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Buying an investment property while living in a rental, sometimes referred to as “rentvesting,” can be a compelling and financially sound plan. An investment property that you can rent to others offers clear advantages — it can generate cash flow, let you build equity, and benefit you and your family for years to come.

Investment property options may include a vacation home, a multi-family home, a single-family home, or a condo that you will rent to others. If you are informed and manage a rental property wisely, it may produce a strong enough income for the unit to pay for itself.

But you need to contemplate a few disadvantages of this concept to successfully make the dream come true. Here, learn what needs to happen if you’re planning to buy an investment property while continuing to live in a rental.

What Is Rentvesting?

The idea is about buying an investment property to rent to tenants while you continue to rent where you are (or, say, live with a significant other, or with your family). The rental income you earn can help you to pay your own rent, but it will also be necessary to cover the costs of owning your property.

Why Do It?

When you own a property, you have potential to achieve capital growth — your investment can increase in value as time passes. Maybe you’re not ready to settle down just yet. Or perhaps you don’t have the money to buy where you want to be. Rentvesting might be a way for you to grow your capital, anyway.

Buying an Investment Property

Purchasing an investment or rental property can be similar to buying a regular home. When you’re looking at buying an investment property that you don’t plan to live in, however, you will have to make some special considerations.

If you’ve decided to purchase an investment property and keep living in your current rental, that plan will affect what types of properties you look at, how you will finance the purchase property, and how much down payment you’ll need.

Here’s a quick summary of the difference between owner-occupied and non-owner-occupied rental properties.

Keep in mind, if you buy a house with two to four units, live in one yourself, and rent the others, you may be able to finance the purchase as an owner-occupied property. You’ll qualify for reduced interest rates, lower down payment options, and more favorable loan options.

But you must live on the property and qualify as a first-time homebuyer. Financing a property with an owner-occupied loan without living on the property as this is considered a type of mortgage fraud.

How to Pull Off the Buy

Step 1: Get Preapproved for a Loan

Before you shop, make sure a lender is willing to give you a mortgage. Qualifying as a first-time buyer has positives. You may have a better debt-to-income ratio, as mentioned above. However, you may have a shorter credit history or a smaller down payment to work with. Whatever the case, it’s helpful to get some numbers from your lender to assist with your investment.

Typical requirements for a rental property mortgage:

•   Credit score minimum of 620. Borrowers with scores of 740 and higher tend to receive better rates and terms.

•   Down payment: Borrowers for investment real estate generally have to put down 15-25%.

•   Debt-to-income ratio (DTI): This is the percentage of a borrower’s monthly income that goes toward debt. A 43% DTI is typically the highest ratio a borrower can have to qualify for a mortgage. When buying an investment property, a lender will generally allow you to count up to 75% of your expected rental income toward monthly income in the ratio.

•   Savings: A borrower should have cash available to cover three to six months of mortgage payments, including principal, interest, taxes, and insurance.

Your lender will also take into account what programs you qualify for. Financing options for an investment property are wide, and underwriting standards can be stricter for rental property applicants.

Some may include:

•   FHA

•   VA

•   USDA

•   Conventional

•   Seller financing

Step 2: Find a Property that Meets Your Criteria

Now that you have your budget and parameters set, you’re ready to find a property. You may want to enlist the help of a real estate agent who can serve as your first-time homebuyer guide, especially since you want to buy an investment property right off the bat.

Your agent can help you write an offer while your lender may be able to help you apply for a mortgage online. You’re well on your way to buying a house to rent at this stage.

Step 3: Think About the Future

If you’re buying an investment property, it shouldn’t be with only a short-term plan. Consider how this property might fit into your life in the long run. If you plan to get married and/or have kids, for example, you may want to look for a property that will suit you later. If you think other family members may need to move in with you down the road, room for them might be one of your criteria.

Step 4: Consider the Costs

Buying an investment property probably means carrying a mortgage, paying interest, and covering utilities and maintenance on the property. Home insurance is necessary and different plans apply depending on the property, so make sure you get covered. As an investor, you must also consider potential property management fees, periods of vacancy, and possible tax implications. Make certain you can afford these costs and still pay your own rent.

