How to Buy Your First Rental Property

How to Buy Your First Rental Property


At New Western, our vision is a world where every real estate transaction is simple, certain, and satisfying. Therefore, we promote strict editorial integrity in each of our posts.

Whether you’re thinking of quitting your 9-to-5 job and becoming a real estate investor full-time or you’re just looking for a way to diversify your holdings, it’s never a bad time to learn how to buy your first rental property. Despite the national average for a 30-year fixed mortgage sitting at 7.03% (as of February 1, 2024), the average home sales price has risen to $487,300. This essentially means that as home values go up, so does your equity.

Of all the ways you can invest your money, buying investment properties continues to be one of the most effective ways to grow your long-term wealth. Not only will the property pay for itself, thanks to the monthly rent you’ll collect from tenants, but there’s a high chance that your property’s value will increase the longer you hold on to it. Heck, on average, real estate appreciates approximately 5.2% annually; naturally, some states see higher percentage changes than others.

Credit: CoreLogic


Questions to Ask Yourself Before Learning How to Buy Your First Rental Property

Before you even start looking for potential rental properties, you need to ask yourself if you’re even ready and willing to become a landlord.

  1. Are you ready to market the property, screening potential tenants, drawing up leases, and collecting rent, or hire a real estate agent to do it for you?
  1. Are you ready to risk the chance of having bad tenants who could cause severe property damage and fail to tell you when something needs to be repaired? Or, on the other hand, deal with tenants(or not if you employ a property manager) who call you for the most mundane tasks, like changing the lightbulbs or mowing the lawn?
  1. Are your finances stable enough to get you through prolonged vacancy rates where you’ll have two sets of household bills to pay?
  1. Or, more to the point, do you have money for a down payment, cover closing costs, pay for the various inspections, or repairs if the property needs them?
  1. How are your personal accounts? Are you overburdened by debt, be it credit card debt, medical debt, or student loans? Is your credit score good enough to secure financing?

If, after answering these questions, you decide that you’re in a financial position to buy an investment property and that you’re willing to take on the task of being a rental property owner, then let’s get started!


Step 1: Set Your Real Estate Investment Goals

As a new investor, you have to have a clear idea of what your financial goals are. Are you hoping for short-term profits by flipping properties, or do you want to build long-term wealth with a mix of short-term and long-term rentals? Or both? How much profit are you hoping to have after expenses? How much return on investment (ROI) are you trying to make each year?

You should be as detailed as possible with every business goal you want to achieve while navigating the world of real estate investing. Each part of the goal should be clearly defined, and steps should be set up so that they can be taken.

For example, your goal shouldn’t just be “I want to buy a rental property.” Instead, you could say, “I want to buy a small bungalow near the beach and turn it into an Airbnb.” or “I want to find a rental property in the heart of town that will generate enough income to cut back my hours at the office.”

Note: If you want to learn more about a variety of investment strategies, check out our in-depth guide: REI Strategy: A Complete Guide on the Strategies Pros Use to Invest in Real Estate.


Step 2: Analyze Your Finances, Get Pre-Approved for a Mortgage, and Create a Budget

The next thing you need to do is get the finances in order. You’ll want to have money for a down payment; 20% to 30% is recommended for real estate investing, but not entirely necessary. It’s possible to get loans that requires 10% or less. But we’ll touch on that later.

Along with a down payment, you have to factor in closing costs, which can be 2% to 6% of the purchase price. This might sound like a lot, but it includes loan origination fees, appraisal fees, title searches, title insurance, and legal fees. Then, you also have to account for any unexpected repairs or upgrades you’ll need to do after finalizing the purchase.

Now, let’s do a little math using these numbers:


Purchase PriceDown Payment


Closing Costs


Repair/UpgradesMonthly Rental IncomeMonthly Operating Expenses

(taxes and insurance when not included in the monthly mortgage payment, maintenance, etc.)



Calculating Your Initial Investment

$50,000 (Down Payment) + $6,000 (Closing Costs) + $20,000 (Renovations) = $76,000

To buy this property, you would need at least $76,000 upfront.


