Should You Take Out a Personal Loan to Buy Investment Property?

18 October 2025

Investing in real estate can be an exciting way to build wealth, but funding the purchase is often the biggest hurdle. If you’ve been eyeing an investment property but lack the upfront cash, you might be wondering—should you take out a personal loan to buy investment property?

At first glance, using a personal loan might seem like a convenient and quick solution, but is it the best financial move? In this article, we'll break down the pros, cons, and hidden risks to help you make an informed decision.

Understanding Personal Loans for Investment Property

A personal loan is an unsecured loan that provides borrowers with a lump sum of money, typically with fixed repayment terms. Unlike mortgages, which are secured by the property itself, personal loans do not require collateral.

Because personal loans can be used for just about anything, some real estate investors consider them as an alternative method of financing an investment property. However, personal loans come with different terms and conditions than traditional real estate loans, which can affect your profitability and financial security.

Can You Use a Personal Loan to Buy Investment Property?

Technically, yes—you can use a personal loan to buy an investment property. Once the money is in your account, lenders don’t control how you spend it. However, just because you can do something doesn’t mean you should. Real estate is a long-term game, and the way you finance it can impact your returns significantly.

Before deciding whether this is a good move, let's weigh the pros and cons.

Pros of Using a Personal Loan for Investment Property

1. Faster Approval and Funding

Traditional mortgage loans take time. Between credit checks, property appraisals, underwriting, and legal paperwork, getting approved for a mortgage can take weeks or even months.

With a personal loan, the process is much faster—sometimes just a few days. If you’re trying to secure a property in a competitive market, this speed can give you an edge over other buyers.

2. No Collateral Required

Unlike mortgages, personal loans do not require collateral. This means if you default, your personal assets (including the investment property) are not automatically at risk. However, this doesn’t mean there are no consequences—missed payments can severely damage your credit score.

3. Flexible Use of Funds

With a mortgage, the loan must be used specifically for property-related expenses. A personal loan, on the other hand, can be used more flexibly. You can cover down payments, renovations, or even closing costs without restrictions.

4. Good for Investors with No Mortgage Options

Some borrowers might not qualify for a traditional mortgage due to a lack of sufficient credit history, self-employment status, or income verification issues. A personal loan could serve as an alternative way to finance an investment property when mortgages aren’t an option.

Cons of Using a Personal Loan for Investment Property

1. Higher Interest Rates

One of the biggest drawbacks of using a personal loan is the significantly higher interest rate compared to a mortgage.

Personal loan interest rates typically range from 6% to 36%, while mortgage rates tend to be much lower—often 3% to 7% (depending on market conditions and creditworthiness). These higher rates mean bigger monthly payments, cutting into your potential rental income and overall return on investment.

2. Shorter Repayment Period

Unlike mortgages, which are often spread over 15 to 30 years, personal loans usually have repayment terms between three to seven years.

This means your monthly payments will be much higher than a mortgage payment for the same loan amount. Instead of spreading the cost over decades, you’ll be required to pay off the loan in a few short years, which can put serious pressure on your cash flow.

3. Lower Loan Amounts

Most personal loan lenders cap their borrowing limits between $50,000 and $100,000.

If you’re trying to buy a property outright, this amount may not be enough, especially in high-cost markets. Even if the property is affordable, you may still need additional financing for renovations, property taxes, and maintenance.

4. Higher Risk and No Tax Benefits

Mortgage interest is often tax-deductible when used for investment properties, making it a cost-effective financing option. However, interest on personal loans does not typically qualify for tax deductions, meaning you lose out on potential savings.

Additionally, personal loans carry a higher risk because they are unsecured. If you default, creditors may pursue legal action or damage your credit score, making future borrowing more difficult.

When Might a Personal Loan Be a Good Idea?

While personal loans aren't ideal for buying investment property, there are a few situations where they might make sense:

- You Need a Small Amount Quickly – If you're just a few thousand dollars short of purchasing a rental property or need a fast closing, a personal loan might temporarily bridge the gap.
- You Plan to Flip the Property – If you’re buying a fixer-upper to renovate and sell quickly (within a year or two), a personal loan could work since you won’t be locked into long-term debt.
- You Can Repay the Loan Quickly – If you're confident in your ability to repay the loan fast (through rental income, a raise, or another financial windfall), the short-term debt might not be a major burden.

That said, these scenarios come with risks, and borrowers should proceed with caution.

Better Alternatives to Personal Loans for Real Estate Investment

If a personal loan doesn't seem like the best option, don’t worry—there are better ways to finance an investment property.

1. Traditional Mortgage

The most cost-effective and secure way to finance investment properties is through a conventional mortgage. Mortgages offer lower interest rates, longer repayment terms, and tax benefits.

2. Home Equity Loan or HELOC

If you already own property, you can tap into your home’s equity through a home equity loan or home equity line of credit (HELOC). These often have lower interest rates than personal loans and offer flexible terms.

3. Seller Financing

Some sellers offer financing directly, meaning you make payments to the seller instead of a bank. This can be beneficial if you don’t qualify for a mortgage.

4. Hard Money Loans

For short-term investments like house flipping, hard money loans from private lenders offer quick funding. However, they usually come with high interest rates and fees, so they should only be used if you plan to sell or refinance quickly.

5. Crowdfunding or Partnering with Investors

If you lack funds or don’t want to take on debt alone, consider real estate crowdfunding platforms or partnering with other investors to pool resources.

Final Verdict: Should You Use a Personal Loan to Buy Investment Property?

While personal loans offer speed and flexibility, they come with risks that make them less ideal for real estate investing. High interest rates, short repayment terms, and lack of tax benefits can make it harder to turn a profit.

Instead, exploring traditional financing options like mortgages, home equity loans, or seller financing can provide a more stable and cost-effective way to purchase investment property.

If you’re serious about growing a real estate portfolio, focus on financing methods that align with long-term financial health, rather than taking an approach that could leave you with high debt and minimal returns.

Before making any decisions, crunch the numbers, consider the risks, and choose a financing option that ensures both profitability and financial security.