How To Buy Your First Rental Property

Investing in a single-family rental property can seem like a lot of hard work, but it is a proven method to provide you with a strong, stable cash flow. Over 44 million residents rent single-family homes across the U.S., and Urban.org predicts that there will be a 20% increase in renters and rental needs by 2040.

If you’re ready to buy your first rental property, here’s how in 4 easy steps:

1) Decide Whether to Buy in Cash or Get a Mortgage

Buying in cash can be tempting because it means you won't have any monthly mortgage payments and paying interest is avoided. However, if you decide to purchase in cash, you will reduce the amount of cash on hand to make repairs and upgrades to the property. You could also be missing out on interest deductions for that mortgage. For most people, a mortgage is the smartest financial decision.

2) Arrange Financing & Get Pre-Approval

Financing a rental property isn’t that much different than buying a home, but the end goal is to turn a profit. Before you start looking for a property, getting pre-approved is a great idea. Here are the typical requirements and information needed to qualify:

A down payment of at least 25%
2-3 Years Tax Returns
Bank & Retirement Statements
Current Paystubs
Lenders may also require a cash reserve for mortgage payments depending on the property's expenses and projected Return on Investment (ROI). (FMI on determining rental ROI)

3) Determine Your Location

You should look for an area that is sought-after while also taking into consideration its location, amenities, schools, public transportation, and highways. It's also a great idea to review crime statistics. In metropolitan areas, crime can vary greatly by just a few miles. Neighborhood Scout is a great resource for looking at crime rates within your search area. Other things to consider are:

Job & Population Growth
Rent Prices & Vacancy Rates
Property Taxes
Percentage of Renter-Occupied Households

4) Find Your Rental Property

Now that you’ve decided on an area, it is time to begin your property search. It is your responsibility as a landlord to provide habitable conditions for your tenants. For example, if you buy a home with a broken heating system, you will need to repair it before you can rent. As a first-time landlord, we recommend you purchase a property in rentable condition, called a “turn-key property”. At this time, you will also want to research the property's potential Return on Investment (ROI) to ensure your purchase is a good investment. (FMI on determining rental ROI)

If you’re looking to invest in your first rental property, visit our website at firefightersfirstcu.org or give us a call at 800-231-1626.