Calculating Your Desired Cash Flow

$1,500 (Rental Income) – $500 (Operating Expenses) = $1,000/month

Upon purchasing this property, you’ll have $1,000 in cash flow after expenses.


Calculating Your Annual ROI

$1,000/month (Cash Flow) * 12 (Months) = $12,000/year

($12,000 [Annual ROI] / $76,000 [Initial Investment]) * 100 = 15.79%


In this example, you’d be looking at an average monthly cash flow of $1,000 and an annual ROI of 15.79%, which is quite favorable. Keep in mind that real estate markets vary greatly, and it’s important to do thorough research and possibly consult with a financial advisor or real estate expert.


Get Pre-Approved for a Mortgage

After figuring out your finances and seeing how much cash you’ll need upfront, you’ll want to get pre-approved for a mortgage to see how much you’re actually working with. 

Now, there are a lot of ways you can finance your purchase. When purchasing a rental property through New Western, we double close between the seller and investor, which allows more traditional financing. Contact the New Western office nearest you to learn more. The most common rental property financing options are:

  • Conventional Loan: Unlike government-backed loans, you’ll go to a private lender like a bank or credit union to get a conventional loan. You typically need a minimum credit score of at least 624 to 640 and a 20% to 30% down payment.

  • HELOC, or Home Equity Loan: These types of loans use an investor’s primary residence as collateral. The amount of money you can borrow will depend on how much the property is worth. To get one of these loans, you’ll need a minimum credit score of 620 and at least 15% to 20% equity in the property

  • Government-Backed Loans: Although government-backed mortgages like FHA or VA loans can only be used to buy primary residences, investors can get around this if they purchase a multi-family property. They can live in one of the units and rent out the others. This is called house hacking and can be a great start for new investors.

If your credit score leaves something to be desired, you’ll need to take certain steps to boost it. The higher your credit score, the easier it’ll be to get approved for a mortgage, and the lower your interest rate will be.

Credit: Business Insider

Experian has a very informative article on improving your credit score that can help.


Creating Your Budget

When you’re creating your budget, you’ll need to factor in a variety of factors. This include:

  • Fixed expenses: mortgage payments, property taxes, and insurance.
  • Variable expenses: maintenance and repairs, cost of utilities, marketing, and property management (if you choose to hire a property management company).
  • Sources of income: income from a “normal” job, spouse’s income, income from side hustles, etc.
  • Potential Cash Flow: cost of owning and managing a rental property vs. rental income.

Along with these, you’ll want to budget for emergency repairs and prolonged vacancies. The property management software company, Rentec Direct, recommended that you have at least 1% to 3% of the annual property’s value (when the property’s value increases, so should how much you keep in your emergency fund) set aside to cover any repairs and maintenance issues.

To cover vacancies, Rentec states the common approach is to assume a 10% vacancy rate; however, the US Census Bureau revealed the rental vacancy rate sits around 6.6% in the fourth quarter of 2023. Depending on your market, you can adjust this as needed.

Note: If you want to learn more about financing your investment, check out our in-depth guide: Financing Your Investment: What Are the Best Ways to Finance Your Investment Property? Learn From the Experts


Step 3: Research a Real Estate Market and Choose a Location

Real estate market research can help investors because it gives them a good way to find, collect, and review useful data about an area’s market before they decide to buy real estate. The owner can get a good idea of how much a city or neighborhood could rent for and whether a certain type of property would be a good idea in that area.

Both new and experienced real estate investors can get ahead of the competition by doing an in-depth market study. Real estate market indicators can help you tell when things are about to get better or worse in a certain area. You don’t have to guess what will happen with your investments when you do a market study.

Key factors that will play a role in where you invest include:

  • Population growth and demographics
  • Job growth and unemployment rates
  • Positive rental trends, such as:
    • Long-term property values
    • Rental income potential
    • High demand for rentals
    • Low vacancy rates
  • Property taxes
  • Affordable housing prices
  • Local crime statistics


Where do you find this information? You can find the data by using these resources:


Step 4: Finding Your Investment Property

Armed with your investing goals, your budget, and an idea of the location, now you can finally begin house hunting! How exciting!

