Tips for Buying Your First Rental Property

Building passive income is a necessity for those in search for financial independence. Unless you intend on winning the lottery or getting a huge inheritance, you’ll have to think in terms of return on investment. For my husband and I, buying our first rental property last year made perfect sense. While purchasing real estate always takes careful consideration, hopefully learning from our successes and mistakes will help those who are looking to become first time landlords.

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Pay Off Consumer Debt

About two years ago we were swimming in credit card debt and working all the time to make our payments. Changing our mindset about debt helped us crank up our earnings, cut spending, and pay off the consumer debt. If you are barely getting by, regardless or your income, you shouldn’t be thinking about investment property.

Be Ready for the Down Payment

To get a mortgage for an investment property, you will have to put at least 20% down. Many lenders also require that you have cash on hand for six months of mortgage payments in case you can’t find a renter. I actually think this is a great idea. Just because you have a place doesn’t mean people will be lining up to rent it.

Look at the Purchase as a Business Decision

When you are buying a house to live in, it’s OK to fall in love with a property. You might love the architecture or how the sun sets out the kitchen window. While it isn’t horrible to look at a rental this way, first and foremost you need to think like a tenant. What did you care about when you were a renter?


Pay attention to the type of tenants you are hoping to attract. In our area, we tend to have blue collar workers. If you are in a college town, it might be students. If you are in an expensive suburb, it might be young professionals.

Don’t buy the cheapest house in the worst neighborhood if you are afraid to drive around in the area after dark. Look for neighborhoods where tenants would like to live. Likewise, if your tenant pool consits of young families, things like a washer/dryer and dishwasher would be more important than the ability to walk to the nearest bar.


In your primary residence, you might choose to buy a fully renovated house to avoid repairs. This is fine for a rental, but it will cost more. We chose to buy a house with a good floor plan that needed major cleaning, painting and mostly cosmetic work. Look past the dated furnishings, grease on the walls, and pink paint throughout. Could you make this a place where someone would want to live? I would set a renovation budget before you start looking and add 10-20% just in case. If renovations will break your budget, move on.

Know Your Limits

We had a self-imposed month deadline to finish renovations and have the place ready for rental. My husband and I were working full time, so we had to become weekend and evening warriors. It is NOT fun to go from work to spending several more hours at a rental, but you can do anything for a month, at least that was our motto.

We were very cost conscious, but also knew we had to hire an electrician to replace outlets and baseboard heaters and a technician to install the new gas stove. Blowing up the house was not in the budget. We also hired out the majority of the painting. All of the walls and cabinets were covered in years of nicotine stain. It would have taken us weeks to finish.

Will it Cash Flow?

This is probably the most important question to answer. Can the rent you will receive cover the cost of mortgage, insurance, property tax, and any bills that fall as landlord responsibilities? Some property owners are comfortable with breaking even, but we wanted more of a cushion for future repairs. Our rental currently nets $330 a month in excess of liabilities, which is right where we hoped to be.

Be Patient But Ready to Go

This was the hardest part for us during our first rental purchase. We looked at several properties. The one we eventually purchased started out very overpriced with some major plumbing issues. The owner would not budge on the asking price. It sat on the market for months until the seller fixed the plumbing and lowered the price. Suddenly, tons of people were interested. We made an offer within 24 hours and got the place we wanted all along by being patient but ready to go when the right opportunity arose.

We thought potential renters would be able to see past the renovation debris and would be beating the door down to live there, but this was not the case. We had several possible tenants who came to view the property before it was ready, but no one could see past the ugliness of constuction. We were worried that the rent was too high or that we had made a mistake, but after the place was finished, it rented pretty quickly. However, it was still one month later than we hoped. It’s hard to be patient when it’s your money on the line, but sometimes you have no choice. If it’s going to send you to the ER with an anxiety attack every time there is a snag, rental property ownership is probably not for you.

Buying a rental property can be a wonderful way to generate (almost) passive income. (It certainly didn’t seem passive when I was scraping black goo off the refrigerator!) I’m sure we will have many more “adventures” with this property, but it certainly has been worth the effort. If you are hoping to purchase a rental property, hopefully these tips will help so that you can move forward when you find the perfect investment.

Picture by FreeDigitalPhotos.


  1. Devin Sloans says:

    Research rental properties thoroughly before buying them. If you’re thinking of buying a property, don’t buy one unless you’ve reviewed the old records.

  2. Thanks for sharing. I believe too many people jump into the rental property business because they think they can own a property and just collect the rent. Very few people stop to realize that the rent must cover taxes, mortgage, unexpected expenses like appliances breaking down or plumbing, and insurance. Thank you for pointing that out.

  3. Great tips. BF and I have been thinking seriously about buying a rental property. We wouldn’t be happy just breaking even and definitely would be looking to make a profit to put back into an emergency fund specifically for the property’s expenses.

