 nights per month, you need to charge an average of $118 per night. If you can stick to your planned average of $135 per night, you’ll net a modest cash-on-cash return of 5.7% and a capitalization rate of 8%.

MetricAmount
Annual gross income$34,020
Annual net cash flow$4,269
Capitalization rate8%
Cash on cash return5.7%

4. Rehab Loan for a Long-term Rental Property

What this loan is for: Purchasing and renovating a residential investment property with up to 4 units

Minimum down payment (purchase): 15%

Minimum down payment (rehab): 0%

Maximum loan-to-value (after-repair): 70%

Maximum term: 24 months

Payment terms: Monthly interest only + one-time balloon payment

Maximum loan amount: $5,000,000

Minimum experience: None

Minimum credit score: 680

Not every investment opportunity is turnkey. If you’re considering investing in a house that needs some work, you can use a rehab loan to cover the cost of purchase and renovations.

Let’s say you were looking at a three-bedroom home in the rapidly gentrifying Fountain Square neighborhood of Indianapolis to renovate and subdivide it into two legal apartments. The house would cost $170,000 and a further $50,000 to renovate. When work is complete, you estimate you could rent both units for $2,200 per month, and the resale value would be close to the median neighborhood price of $307,500.

In this scenario, you could get a rehab loan with interest-only payments for a one-year term, after which you would need to either sell or refinance. The lender would advance you 75% of the purchase price at closing, requiring you to make a down payment on the purchase of at least 25%. You would then be able to access a further $50,000 to pay for construction costs as work progressed.

MetricAmount
Purchase price$170,000
Rehab budget$50,000
After-repair value$300,000
Initial advance$127,500
Rehab holdback$50,000
Interest rate10.99%
Monthly payment$1,168 - $1,626 (Interest only)
Closing fees$4,549
Cash needed to close$47,049

For rehab loans, Lendency’s instant quote tool helpfully provides an estimate of profit (your final equity less the cash you’ve invested) as well as return on investment (the ratio of profit to the cash you’ve invested). With these figures, Lendency estimates a 47% return on investment and just over $30,000 in profit.

At the end of your project, you would have approximately $122,500 in equity. To make your balloon payment of $177,500, you will have to either sell the property or refinance with a conventional mortgage.

MetricAmount
Estimated return on investment47%
Estimated profit$31,825
Post-construction equity$122,500
Balloon payment$177,500

5. Construction Loan for a Long-term Rental Property

What this loan is for: Purchasing land for and constructing a new residential investment property with up to 8 units

Minimum down payment (purchase): 25%

Minimum down payment (construction): 0%

Maximum loan-to-value (after-construction): 70%

Payment terms: Monthly interest only + one-time balloon payment

Maximum loan amount: $5,000,000

Minimum experience: Two owned and completed projects during the last 36 months

Minimum credit score: 650

If you haven’t been able to find the right Indiana investment property, you can also get a loan to build your own. Mortgages are available for investors to build up to eight housing units on a single plot of land.

Imagine you were interested in picking up a ⅔-acre lot near downtown Indianapolis for $150,000 to build an eight-unit apartment building at the cost of $560,000 (estimate based on $64.5K to $86K per unit).

With Lendency, at least one partner in your project will need to have prior experience building a rental property from the ground up. If that’s the case, you could get a one-year construction loan with interest-only payments for up to 70% of the property’s post-construction value. Your purchase of the land from your own resources would serve as the down payment.

In addition to the closing costs, you would also have to pre-pay three months of interest to be held in reserve.

MetricAmount
Purchase price$150,000
Construction budget$480,000
After-construction value$800,000
Initial advance$0
Construction holdback$480,000
Interest rate10.5 %
Monthly payment$0 - $4,200 (interest only)
Closing fees$10,599
Cash needed to close$173,199

With this loan, the project will deliver approximately 23% return on investment and leave you with equity of $320,000 in your new apartment building.

MetricAmount
Estimated return on investment23%
Post-construction equity$320,000
Balloon payment$480,000
Profit$48,002

Final Thoughts

No matter what type of investment you’re planning, you can get a loan for it in Indiana. Use our loans marketplace to get an instant quote and start your application. You can get pre-approved with no impact on your credit score, interest-only options are available, and you can receive funding in as little as ten days.

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