The Best Way to Invest in Real Estate Using Personal Loans

Real Estate

Real estate has long been seen as one of the best ways to invest money, with properties usually going up in value over time. Real estate investments made up nearly 5% of US GDP, showing the sector’s strong growth and profit potential, according to a 2023 report. However, the large amount of money required for real estate investments can stop many possible investors. This is where personal loans come into the picture.

Personal loans offer the funds required to cover down payments, renovations, and various other costs associated with real estate investments. But how could you make sure you get successful returns when using personal loans for real estate? This comprehensive guide covers all the essential information you need to understand.

Advantages of Using Personal Loans for Real Estate

Personal loans offer flexibility and accessibility for financing different real estate investments. You can prequalify for personal loans to estimate potential loan amounts and rates upfront. This allows for judging if tapping into real estate’s wealth-building potential is possible before formally applying. In short, prequalifying makes it easier to use personal loans creatively for return-driven property funding. Using personal loans to invest in real estate offers some key financial benefits:


  • Funds can cover down payments on rental properties or fix-and-flip homes  
  • Also usable for renovations/repairs to increase property value   
  • Choice to invest in residential, commercial, industrial, or retail real estate based on loan amount

Potentially Higher Returns   

  • Average yearly returns of 8-10% on real estate investments beat most other asset classes (NCREIF, 2021)
  • Rental income can deliver monthly cash flow along with long-term property value appreciation  
  • Fix-and-flip projects tapped into the current red-hot housing market can yield massive profits

Portfolio Diversification

  • Real estate prices do not often follow stocks and bonds
  • Adding real estate greatly reduces portfolio volatility and risk   
  • Diversity protects against market crashes impacting other holdings   

Loan Accessibility

  • Loan qualification depends mainly on credit score and income qualifications  
  • Pre-approvals are possible to confirm likely loan amount and rates
  • Ability to compare personal loan rates from multiple competing lenders  

Utilizing personal loans creatively can help leverage the potential of real estate investments for wealth building.

Risks and Key Considerations

Before using personal loans, take the time to completely assess your overall financial health. Key risks include:

  1. Interest Rates – Personal loan rates can vary greatly from 6% to 36% APR, substantially impacting finances (Federal Reserve, 2023).
  2. Loan Terms – Repayment terms usually range from 1-7 years. Make sure timelines match investment goals. 
  3. Credit Score Impacts – Missing personal loan payments can drastically lower credit scores and affect future loan options.  

Reducing these risks starts with choosing the most suitable type of personal loan.

Comparison of Personal Loan Types

Loan TypeInterest RatesLoan AmountProsCons
Unsecured6% to 36%$1K to $100KEasy to qualifyHigh rates
Home Equity3% to 7%Up to 85% of the home valueLow rates, high amountsRisk losing home
Peer-to-Peer7% to 35%$1K to $40KFixed ratesHigher defaults

Carefully weigh the personal loan type compared to your financial situation and investment goals.

Steps to Invest in Real Estate With Personal Loans  

Real Estate

Follow this step-by-step process for a successful real estate investment:  

1. Set Investment Goals   

Define your wanted returns, expected time horizons, and risk tolerance thresholds before starting.   

2. Build Your Financing Plan  

Project costs and cash flow situations to find the lowest workable loan amount and best repayment structures.  

3. Shop at competitive rates    

Research rates across multiple lenders and compare total costs to find the most cost-efficient loan choice.  

4. Submit Your Application    

Prepare all needed income and job paperwork and complete the whole application process to get approval.  

5. Identify Your Property  

Do area population research and money analysis to find potentially profitable rental or fix-and-flip chances  

6. Complete Your Purchase  

Coordinate appraisals, inspections, and paperwork to close on your chosen property investment.

7. Maximize Profits  

Use strategies around renovations, decor upgrades, tenant screening, and advertising vacancies to increase rental incomes and/or resale value.   

8. Monitor and Pivot  

Track property appreciation, rental incomes, and interest rate changes to tweak strategies to ensure the best risk-adjusted returns.  

Tax Benefits and Impacts   

Like with traditional real estate investing, personal loans could make you eligible for valuable tax deductions, including:  

  • Mortgage interest payments  
  • Property taxes  
  • Depreciation deductions  

However, you should talk to a tax expert about interest deductibility limits when using personal loans for real estate. Not accounting for tax impacts can greatly reduce net gains.   

For example, you may only be able to deduct interest on loans up to $750,000 across your primary home and second home under the Tax Cuts and Jobs Act. Going over this cap means losing deductibility on the interest paid above that amount. A tax pro can advise on the deductibility thresholds for personal loans and craft the best real estate investment strategy that carefully balances risk, cash flow, and tax reduction for maximum long-term wealth creation from your properties. Planning and knowing the tax rules are key to fully using the tax advantages of financed real estate investments.  


What credit score is needed to qualify for real estate investment loans?  

Personal loan approvals often require a credit score of 660 or higher. Rates go down for scores over 740.  

Can you use a personal loan to fix up an investment property?

Yes, personal loan money can cover renovations or repairs for your rental or fix-and-flip property.  

What other financing choices exist besides personal loans?

 Alternatives include hard money loans, home equity lines of credit (HELOCs), fixing and flipping loans, or business loans.   

Key Takeaways   

Using personal loans for real estate investing can lead to large wealth-building through property appreciation, rental income, and careful use of leverage.  

However, interest costs and loan terms can quickly lessen returns if investments do poorly.   

Doing due diligence when picking loan types aligned with your financial profile and investment goals is key to long-term success.  

With the right loan choice and proactive investment planning, personal loans can serve as an ideal way to finance starting or expanding your real estate portfolio. Talk to investment professionals to craft a personalized plan that fits your needs and risk appetite. The time to enter this very profitable asset class may be now!