Step 5: Start Your Rental Business

Be sure to check local ordinances and business requirements for becoming a landlord. If you’ve got a plan and do your research, you may achieve success. Just don’t believe what you may see on TV, which makes owning a rental property look easy. Landlording is a tough job, and there’s a lot you need to know about the business before you start. Buying a house while renting is an endeavor that takes time and effort.

What to Know As a New Landlord

•   Housing laws can make or break you. Are short-term rentals allowed (if that’s what you’re planning)? What rights does your tenant have? If you need to evict a tenant, what does the process look like? Will you benefit by putting your property in an LLC? Always research and understand local housing laws.

There’s a lot to navigate, and you may want to consider hiring a property management company that specializes in this.

•   Determine how much to charge for rent. You’ll want to look at what other properties in the area are charging for rent and position yourself competitively. Also, consider what other landlords are allowing and charging when it comes to pets.

•   Prescreening is key. The reliability of your tenant is so important. It’s incredibly stressful when you’re not paid rent. Don’t rent to someone who “feels” like they would be a good tenant. Do your due diligence. Check credit and their background, and call references.

•   Create a plan for home maintenance, repairs, and other issues. If you’re hiring a property management company, plan for the expense. If you’re doing it yourself, make a list of contacts to call for the different issues that come up (electrical, plumbing, locks, handyman, etc).

•   Have procedures in place for unit turnover. It’s an incredibly intense time when a tenant leaves and another needs to move in. How are you going to handle inspections? Cleaning? Deposits? You will need a system for logging such events and being prepared for changing tenants.

Recommended: Fixed-Rate vs. Adjustable-Rate Mortgages

The Takeaway

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

How much profit should you make on a rental property?

There’s no easy answer for how much profit you should make on a rental property. Some investors buy property for the appreciation alone. There are also a number of methods for determining how much profit investors want to make on an investment property, such as cash flow, the 1% rule, gross rent multiplier, cash on cash return, cap rate, or internal rate of return. Those can help provide guidelines.

Is it better to buy an investment property and live in it?

Possibly. If you live in your investment property, you can qualify for owner-occupied financing, which means lower down payments and better interest rates. But it also depends on your plans. If you want to renovate an investment property, living in it during renovations could be challenging.

Is rental property a good investment in 2025?

Rental demand is strong in 2025, but buying property is more dependent on your individual situation rather than market conditions.

Photo credit: iStock/luismmolina

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The main difference between retail vs. corporate banking lies in what type of services they provide and to whom. Retail banking is consumer-focused while corporate banking, also referred to as business banking, is designed to meet the needs of businesses.

Banks can offer both retail and business banking services to attract both types of clients. Understanding how each one works makes it easier to distinguish between retail vs. corporate banking.

What Is Retail Banking?

Retail banking refers to banking services and products offered to retail customers, meaning individuals. Retail banking can also be referred to as consumer banking or personal banking. The kinds of products and services offered by retail banks are designed for personal money management — such as checking and savings accounts, certificates of deposit (CDs), debit cards, and more.

In the U.S., the Office of the Comptroller of the Currency (OCC) is responsible for overseeing banks at the national level. Banks with assets in excess of $10 billion are also regulated by the Consumer Financial Protection Bureau (CFPB). In addition to federal regulation, retail banks can also be subject to regulation and oversight at the state level. These organizations help ensure that services are being provided in keeping with the law and that charges are not excessive.

Recommended: How Do Retail Banks Make Money?

Services Offered Under Retail Banking

Retail banks typically offer products and services that are designed to help everyday people manage their finances. This is the key distinguishing factor between retail vs. business banking. For example, some of the services retail banks may offer include:

•   Deposit account services: Retail banks can allow consumers to open checking accounts, savings accounts, money market accounts, and other deposit accounts to hold their money safely and securely.

•   Mortgage lending: Homeowners often require a loan to purchase a home, and many retail banks provide mortgages to qualified borrowers.

•   Secured and unsecured loans: In addition to home loans, retail banks can issue other types of loans, including auto loans, personal loans, home equity loans, and lines of credit.

•   Credit cards: Credit cards offer convenience for making purchases; many of them also offer rewards to consumers for using them. Retail banks may issue credit cards to creditworthy customers.

