Buying Your First Rental Property

Market research, financing, the 1% rule, property inspection, and the property management decision — before you sign a single purchase agreement.

Market Research

• Analyze vacancy rates, median rents, and population growth trends using Zillow Rental Manager, Rentometer, and the US Census Bureau's American Community Survey
• Drive the target neighborhood at different times of day and night — observe maintenance of surrounding properties, vacancy signs, and traffic patterns
• Talk to a local property manager before buying — they know which streets rent easily and which sit vacant
• Research local landlord-tenant laws for the state and city — some cities have rent control, strict eviction timelines, or required habitability standards that affect your ROI

Financing

• Investment property loans require 15–25% down payment — you cannot use an FHA loan (3.5% down) on a non-owner-occupied rental
• Get pre-approved for an investment property loan — interest rates are typically 0.5–0.75% higher than primary residence rates
• Consider house hacking for your first rental — buy a 2–4 unit property, live in one unit, and rent the others; FHA financing is allowed for owner-occupied multi-family
• Run numbers with a debt-to-income ratio calculator — lenders generally cap total DTI at 43–45%, including your primary mortgage if applicable

The 1% Rule & Cash Flow

• Apply the 1% rule as a quick screen: monthly rent should equal at least 1% of the purchase price ($200,000 home = $2,000/month rent minimum)
• Build a full pro forma: gross rent minus vacancy (5–8%), property management (8–10%), maintenance (1% of property value/year), property taxes, insurance, and mortgage payment
• Target at least $200/month positive cash flow per unit after all expenses — anything less doesn't compensate for the illiquidity of real estate
• Calculate cap rate: Net Operating Income divided by Purchase Price — target 6%+ in most non-gateway markets

Inspections

• Always order a full home inspection, even on properties marketed 'as-is' — inspection gives you negotiating leverage and cost estimates
• Order a separate sewer scope inspection — tree root intrusion and old clay pipes are expensive and not included in standard inspections
• Get a rental property analysis from the inspector specifically, who will flag items a typical homebuyer might accept but that create landlord liability

Property Management

• Decide before closing: self-manage or hire a property manager? Self-management saves 8–10% of rent but requires local presence and availability
• If hiring a property manager, vet at least 3 companies — ask about their eviction process, how they handle maintenance requests, and their average vacancy rates
• Draft a lease using a state-specific template from your state's apartment association — generic internet leases frequently lack state-required clauses