A clear-eyed look at where rates are, where they’re headed, and how investors should adjust their strategies accordingly.
If you’ve been waiting for “rates to come down” before buying your next investment property, I have some news: you might be waiting a while. And in the meantime, properties are still trading, rents are still rising, and other investors are still building portfolios. Our recent case studies show deals closing successfully in the current environment.
The rate environment in early 2026 isn’t what anyone predicted two years ago. It’s also not the catastrophe some feared. It’s somewhere in between—a new normal that rewards smart strategy, appropriate leverage, and a clear understanding of how financing costs affect returns.
This is our Q1 2026 rate analysis for investment property financing—what’s happening, why it matters, and how to position your investments accordingly.
Where Rates Actually Are (Not Where We Wish They Were)
Let’s start with the current landscape across different investment property loan products. You can model specific scenarios using our DSCR Calculator or Zero Point Loan Calculator.
DSCR Loans
DSCR loan rates for qualified borrowers are currently ranging from the low 6s to 8% for 30-year fixed products, depending on credit score, DSCR ratio, property type, and LTV. Here’s roughly what pricing looks like:
- 760+ credit, 1.25+ DSCR, 75-80% LTV: Best available rates (low end of range)
- 720-759 credit, 1.0-1.24 DSCR, 75-80% LTV: Standard pricing (mid-range)
- 680-719 credit, 0.75-0.99 DSCR, 70% LTV: Risk-adjusted pricing (higher end of range)
The spread between the best and most challenging scenarios can be 150-200+ basis points, which is why optimizing your credit, DSCR, and LTV before applying can meaningfully impact your financing costs. Our DSCR Playbook walks through exactly how we think about pricing across different borrower and property profiles.
Fix & Flip / Bridge Loans
Short-term bridge financing and fix-and-flip loans are pricing in the 9-12% range for most borrowers, plus 0-3 points in origination. Experienced flippers with strong track records can do better; first-timers may pay a premium.
The key metric for flip financing isn’t the rate—it’s the speed, leverage, and reliability. Paying 11% for 6 months on a flip that generates 30% ROI is a trade most investors will make all day. Our Knowledge Base covers what makes a strong fix & flip deal if you’re evaluating opportunities.
New Construction
Ground-up construction loans are similar to bridge: 9-12% with points. Draw schedules, experience requirements, and LTC/LTV limits vary by lender and project type. If you’re planning to hold the finished product as a rental, our Build to Rent one-time close option eliminates the need to refinance after construction.
The Fed, Inflation, and Why Rates Are Where They Are
To understand where rates might go, we need to understand why they’re here.
The Federal Reserve’s aggressive rate-hiking cycle to combat inflation has ended, and we’ve seen modest cuts since then—but not the dramatic easing that some market participants hoped for.
Why Haven’t Rates Dropped More?
Several factors are keeping rates elevated:
Persistent inflation: While inflation has come down from its peak, it’s proven stickier than expected. The Fed’s 2% target remains elusive, and policymakers have signaled they’re in no rush to cut aggressively.
Strong employment: The labor market has remained resilient despite higher rates. As long as employment stays strong, the Fed has less urgency to stimulate the economy.
Treasury issuance: Massive government borrowing is putting upward pressure on yields. The bond market has to absorb significant new supply, which affects pricing across the yield curve.
Investor expectations: Markets have repeatedly priced in rate cuts that didn’t materialize. The “higher for longer” narrative has become consensus, which is itself keeping rates stable.
What’s the Outlook for 2026?
Here’s our honest assessment: nobody knows with certainty. But the base case scenario most economists are working from looks something like this:
- 1-3 additional Fed rate cuts in 2026, assuming inflation continues to moderate
- Mortgage rates potentially declining to the mid-to-high 6% range by year-end
- DSCR rates following conventional rates with a typical 75-150 basis point spread
What could push rates lower faster? A recession, rapid disinflation, or a financial shock that forces the Fed’s hand.
What could keep rates elevated? Persistent inflation, geopolitical disruption affecting energy prices, or stronger-than-expected economic growth.
For investment planning purposes, we’d suggest underwriting deals assuming rates stay roughly where they are. If rates drop, great—your returns improve. If they don’t, your deal still works.
How Today’s Rate Environment Changes Investment Strategy
Higher rates don’t mean real estate investing stops working. They mean the math is different. Here’s how investors are adapting:
Cash Flow Is King Again
In a 3-4% rate environment, investors could accept minimal cash flow (or even slight negative cash flow) and make up for it in appreciation. That strategy is riskier when your financing cost is 7-8%.
Today’s winning deals cash flow from day one—or have a clear, short path to cash flow. Properties that “only work if rents go up 20%” are getting passed over in favor of deals that pencil today. Our DSCR Calculator helps you stress-test scenarios to make sure your deal works at current rates.
DSCR Requirements Actually Help You
This might sound counterintuitive, but hear me out: when lenders require a minimum DSCR to qualify, they’re forcing you to buy properties that actually cash flow. That discipline protects you from overpaying for deals that only work on a spreadsheet.
If a property hits 1.0+ DSCR at today’s rates, you know you’re buying at a price where the economics work. That’s valuable information.