•   Certificates of deposit: Certificates of deposit (or CD accounts) are special types of deposit accounts that allow you to earn interest on your money for a set term.

Banks may also offer insurance to their retail clients. Private banking may also be available for higher net-worth customers.

Retail banks usually make money by accruing interest on the money they lend via loans and other vehicles. They may also charge various fees for banking services, including overdraft fees, loan origination fees, and checking account fees. Some retail banks have physical branches, while others operate exclusively online.

What Is Corporate Banking?

Corporate banking is the branch of banking that offers its services and products to business entities. That includes large corporations as well as small and medium-sized business operations. Corporate banks may also serve government agencies and entities. While services may include deposit accounts, these banks also may offer credit and asset management, lines of credit, payment processing, and tools that facilitate international trade.

Like retail banks, corporate banks can charge fees for the various services they provide. Banking services can be directed toward a corporate audience in general or be tailored to target the needs of specific industries, such as healthcare or companies that operate in the tech space.

Recommended: When Would I Need a Business Bank Account?

Services Offered Under Corporate Banking

The services offered by corporate banks are designed to suit the needs of businesses large and small. The kinds of services a corporate bank can offer include:

•   Deposit account: Business banking can include many of the same deposit options as retail banking, such as checking accounts, savings accounts, and money market accounts.

•   Debt financing: Corporate banks can offer debt financing options to startups and established businesses that need capital to fund expansion projects and growth.

•   Trade lines of credit: Trade financing can make it easier for businesses to cover day-to-day operating expenses. Examples of trade financing that corporate banks may offer include merchant cash advances, purchase order financing, and accounts receivable processing.

•   Payments processing: Corporate banks can act as payment processors to help businesses complete financial transactions when providing products or services to their customers.

•   Treasury management: Treasury management services can help businesses keep cash flowing steadily and smoothly.

•   Global banking: Businesses that are interested in expanding into foreign markets may rely on business banking services to reach their goal.

Key Differences Between Retail and Corporate Banking

Retail and corporate banking both have the same goal: serving the needs of their customers. But the way they achieve this goal differs. Here are some of the most noteworthy differences between retail banking vs. business banking.

Business Model

Retail banking’s business model is built around meeting the needs of retail banking clients. Banks that operate in the retail space are primarily concerned with three things: deposits, money management, and consumer credit.

Corporate banks, on the other hand, base their business models around products and services that are utilized by business entities. That includes offering business bank accounts, providing avenues for securing capital, and offering financial advice.

Customer Base

Retail banks are geared toward consumers who rely on financial products like personal checking accounts, savings accounts, or unsecured loans. A retail bank can offer accounts to different types of consumers, including specialized accounts for kids, teens, students, or seniors. But generally, they’re consumer-facing and work with everyday people to help them manage their money.

That’s a difference between retail vs. corporate banking: The latter is business-centric. For example, a corporate bank may offer services to companies with a valuation in the millions. Or it may cater to smaller businesses that need help with things like payment processing or cash flow management. Some business banks may serve companies both large and small.

Processing Costs

As mentioned, both retail and corporate banks can charge fees for the services they provide. These fees are designed to make up for the bank’s own handling costs for processing transactions. Both types of banks can also charge interest on loans, lines of credit, and credit cards. These are some of the ways that banks earn money.

In general, retail banks tend to have lower handling costs which means lower fees for consumers. Corporate banks, on the other hand, typically have higher processing costs which means their clients pay more for their products and services.

Value of Transactions

Since retail banks serve everyday consumers, the average value of transactions processed tends to be lower compared to that of corporate banks. A corporate bank, for example, might process a transaction valued at several million dollars for a single customer. Someone who’s adding money to their personal checking account vs. a business checking account, meanwhile, may be depositing a few hundred or few thousand dollars.

Profitability

Here’s another key difference between business banking vs. retail banking: Business banking tends to generate more profits. That’s because corporate banks typically deal in higher value transactions than retail banks.

The Takeaway

The difference between retail vs. business banking is quite straightforward: Retail banking serves individual customers’ needs, while corporate banking serves the needs of companies of all sizes, as well as other organizations.

For most people, retail banking is a good choice to manage and optimize their financial lives. For instance, you can use a retail bank account to pay bills, deposit your paychecks, transfer money to savings, and make purchases or withdrawals using your debit card.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Is corporate banking better than retail?

