How to Finance Investment Real Estate in Minnesota
The steps, the loan options and the four numbers a lender runs, from a first rental to an apartment portfolio.
Most Minnesota investors finance a rental or commercial property with 20 to 25 percent down and a bank loan for the balance. The lender sizes that loan on the income the property produces, checks it against your own finances, and orders an appraisal. From a complete application, closing generally takes three to six weeks.
Buying a home to live in? See mortgage and home equity loans. Brand new to investing? Start with how to get started in Minnesota real estate investing.
What are the steps to finance and close on an investment property?
Financing an investment property runs in six steps: a first conversation about the property, a financial package, underwriting, a term sheet, appraisal and due diligence, then credit approval and closing. At a Minnesota bank the full run generally takes three to six weeks from a complete application, and the appraisal is often the longest single step.
- Start with the propertyBring the address, the purchase price or your current basis, and the rent roll if the property is leased. A good lender will tell you whether it is a fit before you spend time on paperwork.
- Send the financial packageA short project overview covering the property, your plans for it and the ownership structure. Add a personal financial statement, two to three years of tax returns for you and any entity, copies of the leases, operating statements on the property, and the purchase agreement. Our commercial loan application checklist lists each document.
- UnderwritingThe lender analyzes the property's income and expenses, then your financial position, including cash flow across everything you own.
- Term sheetA written, non-binding outline of the amount, rate structure, amortization, term, guarantees and conditions. Use it to negotiate with a seller or to compare lenders.
- Appraisal and due diligenceA third-party appraisal, title work, an insurance review, and an environmental review where the property or its history calls for one.
- Credit approval and closingAt Security Bank & Trust Co. your loan goes to a committee in Minnesota. After approval we document the loan, you close, and you keep the same lender for the next property.
What gets you a faster answer
Organized, complete financials and a clear project overview do more for speed than anything else. Open communication helps too. The more we know about the plan, the better we can shape the structure and work through whatever underwriting turns up.
What are the financing options for an investment property?
Minnesota investors generally choose among four routes: a conventional investor mortgage sold to the secondary market, a commercial loan a bank holds in its own portfolio, a construction or renovation loan, and equity from property they already own. The right one depends on the property type, how you hold title, and how many financed properties you already have. Our post on how residential and commercial loans differ lays out where the line between the first two falls.
| Option | Where it fits | How it is underwritten | Worth knowing |
|---|---|---|---|
| Conventional investor mortgage | One to four family rentals held in your own name. | Your personal income and credit, plus the property. | Long-term fixed rates. The secondary market limits an investor to ten financed properties. Our post on financing limits for one to four family rentals in Minnesota covers the rules. |
| Bank portfolio loan | Any income property: small rentals, apartments, retail, office, industrial, self-storage, mixed-use and farmland. | The property's net operating income, alongside your global cash flow. | The bank holds the loan and sets the terms. It works for LLC ownership and for investors past the secondary market limit. Current rate and term options are on our commercial real estate loans page. |
| Construction or renovation loan | Ground-up projects, and properties that need work before they produce income. | The plan, the budget and the finished value, alongside today's numbers. | You draw against the loan as work is completed and verified, and pay interest on the balance drawn. See commercial construction loans. |
| Equity in property you own | A down payment, or the next purchase. | A refinance or equity loan against a property you already hold. | As tenants pay down the debt and the property appreciates, a refinance can often reach that equity. The new payment counts in your global cash flow. See our guide to commercial loan refinancing. |
SBA programs require the owner to occupy the property, so they do not fit a pure rental. If your business will operate from the building, see SBA loans.
Is a DSCR loan the same thing as the ratio a bank uses?
Not quite. Online, a DSCR loan usually means a mortgage from a nonbank lender, underwritten on the property's rent against its payment with no review of the borrower's income. A bank uses the same ratio inside a fuller review. We look at the property's coverage and your whole financial picture together, which is what lets one lender follow you from a first duplex to an apartment building.
What numbers does a lender look at on an investment property?
Four: net operating income, debt service coverage ratio, capitalization rate, and loan to value. Net operating income feeds the other three, so start there.
Net operating income
Rental income minus operating expenses, before interest, income taxes, depreciation and amortization. It is the cash flow available to service debt, and the starting point for most investment real estate underwriting.
NOI = rental income minus operating expenses
Debt service coverage ratio
Net operating income divided by annual loan payments. It measures the property's capacity to carry its debt. A ratio of 1.20x or higher is a common benchmark in commercial real estate lending, and your lender will discuss the target that fits your property type.
