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.
| Metric | Amount |
|---|---|
| Purchase price | $249,900 |
| Loan amount | $199,920 |
| Interest rate | 7.625% |
| 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%.
| Metric | Amount |
|---|---|
| Annual gross income | $24,000 |
| Annual net cash flow | $7,224 |
| Capitalization rate | 7.7% |
| Cash on cash return | 4.3% |
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%.
| Metric | Amount |
|---|---|
| Purchase price | $349,000 |
| Loan amount | $279,200 |
| Interest rate | 8% |
| 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%.
| Metric | Amount |
|---|---|
| Annual gross income | $40,800 |
| Annual net cash flow | $14,447 |
| Capitalization rate | 11.8% |
| Cash on cash return | 21.2% |
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.
| Metric | Amount |
|---|---|
| Purchase price | $275,000 |
| Loan amount | $206,250 |
| Interest rate | 7.875% |
| 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%.
| Metric | Amount |
|---|---|
| Annual gross income | $34,020 |
| Annual net cash flow | $4,269 |
| Capitalization rate | 8% |
| Cash on cash return | 5.7% |
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.
| Metric | Amount |
|---|---|
| Purchase price | $170,000 |
| Rehab budget | $50,000 |
| After-repair value | $300,000 |
| Initial advance | $127,500 |
| Rehab holdback | $50,000 |
| Interest rate | 10.99% |
| 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.
| Metric | Amount |
|---|---|
| Estimated return on investment | 47% |
| 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.
| Metric | Amount |
|---|---|
| Purchase price | $150,000 |
| Construction budget | $480,000 |
| After-construction value | $800,000 |
| Initial advance | $0 |
| Construction holdback | $480,000 |
| Interest rate | 10.5 % |
| 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.
| Metric | Amount |
|---|---|
| Estimated return on investment | 23% |
| 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.