Corporate banking is not necessarily better than retail banking; they’re designed to serve different audiences. Corporate banking is usually a wise choice for a business entity, while retail banking is designed to serve individuals with their personal banking needs.

Is a current account retail or corporate?

Current accounts can be offered by retail and corporate banks. Generally speaking, a current account is a bank account that allows you to make deposits and withdrawals. A checking account, either personal or business, is an example of a current account.

Why do banks focus on retail banking?

Banks focus on retail banking because there’s a need for it among consumers; many adults might be interested in a checking account, a debit card, and a credit card, for example. The demand for retail banking also allows banks to generate revenue by charging fees for deposit accounts and interest on loans and lines of credit. That said, corporate banking also serves an important need and generates income for banks as well.

About the author

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.

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3.30% APY
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Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

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SOBK-Q224-1927395-V1

If you currently don’t have a job, finding ways to make money is likely at the top of your to-do list. The good news is that there are numerous ways to earn income when you aren’t working a steady gig. Some opportunities require Wifi and a laptop or smartphone; others require little more than your physical presence — and some require that you have a little money that you’d like to multiply into more.

Keep reading even if you have a job, because starting a side hustle can be a great option for making money from home.

How to “Make Money With Money” With No Job

What does it mean to make money with money? In simple terms, it means finding ways to make the money that you already have work for you, without necessarily getting a traditional first or second job.

Learning how to make money with money often involves various ways to earn passive income. Passive income is money that you earn with little to no work involved. That doesn’t mean you don’t do any work at all: Some degree of work is required in the beginning to create passive income streams before you can start making money on autopilot. It’s a good idea to use a free budget app to track how much you spend to set up your income stream and to track the money you make.

If that sounds good to you, then you might consider these passive income ideas.

Earn Cash Back

When you download cash-back apps, you can link your debit card or credit cards, then earn back a percentage of what you spend at partner retailers.

There are several different cash-back apps to choose from, and they all pay different cash-back reward rates. Some of the apps you might consider for online shopping, grocery shopping, or travel include:

•   Rakuten

•   Ibotta

•   Dosh

•   Mr. Rebates

You can sign up for one or multiple apps to maximize your cash-back earnings potential.

Invest in Real Estate

Real estate can be a great investment, especially when there’s uncertainty in the stock market. Of course, you might have enough cash on hand to buy a rental property, but figuring out how to make money with money in real estate doesn’t have to be that complicated. Investing in a real estate investment trust (REIT), for example, offers the benefits of real estate ownership without the hassles of operating a rental property. You can also invest in real estate mutual funds or exchange-traded funds (ETFs) to gain exposure to a variety of properties in a single investment.

These investment options might be offered through your online brokerage. You may also consider real estate crowdfunding platforms, which allow you to pool your money along with other investors in a variety of property types. You make money through any of these investments in the form of dividends, which is another type of passive income.

Invest in Dividend Stocks

A dividend represents a share of a company’s profits. Some companies pay out dividends to investors who own shares of their stock as a reward for their loyalty. Dividend investing is something that might appeal to you if you’re specifically interested in passive income or residual income, since you can make a one-time investment, then collect dividends as they’re paid out.

When comparing dividend stocks, it helps to familiarize yourself with how the stock has paid out historically. You’ll also want to consider how often dividends are paid out and what kind of tax liability you’ll incur by receiving dividend payments.

Practice Peer-to-Peer Lending

Peer-to-peer (P2P) loans are funded by money pooled from different investors. Those investors make passive income from the loans by collecting interest from borrowers.

You might consider P2P lending as an investor if you’re looking for another idea on how to make money with no job passively. Keep in mind that with peer-to-peer lending, a higher potential rate of return usually equates to higher risk. If the borrower defaults on the loan you’ve helped fund, you won’t be able to collect any remaining interest.

For that reason, you might want to diversify the types of loans you invest in. You can also balance risk by investing in other things, such as real estate, dividend stocks, or even fine art.

More Ways to Make Money Without A Job

Maybe you don’t have a nest egg to invest up front via a making-money-with-money strategy. Never fear — there are still ways to pull in cash without a conventional 9-to-5 schedule.