DSCR = NOI ÷ annual loan payments
Capitalization rate
Net operating income divided by the purchase price. It shows what a property would earn if purchased with all cash, which makes it the common yardstick for comparing properties. Cap rates move with the economy and interest rates, so compare against history, not one listing.
Cap rate = NOI ÷ purchase price
Loan to value
The loan amount divided by the appraised value, or the purchase price if that is lower. On commercial investment property, 80 percent or lower is typical across the industry, which usually means a down payment of at least 20 percent plus closing costs.
LTV = loan amount ÷ the lower of value or price
One fourplex, four numbers
An illustration. A fourplex is listed at $600,000, and each of its four units rents for $1,450 a month. Operating expenses are property taxes, insurance, maintenance, management and owner-paid utilities.
| Rent at full occupancy | $69,600 |
|---|---|
| Less vacancy, 5 percent | ($3,480) |
| Effective gross income | $66,120 |
| Less operating expenses | ($24,120) |
| Net operating income | $42,000 |
| Less loan payments the property supports at 1.20x | ($35,000) |
| Cash flow after loan payments | $7,000 |
Whether $35,000 a year carries a $450,000 loan depends on the rate and amortization your lender quotes. That is why coverage, more than price, usually sets the maximum loan. For more worked math, see debt service coverage ratio: the formula and what lenders want.
How do lenders confirm a property's net operating income before closing?
A lender rebuilds net operating income from source documents instead of taking it from the listing. That typically means reading the signed leases against the rent roll, comparing two to three years of operating statements or tax returns with the seller's figures, and checking property tax and insurance costs at their current amounts. Most lenders also allow for vacancy, management and repairs even when the owner handles those personally, because the next owner may not. The appraiser's income approach gives an independent second read. Our post on commercial real estate underwriting walks through the property-level analysis.
Have a property under contract? Bring us the address, the rent roll and the purchase agreement.
Start the ConversationWhat due diligence should an investor finish before closing?
Before you close on a rental house, an apartment community or a build-to-rent project, verify three things yourself: the condition of the property, the leases that come with it, and how it has performed. Your lender will look at all three too, and a buyer who has already done the work gets a faster answer.
The property
- A professional inspection: roof, mechanical systems, foundation, parking and drainage
- A written estimate for deferred maintenance, so it lands in your budget and not in your first year
- Environmental history on commercial and older sites
- The city's rental license and inspection record. Many Minnesota cities, including Minneapolis and St. Paul, require a rental license.
The tenants
- Every signed lease, read against the rent roll
- Expiration dates, and how many fall in the same season
- Security deposits, concessions and any unpaid rent
- In-place rents against the market. Our post on finding rental comps shows how.
The numbers
- Two to three years of operating statements, plus the trailing twelve months
- The seller's tax return schedule for the property, where available
- Actual utility, property tax and insurance bills
- Occupancy history, not the occupancy on the day of the showing. See how to estimate rental property cash flow.
What does it cost to close on an investment property in Minnesota?
Plan for the down payment plus closing costs: the appraisal, title insurance and closing fees, recording fees, and two Minnesota taxes. The state mortgage registry tax is 0.23 percent of the amount borrowed and is paid by the borrower when the mortgage is recorded. On a $450,000 loan that is $1,035. The state deed tax is 0.33 percent of the sale price and is collected when the deed is recorded. Hennepin County adds 0.01 percent to each.
Both rates are set in Minnesota Statutes chapter 287. Your lender or closer will give you an itemized estimate for your property. If you plan to hold title in an LLC, set it up before you sign the purchase agreement so the loan, the title and the insurance all carry the same name. Ask your attorney and accountant which structure fits you.
How do you choose a bank for real estate investing?
Choose a bank on six things: who makes the decision and where, whether the bank holds its loans, which property types it finances, whether it lends to LLCs and past ten properties, how firm its closing dates are, and what it can do for your operation beyond the loan. Ask every lender the same six questions.
- Who decides, and where? A lender who presents your loan to a local committee can explain what makes your property work.
- Do you hold the loan or sell it? A bank that holds its loans sets its own terms and can work with you if plans change.
- Which property types do you finance? Most investors who start in small rentals end up owning more than one type.
- Do you lend to LLCs, and past ten properties? Both are where conventional investor mortgages stop.
- How firm is your closing date? In a competitive purchase, a lender who can close is worth more than a lender who quotes.
- What else can you do for my operation? Rent collection, reserves, and online and mobile tools matter more with every door you add.