There are some numbers that need to be run to figure out the possible return on investment (ROI) of rental properties. Sometimes it can take a while to find the right property that fits your financial situation. New Western has agents that can help find the right property that fits your budget and other preferences.

Thanks to a plethora of “rules of thumb” and rental property calculators available online, you can save your energy and time while comparing deals. We’ll give you a brief rundown of those “rules” below.

Here at New Western we provide you with an appealing free platform for purchasing your first rental property, emphasizing seamless access to a vast array of investment opportunities not commonly found on the traditional market. Our unique model connects investors directly with a wide selection of pre-vetted, exclusive properties, ensuring that buyers can find potential rental properties that match their investment criteria and budget. We emphasis on customer service, provide guidance throughout the buying process, and offer expert insights into the local real estate market. Moreover, our extensive network and technological resources allow for a streamlined and efficient transaction process, significantly reducing the time and effort typically associated with property investment.

We have positioned ourself as a valuable partner for anyone looking to enter the rental property market, by not only simplifying the acquisition process but also by potentially increasing the likelihood of a successful investment through comprehensive support and resources.


“Rules” for Choosing a Rental Property

1% Rule

A general way to quickly figure out if a rental property might be profitable is to use the 1% rule. It lets you quickly do the math in your head to see if a place is worth looking into further.

The rule says that a property should bring in at least 1% of its cost each month in rent. This means that if you want to buy a house that costs $200,000, the one percent rule says that the rent should be at least $2,000. This is a very simple formula, and it shouldn’t be the only figure you consider.

Note: Some investors use a 2% rule, which is basically the same idea except instead of a property’s monthly rent being 1% of the purchase price, this rule states the monthly rent should be 2% of the purchase price.


Investment Property Calculators

This tool can help you figure out how much a rental property is worth. You can simply search in Google for a “Rental Property Calculator”, and try out the first few results to see which suits you best. You’ll fill in the information it asks for, and the calculator can give you figures that’ll indicate whether a property might be a good investment or not from a general financial perspective.

There will be times when you don’t know which numbers to enter. You can look for online estimates or get some advice from the seller’s agent if that’s the case.

In most cases, it’s easy to get information about property taxes and insurance because property tax records are available to anyone, and getting an insurance quote is as easy as picking up the phone or filling out a form online. All properties should have their HOA dues included in the ad.


Find Off-Market Deals 

Even if a property isn’t listed on the MLS, you can still look for it elsewhere. You won’t have to compete with as many people for these homes because they aren’t on the market.

Some techniques to find off-market deals include:

Wholesalers: Some real estate agents only sell homes off-market to investors as their main business. Meeting people in your area could help you find properties that only a very few know about (although it’s not quite that secretive).

Cold-calling: It may not be ideal if you’re an introvert, but if you’re a people person, you can walk down a street, knock on every door, and ask the owner if they want to sell. If not, you can get a list of addresses and write letters to those people. A very old method that will still work if you do it for a long time.

Networking: The more rental property owners you know, the more chances you’ll find that aren’t on the market. Even if you don’t know a lot of other investors, you can reach out to people in your circle and ask if they know of anyone who’s going to sell their home soon. They could get you in touch with potential sellers even before they get a real estate agent.

Don’t think that a lot of things will just fall into your lap. It’s likely that you’ll have to go find it.


Note: If you want to learn more about how to choose an investment property, check out our in-depth guide: Selecting Your Investment: A Guide to Finding the Best Investment Properties for Your Needs


Step 5: Make a Winning Offer

Making an offer is the next step once you’ve found a home that’s perfect for what you’re looking for. Together with your real estate agent or lawyer, write an attractive offer that includes the price you want to pay, any contingencies that must be met, and any other terms that are important to you. You might have to negotiate, so be ready to talk about counteroffers and come to a deal that works for both of you.


Step 6: Do the Proper Due Diligence

Sometime negotiations don’t end when your bid is accepted. This depends on if you’re buying the property ‘as-is’ to maximize the potential ARV(after repair value) or going the more traditional home buying and financing route.