Sell Your Plasma

Selling plasma can be an easy way to make extra money without a job or without doing any real work. Plasma donation centers pay healthy people real cash to donate their plasma. Depending on where you donate, you can make $1,000 your first month as a new donor.

Keep in mind that there may be a limit on the number of times you can donate plasma each month. You may also want to read up on potential side effects of donating plasma and how the process works.

Get Cash for Your Clutter

If you have things around the house you no longer need or use, you could sell them to make some quick cash. Some of the places you can sell items you don’t need include:

•   Craigslist

•   Facebook Marketplace

•   Facebook bargain groups

•   eBay

•   Etsy (for vintage items)

•   Consignment stores

You can also try selling items through an app like Mercari or Decluttr (for tech products).

Selling items for cash could generate a steady income if you reinvest the money you make clearing your clutter into a flipping business. Flipping simply means taking things you get for one price, then selling them for a higher price. For example, you might be able to find bargains on clothing or accessories at thrift stores and flea markets, then turn around and flip them on Facebook Marketplace or eBay. You might need to spend a little money to purchase your first items to flip, but this can be another great idea for how to make money with money.

Get Paid to Do Market Research

Companies are always interested in figuring out how to gain a competitive edge. One way they do that is by paying everyday consumers to participate in market research. There are numerous apps and websites that pay you cash to complete surveys, share your opinions, or participate in focus groups. The amount you can make largely depends on which apps or sites you’re signing up for. But this can be an easy way to make money from home using your cellphone or laptop.

Recommended: Does Net Worth Include Home Equity?

Start a Blog

Blogging can help you to generate passive income in a variety of ways. For example, you might earn passive income from advertisements on your site, affiliate marketing, or product sales. You can also make a more active income by writing sponsored posts or offering some type of service, like coaching or consulting.

There is a certain amount of work that goes into setting up a blog and growing various income streams. But it’s entirely possible to make a full-time income from home as a blogger, even if you’re starting with no experience and very little money.

Offer Childcare, Senior Care, and Pet Care

If you want to make money offline, consider babysitting, pet sitting, or dog walking within your social circle or local area. You might also branch out to offer help to seniors who need it. For example, if you don’t mind leaving the house, you can hire yourself out to run errands for elderly people who may not have transportation. Or you may earn extra money by sitting with a senior for a few hours a day while their regular caretaker does the grocery shopping or cleaning.

Rent Out a Room on Airbnb

If you’ve got a spare room, you might have an easy solution for how to make money without a job. You can rent out a spare room or part of your home on Airbnb to create passive income. Or you might take on a regular roommate, which can help to reduce your share of monthly expenses.

You’ll need to register for an account on Airbnb to start hosting guests in your home. Before you do that, however, it’s important to check the zoning laws where you live to determine whether you need any special permits to act as an Airbnb host.

Rent Out Your Car

Have a car that you rarely drive? You can rent it out to people who need a vehicle short-term through a site like Turo. Renting your car for cash is similar to renting out a room on Airbnb, in that you’re effectively sharing your vehicle with someone else. This can be an easy option for making money with your car passively versus driving for Uber or Lyft.

Recommended: What Credit Score Is Needed to Buy a Car?

Become a Tutor

Tutoring is something you might consider if you’re comfortable helping students learn and you want to be able to make money from home. You might offer tutoring services virtually through a site like Tutor.com or from the comfort of your home if you’re helping students locally. Keep in mind that with tutoring websites, you may be required to pass a skills test or show proof of a college degree in order to get approved.

Freelance Online

You might try freelancing to make money without a job if you have some marketable skills. (Freelancing is also a good option if you’re looking for a good job for an introvert.) Some of the ways you can make money as a freelancer include:

•   Proofreading

•   Virtual assistant services

•   Graphic design services

•   Website design

•   Freelance writing or editing

If you’re not sure where to get started with making money as a freelancer, you might try a site like Fiverr. With Fiverr, you can list your freelance skills and services, along with your preferred rate. Potential clients can browse freelancer profiles and if yours is a good fit, hire you for their project.

Sell Photography

Selling photography online is another way to make money from home. You’ll need a good camera (or smartphone camera) to take pictures, and it’s helpful to have good editing software on hand. Once you have some pictures to sell, you can upload them to a site like Shutterstock or Foap.