Our answers: decisions are made in Minnesota by people who can drive to your property. We hold the loans we make. We finance small rentals, apartments, student housing, retail, office, industrial, self-storage, mixed-use, farmland and construction. LLC ownership and portfolios past the secondary market limit are routine for us. And your lender stays with you after closing, with cash management for real estate investors and the online and mobile banking to run your properties from anywhere. People bank with people they like and trust, and we work to earn both.
Start with the lender who leads your market
Our commercial lenders work with real estate investors every day. Brian Wagner leads the bank's lending, and a senior lending officer leads each of our three markets.
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Ward Greeley
SVP, Senior Lending Officer, Twin Cities Metro
Leads our lending team across the Twin Cities metro.
Every commercial lender is on our team page, and each of our 21 locations can connect you with one near you.
What counts as investment real estate?
Investment real estate is property acquired to generate income, most commonly through rent or lease payments, or through development that creates value. Minnesota investors typically work in nine property types.
| Property type | What it is |
|---|---|
| One to four family rentals | Single family rental homes, duplexes, triplexes and fourplexes. Often called investor-owned residential real estate. |
| Multifamily | A building with five or more separate housing units, from a small apartment building to a student housing community. |
| Retail | Properties used to sell consumer goods and services: strip centers, shopping centers and big box stores. |
| Office | Space for administration, consulting and client services. A building can hold one firm or many. |
| Industrial and warehouse | Buildings for storing and moving goods, generally rated by clear height and square footage. |
| Self-storage | Individual units rented to households and businesses, typically month to month. Our post on buying a self-storage or warehouse facility covers what to look at. |
| Mixed-use | Two or more uses in one property, most often street-level retail or office with apartments above. A Main Street staple across Minnesota towns, underwritten on both income streams. |
| Agricultural | Farmland leased to farmers, often per acre, with cash rent paid in spring and fall installments. |
| Development and construction | Land developed for residential or commercial use. Income comes from selling the finished project, or the property converts to one of the types above once complete. |
Where do Minnesota investors start, and how do they grow?
The most successful investors we work with build a niche. They specialize in an area, a property type or a process, and they get very good at it.
One to four family rentals
The most common starting point. These properties are relatively simple to rent, sell and finance. The drawbacks are a less diverse rent stream and higher maintenance and management cost per unit. Many local investors focus on a submarket they know well, such as student housing near the University of Minnesota or the University of St. Thomas. Short-term rentals are their own niche with different financing, covered in our post on short-term rental financing.
Multifamily
A focal point for many Twin Cities investors. Knowing rental rates and expenses by building age, quality and location is the difference between a good buy and a hard lesson.
Value-add and rehabilitation
Improving an existing property to meet new demand or unlock income it could not reach in its current condition. Some call it flipping, others developing. House flipping finance 101 covers the short-hold version.
Triple net leased properties
The most common passive route. The tenant pays the property's ongoing expenses, including real estate taxes, building insurance and maintenance, in addition to rent and utilities.
Commercial real estate
Income-producing office, industrial and retail, often in a location the investor knows well. It tends to provide steady cash flow, but vacancies last longer and liquidity is more limited. A commercial property can sit empty for many months.
Why do investors choose real estate?
For four reasons that work together: appreciation in price and rents, monthly cash flow, tax treatment, and leverage. A fairly priced property in a good location is the foundation under all four. We are bankers, not investment advisors, so what to buy is your call. What we can show you is how financing shapes each one.
- Appreciation and equity. Your tenants' rent makes the loan payments, so equity builds while the property appreciates.
- Cash flow. Rent left after expenses and debt service is income you can spend or reinvest.
- Leverage. Putting 20 to 25 percent down lets you buy a larger project than cash alone would allow. It can increase returns, and it magnifies losses when a project underperforms.
- Tax treatment. Mortgage interest, depreciation, operating expenses and 1031 exchanges are all in play. Work with a knowledgeable accountant, and see the IRS tips on rental real estate income, deductions and recordkeeping.
Where we lend in Minnesota
We finance investment property across the Twin Cities metro and Greater Minnesota, including apartments in Minneapolis, St. Paul and the suburbs. Our lenders work from 21 offices in 18 communities: Glencoe, Winsted, Brownton and Plato in McLeod County. Waconia, Chaska, Cologne, Hamburg, Mayer and New Germany in Carver County. Minnetonka, Eden Prairie and Wayzata in Hennepin County. Cambridge and Isanti in Isanti County. Ramsey in Anoka County, North Oaks in Ramsey County, and New Auburn in Sibley County.