  4. JT says:

    We got into rental property because we couldn’t sell our first house. It is enjoyable and we do make a little bit of cash, but I am mainly looking to hold long term and collect the rents in retirement to fund my lifestyle. By then, the property will be paid off.

    • I’m in the same boat. I’m renting out my first home because prices have dropped and I couldn’t sell it right now.

      I find it to be a huge hassle though. I’ve learned that one of the most important things is getting good renters – people that pay on time and don’t bug you twice a week with minor annoyances.

  5. CF says:

    When we bought our first property, it was intended to be a rental eventually. So we focused on buying a solid, well maintained building. We didn’t have any major repairs for three years, which was great. The pipes are being done this year though, which will cost us $5000 – sigh.

  6. I think the biggest point you made is being patient. It’s easy to become eager, fall in love with a property and pay too much. All the real money in rental real estate is made at the buy. You have to be able to get a huge bargain (maybe through the foreclosure market) and not overpay.

    • I think you need to have a price in mind before you even start looking. Obviously, some houses are worth more than others, but if you have your max designated in the beginning, you will be less likely to get caught up in the game of wanting a specific property.

  7. I recently became on unwilling landlord due to not being upside down on our mortgage. While it has been stressful at times, our property still has a positive cash flow. I think if we can stick it out we are going to end up realizing that it was a blessing in disguise!

  8. Another thing to consider is that in some areas, rental properties don’t appreciate in value. Fort Collins is a college town and there are some neighborhoods that are entirely rental properties that house students. Those condos and townhouses sell for the same price now as they did 10 years ago. You are expected to make your money in rent, not in the re-sale.

    • Another good point. I don’t ever expect our rental house to sell for an outrageous profit. It’s too small, but if we hold it until the mortgage is paid off by renters, we can still sell it for what it’s worth when we’re ready or we’ll leave it to our daughter to become a real estate tycoon.

  9. Debt RoundUp says:

    It really is allow about being cash flow positive. What is the point of purchasing a rental in order to break even? There is no incentive and it doesn’t do anything for you. My brother and his wife had a rental condo for years and they broke even on it each and every month. I told them they were doing it for the wrong reasons and they finally sold it.

  10. I like that you point out how important it is to think through the amenities that the renters would be after – like parks and dishwashers vs bars. So many people can only pick a rental based on what *they* want.
    I also love that some banks require you to have 6 months of payments on hand! I wish that was a more common requirement (or at least a requirement up here).

  11. Michelle says:

    We are currently trying to decide whether we want to rent out our current house or sell. It just seems like so much work to rent it out!

    • If you can get enough rent to cover it, you can hire a property manager. That’s what we do. They usually take 10% of the rent and a finders fee for getting a new tenant, but you can let them deal with all the hassle. I really wish we’d kept our first house as a rental. It would be paid off now and it was in a perfect spot. Oh, well. Hindsight is always 20/20!

  12. What a great post. I own a couple of rental properties which I am so happy to have. I had consumer debt when I purchased, though…bad! I’m glad you addressed that first and foremost!

    • You know Tony, we still had a little bit remaining on our last credit card balance when this deal went down, but we had enough to pay it off in savings. It was at 0% and we went ahead with the rental. It could have backfired, but we were pretty sure no matter what that it would be gone soon, and it was. I would never, ever consider buying a rental back in our days of heavy credit card balances and payments. Sadly, I bet we would have been approved for a loan, and it could have been bad if we had a second mortgage, credit debt, primary mortgage and no renters!

  13. Great tips, Kim! I think that you are spot on with your advice. I would also add to think of it as a long term investment because that is where you will really come out way ahead.

    • Very good point. We will be in the whole for a while if you look at the cash we had to shell out to get this thing done, but someone else is now paying the mortgage and bills. When it’s paid off, we will have a bit of income each month and hopefully, a good return if we decide to sell it in 20 or 30 years.

  14. Good post Kim! I’ll be interested to see how this will take off for you and your husband. Knowing your limitations has got to be vital with something like this, especially doing it on the side and even more so if your hands on knowledge is lacking (like mine 😉 ) However, cash flow is king in all of this as you do not want to be bleeding cash.

    • I think knowing when to turn off the valve is very important. Especially with the first property, it’s easy to get caught up in what you like and making things look pretty, when you have to remember that clean and neutral is best for a rental.

  15. Will it cash flow is the most important item on that list. That’s one thing that I’ve been looking into around where I live. One thing that I’ve noticed is that as housing prices go up, cash flow tends to go down and can even easily become negative. Makes me think that there are certain markets which are not good areas to invest in rental properties.

    • Absolutely true. Good or bad, our area has always been a bit below the curve on housing prices, and with the downturn, there are some smoking deals. We also have a large rental pool in our area. With lower income levels, some people will just never be able to buy a house.

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