These sites allow you to license the rights to your photography. When someone purchases a license, you earn royalty income. Once again, this is another good way to make money passively without leaving home.

Sell eBooks or Low-Content Books

Ebooks and low-content books like blank journals or lined notebooks can be an excellent way to create steady income without a lot of ongoing work. You can create an ebook or low-content book, upload to a self-publishing website like Amazon Kindle Direct Publishing (KDP), and collect income each time you sell a copy.

You typically don’t need much to get started with self-publishing, other than a great idea for a book and some graphic design software to create your covers and interiors. When deciding where to sell your finished books, take time to research the fees each platform charges, since they can eat into your earnings.

How to Make the Most of Extra Income

Figuring out how to make money with money or in another way that doesn’t involve having a job can increase your cash flow, sometimes significantly. But it’s important to think about what to do with extra money that you’re earning from a side hustle or passive income ideas.

Some of the best ways to put extra income to work include:

•   Paying down high-interest debt

•   Increasing your savings

•   Investing money in the market, where it can grow through compounding

•   Reinvesting it into new passive income ideas

Those are just a few ways to make the most of supplemental income, versus simply spending all of the extra cash you’re bringing in.

The Takeaway

Earning money while still having the flexibility that comes from not having a conventional job is an attractive prospect. If you’re testing out different ideas for how to make money with money (or make money even when you don’t have capital to invest), there are plenty of passive income ideas worth trying. A budgeting app can help you track your expenses and revenue to find the method that delivers the biggest rewards.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

How can I make money with no job?

Starting a side hustle or online business, or doing gig work, are great ways to make money without a job. It’s possible to make money online or from home doing things like market research, shopping with cash back apps, mystery shopping, or offering freelance services.

How can I make $100 without a job?

The fastest way to make $100 without a job is to sell something. For example, you might sell items around the house that you no longer need, or resell bargain items that you find on Facebook or at flea markets. If you’d like to make $100 a day or $100 a week consistently, then you might consider pet sitting, dog walking, freelancing, or blogging.

How do I live without a job?

Living well without a job starts with creating a realistic budget and understanding how you spend your money. Having savings to rely on can make it easier to live without a job if you expect to be out of work temporarily. You can also work on finding ways to make money without a job, including passive income ideas, or gig work.

About the author

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.

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Regulation T, or “Reg T” for short, is a Federal Reserve Board regulation governing the extension of credit from brokerage firms to investors (also called margin accounts). In margin trading, Regulation T is used to determine initial margin requirements. An investor who fails to meet the initial margin requirements may be subject to a Reg T call, which is one type of margin call.

Understanding Regulation T and Regulation T calls is important when trading securities on margin.

What Is Regulation T?

Regulation T is issued by the Federal Reserve Board, pursuant to the 1934 Securities Exchange Act. The purpose of Reg T is to regulate how brokerage firms and broker dealers extend credit to investors in margin trading transactions. Specifically, Regulation T governs initial margin requirements, as well as payment rules that apply to certain types of securities transactions.

Margin trading means an investor borrows money from a brokerage to make investments. This allows the investor to potentially increase their investment without putting up any additional money out of pocket. For example, an investor may be able to put up $10,000 to purchase 100 shares of stock and borrow another $10,000 on margin from their brokerage to double their investment to $20,000.

Regulation T is central to understanding the inner workings of margin accounts. When someone is buying on margin, the assets in their brokerage account serve as collateral for a line of credit from the broker.

The borrowed amount is repaid with interest. Interest rates charged on margin accounts vary according to the brokerage and the amount borrowed. Trading on margin offers an opportunity to amplify returns, but poses the risk of steeper losses as well.

💡 Quick Tip: When you trade using margin, you’re using leverage — i.e. borrowed funds that increase your purchasing power. Remember that whatever you borrow you must repay, with interest.

How Reg T Works

Regulation T works by establishing certain requirements for trading on margin. Specifically, there are three thresholds investors are required to observe when margin buying, one of which is directly determined by Regulation T.