Buying Down Rate vs. Accepting Higher Rate
When rates are elevated, you have a choice: pay points upfront to buy down your rate, or accept the higher rate and keep cash in reserve.
The math depends on your hold period. As we explain in our DSCR Playbook: if one point ($3,000 on a $300K loan) buys you 0.25% and saves roughly $40-45/month during interest-only, break-even is around 67-75 months. If you’ll refi or sell sooner, keep your points and buy a nicer dishwasher.
- Short hold (2-3 years): Don’t buy down. You won’t hold long enough to recoup the upfront cost.
- Long hold (7+ years): Buydowns often make sense. The monthly savings compound over time.
- Medium hold (3-7 years): Run the numbers both ways. It’s often a close call.
With refinancing likely once rates normalize, many investors are accepting higher rates today with plans to refinance in 18-24 months.
Interest-Only Options
Interest-only loans lower your payment, which improves DSCR and cash flow. The trade-off is you’re not building equity through principal paydown. Our article on 40-year DSCR loans with 10-year interest-only breaks down when this strategy makes sense.
At AHL, we offer up to 10 years of interest-only payments on our 40-year fixed product—and we qualify on the I/O payment during the I/O period. That can mean the difference between a 0.95x DSCR (requiring 12 months reserves, no first-timers) and a 1.10x DSCR (standard requirements).
The “Wait for Lower Rates” Trap
Here’s a scenario we see often: an investor finds a good property but decides to wait because “rates will come down soon.” Let’s play out what often happens:
Month 0: Pass on property at $350,000 because 7.5% rate feels too high.
Month 6: Rates are still 7.5%. Similar properties now priced at $365,000 due to demand and limited inventory.
Month 12: Rates drop to 7.0%. Property values have increased to $380,000. You “save” 0.5% on rate but pay $30,000 more for the asset.
Rates are one variable. Price is another. Rents are a third. Appreciation is a fourth. Evaluating a deal based solely on rates ignores most of what makes real estate investing work.
“Marry the property, date the rate” has become a cliché because it’s true. You can refinance a rate. You can’t refinance a purchase price.
Practical Moves for Q1 2026
Based on the current environment, here’s what we’re seeing smart investors do:
1. Focus on Markets with Strong Rent Growth
When financing costs are elevated, your best hedge is income growth. Markets where rents are increasing 5-8% annually help offset higher rates over time. Our analysis of top markets for DSCR investors highlights where the fundamentals are strongest. We also have state-specific guides for markets like Texas, Georgia, and Michigan.
2. Prioritize Value-Add Opportunities
Properties where you can increase NOI through renovations, rent increases, or expense reduction are more attractive than turnkey assets priced at full retail. Your ability to manufacture equity matters more when cap rates are compressed. Our Knowledge Base covers fix & flip exit strategies and how renovation costs are funded if you’re considering value-add plays.
3. Maintain Healthy Reserves
Higher rates mean tighter cash flow margins. Make sure you’re not over-levered and have reserves to handle vacancies, repairs, and unexpected expenses. AHL requires 3-12 months PITIA reserves depending on your scenario—and for good reason.
4. Lock When the Numbers Work
If you find a deal that generates acceptable returns at today’s rates, lock it. Trying to time rate movements is a loser’s game. You’ll miss good deals waiting for perfect conditions that may not materialize. Get prequalified so you’re ready to move when you find the right property—AHL locks at application for 45 days, free.
5. Plan for Refinancing
Structure your initial financing with refinancing in mind. Avoid prepayment penalties that extend beyond when you’d want to refi—or understand the cost. AHL offers both fixed 5% prepay and declining structures (5% to 3% floor). Our article on optimizing your DSCR loan as rates change covers refinancing strategy in detail.
What This Means for Your Financing Choices
At American Heritage Lending, we’re seeing strong activity from investors who’ve adjusted their expectations and strategies for the current environment. Learn more about our approach. A few patterns worth noting:
- DSCR loans remain the most popular product for buy-and-hold investors. The no-income-verification structure works well for self-employed investors and those with complex tax situations. Our Invest Star program goes down to 0.75x DSCR; Invest Star Plus offers better pricing for stronger deals (1.1x+ DSCR, 700+ FICO).
- Interest-only options are increasingly popular for investors focused on cash flow optimization. Our 40-year fixed with 10-year I/O lets you minimize payments while you wait for rate relief.
- Fix-and-flip activity continues in markets with strong resale demand, though margins are tighter than in 2021-2022. We offer up to 95% LTC with 100% of renovation funded.
- New construction lending is active in markets with housing shortages. Our Build to Rent one-time close eliminates refinance risk for investors building rentals.
The Bottom Line on Q1 2026 Rates
Rates are higher than we’d like. They’re probably not going back to 4% anytime soon. And yet, real estate investing continues to work for investors who approach it correctly.
The fundamentals haven’t changed: buy good properties, in good locations, at sensible prices, with manageable leverage. What’s changed is the definition of “manageable leverage” and the importance of cash flow.
If you’re waiting for perfect conditions, you’ll wait forever. If you’re adjusting your strategy to the current environment, you’ll continue building wealth through real estate—just like investors have done through every interest rate cycle in history.
Have questions about how current rates affect your specific investment plans? Contact our team or call (800) 745-9280. We’ll run the numbers with you and help you understand what’s possible in today’s market.