Investment real estate financing FAQ
How do I finance an investment property in Minnesota?
Most Minnesota investors put 20 to 25 percent down and borrow the balance from a bank, either through a conventional investor mortgage on a one to four family rental or a commercial loan the bank holds. The lender sizes the loan on the property's net operating income, reviews your finances, and orders an appraisal. Closing generally takes three to six weeks from a complete application.
How much do I need to put down on an investment property?
On commercial investment real estate, lenders typically finance up to 80 percent of the appraised value or purchase price, whichever is less. That usually means a down payment of at least 20 percent, plus closing costs. Many investors plan for 20 to 25 percent.
How long does investment real estate financing take?
Generally three to six weeks from a complete application to closing. The window covers document review, underwriting of the property and the borrower, and a third-party appraisal, which is often the longest single step.
What is a good debt service coverage ratio for an investment property?
Debt service coverage ratio is net operating income divided by annual loan payments. A ratio of 1.20x or higher is a common benchmark in commercial real estate lending. Your lender will discuss the target that fits your property type and project.
What documents do I need to apply for an investment property loan?
A short project overview covering the property, your plans and the ownership structure, plus property data, copies of any leases, and personal financial statements and tax returns for the borrower and any guarantors. Organized, complete financials are the biggest driver of a fast answer.
Can I get long-term fixed-rate financing on one to four family rental properties?
The secondary market offers long-term fixed-rate financing on up to ten one to four family rental properties per investor. Beyond that limit, or when a property does not fit secondary market rules, community banks like Security Bank & Trust Co. finance these rentals directly.
Can I buy an investment property through an LLC?
Yes. Conventional investor mortgages are generally made to individuals, so investors who hold property in an LLC usually borrow through a commercial loan that a bank keeps in its own portfolio. At Security Bank & Trust Co. LLC ownership is routine, and personal guarantees from the owners are typical.
How do lenders verify the income on a rental property?
A lender rebuilds net operating income from source documents instead of taking it from the listing. That typically means reading signed leases against the rent roll, comparing two to three years of operating statements or tax returns with the seller's figures, and allowing for vacancy, management and repairs. The appraiser's income approach gives an independent second read.
Is a DSCR loan different from a bank loan on a rental property?
Usually, yes. Online, a DSCR loan generally means a nonbank mortgage underwritten on the property's rent against its payment, with no review of the borrower's income. A bank uses the same ratio inside a fuller review of the property and the borrower's whole financial picture.
Can I use an SBA loan to buy a rental property?
Generally no. SBA programs require the owner to occupy the property, so a pure rental does not fit. If your business will operate from the building, SBA 504 financing is available on qualifying owner-occupied property.
What is the mortgage registry tax in Minnesota?
Minnesota charges a mortgage registry tax of 0.23 percent of the amount borrowed, paid by the borrower when the mortgage is recorded. On a $450,000 loan that is $1,035. Hennepin County adds 0.01 percent. The state deed tax, 0.33 percent of the sale price, is separate and is collected when the deed is recorded.
What is a capitalization rate?
A cap rate is net operating income divided by the purchase price. It shows what a property would earn if purchased with all cash, and it is the common yardstick for comparing investment properties and tracking how pricing moves with the economy and interest rates.
What is net operating income?
Net operating income, or NOI, is rental income minus operating expenses, before interest, income taxes, depreciation and amortization. It is the cash flow available to service debt and the starting point for most investment real estate underwriting.
Keep reading
- Commercial real estate loans in Minnesota, what we lend against and how the loans are structured
- Minnesota investment and rental property loans, five steps to get ready
- How to create a real estate investment plan
- Real estate investment exit strategies
- Tax strategies for commercial property owners
- Commercial loan applicant checklist (PDF)
Bring us the address
Whether it is a first duplex or the next apartment building, start with a conversation. Bring the address and the rent roll, and a lender will tell you whether it works and what it would take. We were recently named one of the best banks in Minnesota, and we would like to earn that with you.
Growing, together.
Written by the commercial lending team at Security Bank & Trust Co. All loans are subject to credit approval. Terms, ratios, timelines and examples on this page are general and illustrative, vary by property and borrower, and are set out for a specific transaction in a term sheet issued after review. A non-binding term sheet is not a commitment to lend. This guide is educational and is not tax, legal or investment advice. Tax rates are from Minnesota Statutes chapter 287 and Hennepin County's authority under section 383B.80, as published September 2026. Page last reviewed September 2026.