Here’s a closer look at the various requirements to trade on margin:

•   Minimum margin. Minimum margin represents the amount an investor must deposit with their brokerage before opening a margin account. Under FINRA rules, this amount must be $2,000 or 100% of the purchase price of the margin securities, whichever is less. Keep in mind that this is FINRA’s rule, and that some brokerages may require a higher minimum margin.

•   Initial margin. Initial margin represents the amount an investor is allowed to borrow. Regulation T sets the maximum at 50% of the purchase price of margin securities. Again, though, brokerage firms may require investors to make a larger initial margin deposit.

•   Maintenance margin. Maintenance margin represents the minimum amount of margin equity that must be held in the account at all times. If you don’t know what margin equity is, it’s the value of the securities held in your margin account less the amount you owe to the brokerage firm. FINRA sets the minimum maintenance margin at 25% of the total market value of margin securities though brokerages can establish higher limits.

Regulation T’s main function is to limit the amount of credit a brokerage can extend. It’s also used to regulate prohibited activity in cash accounts, which are separate from margin accounts. For example, an investor cannot use a cash account to buy a stock then sell it before the trade settles under Reg T rules. It may be beneficial to review the basics of leveraged trading to deepen your understanding, too.

Why Regulation T Exists

Margin trading can be risky and Regulation T is intended to limit an investor’s potential for losses. If an investor were able to borrow an unlimited amount of credit from their brokerage account to trade, they could potentially realize much larger losses over time if their investments fail to pay off.

Regulation T also ensures that investors have some skin in the game, so to speak, by requiring them to use some of their own money to invest. This can be seen as an indirect means of risk management, since an investor who’s using at least some of their own money to trade on margin may be more likely to calculate risk/reward potential and avoid reckless decision-making.

Example of Reg T

Regulation T establishes a 50% baseline for the amount an investor is required to deposit with a brokerage before trading on margin. So, for example, say you want to open a margin account. You make the minimum margin deposit of $2,000, as required by FINRA. You want to purchase 100 shares of stock valued at $100 each, which result in a total purchase price of $10,000.

Under Regulation T, the most you’d be able to borrow from your brokerage to complete the trade is $5,000. You’d have to deposit another $5,000 of your own money into your brokerage account to meet the initial margin requirement. Or, if your brokerage sets the bar higher at 60% initial margin, you’d need to put up $6,000 in order to borrow the remaining $4,000.

Why You Might Receive a Regulation T Call

Understanding the initial margin requirements is important for avoiding a Regulation T margin call. In general, a margin call happens when you fail to meet your brokerage’s requirements for trading in a margin account. Reg T calls occur when you fall short of the initial margin requirements. This can happen, for instance, if you’re trading options on margin or if you have an ACH deposit transaction that’s later reversed.

Regulation T margin calls are problematic because you can’t make any additional trades in your account until you deposit money to meet the 50% initial margin requirement. If you don’t have cash on hand to deposit, then the brokerage can sell off securities in your account until the initial margin requirement is met.

Brokerages don’t always have to ask your permission to do this. They may not have to notify you first that they intend to sell your securities either. So that’s why it’s important to fully understand the Reg T requirements to ensure that your account is always in good standing with regard to initial margin limits.

💡 Quick Tip: When you’re actively investing in stocks, it’s important to ask what types of fees you might have to pay. For example, brokers may charge a flat fee for trading stocks, or require some commission for every trade. Taking the time to manage investment costs can be beneficial over the long term.

The Takeaway

Regulation T is used to determine initial margin requirements — i.e. the amount of cash an investor must keep available relative to the amount they’ve borrowed. Margin trading may be profitable for investors, though it’s important to understand the risks involved. Specifically, investors need to know what could trigger a Regulation T margin call, and what that might mean for their portfolios.

An investor who fails to meet the initial margin requirements may be subject to a Reg T call, which is problematic because they are restricted from making additional trades until they deposit the 50% initial margin requirement. If the investor doesn’t have cash on hand to deposit, then the brokerage can sell off securities in the account until the initial margin requirement is met.

If you’re an experienced trader and have the risk tolerance to try out trading on margin, consider enabling a SoFi margin account. With a SoFi margin account, experienced investors can take advantage of more investment opportunities, and potentially increase returns. That said, margin trading is a high-risk endeavor, and using margin loans can amplify losses as well as gains.

About the author

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.