Buying Your First Rental Property: A Step-by-Step Guide

1. 1

   Learn the two numbers that matter

   Cash flow (rent minus every expense including the mortgage) and cap rate (net operating income divided by price). If a property doesn't work on paper, it won't work in person — no matter how nice the kitchen is.

2. 2

   Get financing lined up first

   Investment loans typically need 15–25% down and charge slightly higher rates than owner-occupied mortgages. Lenders may count a portion of expected rent toward your qualifying income.

3. 3

   Pick the market before the property

   Buy where the numbers and the laws work — not just where you happen to live. Research rents, vacancy rates, job and population growth, and landlord-tenant law; some cities are dramatically friendlier to landlords than others. If the best market isn't near you, budget 8–10% for professional management and buy there anyway. Proximity is only a real advantage if you self-manage.

4. 4

   Underwrite conservatively

   Budget vacancy at 5–8% of rent, then add a turnover line that matches it — every move-out costs a make-ready and re-leasing, so spread roughly one month's rent across your expected tenancy length. For maintenance, use 2–3% of value per year on homes under about $150K and roughly 1% above that, with a floor of about $2,500 either way — and hold a separate capex reserve for the big-ticket systems. Add management (8–10% if outsourced), taxes, and insurance. If it still cash-flows after all that, you have a deal.

5. 5

   Inspect like an investor

   Roofs, HVAC, plumbing, and electrical are the wallet-killers. Price every aging system into your offer — you're buying future repair bills along with the house.

6. 6

   Close, then set up like a business

   Open a separate bank account, get landlord insurance (not a homeowners policy), and decide on self-managing versus hiring a manager before the first tenant application arrives.

Frequently asked

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