If you’re financing the property with a mortgage, likely upon the acceptance of your offer, you now have 7 to 10 days to do your due diligence. This means you’ll have to finalize your financing, have inspections completed, and review all documents (closing documents and the contract) you receive to ensure they’re correct. Your real estate agent can help you with that part.

If you’re purchasing a house ‘as-is’ for its potential as an investment property, like many real estate investors do, then you need to make sure you find out as much about the property before you sign the contract. Having someone experienced in real estate to help you with this can be very valuable.


Step 7: Seal the Deal and Close

When the inspections are complete and you’ve thoroughly completed your due diligence, there’s only one thing left to do! Close the deal and take possession of your new investment property.


The Closing Process

In most cases, your real estate agent will line up the details of closing day. They’ll choose a closing date and find a suitable place to hold it (usually at either the seller’s agent’s real estate office or at the office of the chosen title company).

Three days before the closing actually happens, you’ll receive closing documents and loan terms to review. Make sure you go over them carefully, and if you have any questions, be sure to ask your lender or your agent for clarification.

Also, during these three days, you’ll want to complete a final walk-through of the property so you can confirm that the home is being turned over in the same condition it was when you made the initial offer. If any repair work was negotiated, this is the time to confirm that the repairs have been completed.

Typically, you will be expected to pay the closing costs by either wire transfer or a cashier’s check. Be sure to ask your agent what exactly needs to be brought to the closing and who the cashier’s check should be made out to.


After the Deal Closes

After the transaction has been finalized and you have the keys in your hand, you can officially call yourself a first-time landlord.


So, now what? 


Task 1: Prepare for Property Management

Did you know that only 44% of landlords have a property manager or a property management company handle their rentals? The question is, “What do you want to do?”

Property management companies and property managers handle all the day-to-day stuff, such as advertising your property, screening tenants, drawing up contracts, collecting rent, and starting the eviction process if necessary.

Keep in mind that if you go with property management, you will have additional expenses to account for including (but not limited to):

If you plan on being a self-managed mom-and-pop type landlord, you’ll have to learn how to do all of the above, but you’ll want to have a solid method for keeping detailed records of your operating expenses, maintenance costs, landlord insurance, and rental income for tax returns. Don’t forget that you’ll need to stay up-to-date with local landlord-tenant laws!

Note: If you want to learn more about your options for managing your investment, check out our in-depth guide: Managing Your Investment: The Most Comprehensive Guide to Rental Property Management for the New Investor


Task 2: Advertising and Screening Tenants

A well-rounded marketing plan can help you attract qualified tenants. Using online listings, social media, and neighborhood classifieds are just a few of the ways to get the word out about the property. You’ll want to highlight the property’s features in captivating rental listings with high-quality images and detailed descriptions.

When prospective tenants show interest in renting, a thorough screening procedure must be done. In most cases, this means doing things like checking references, checking jobs, and doing background checks. The key to a successful rental business is choosing tenants who are responsible and dependable.


Task 3: Lease Agreement and Legal Considerations

If you want to protect your rights as a landlord and make sure renters know what is expected of them, you need to make binding lease agreements. You should talk to a real estate attorney about writing a detailed lease deal that includes important details like rent payments, security deposits, the length of the lease, who is responsible for maintenance, and any regulations or rules. Making these terms clear can help avoid confusion and possible problems with renters.

A property manager typically handles this portion, but if you’re going to self-manage, it’s going to be your responsibility.


Task 4: Property Maintenance and Upgrades

Consistent upkeep of the property is key to maintaining its value and keeping tenants comfortable and satisfied. Set up a maintenance plan to make sure that repairs are done quickly. Also, you may want to consider including monthly property inspections, HVAC system maintenance, and landscaping in the maintenance schedule. 

If you’re thinking about renovating and upgrading some areas of the property, make sure you choose smart changes rather than going with the latest trends. Kitchens and baths could be updated to look more modern, energy efficiency could be improved, or the home’s curb appeal could be improved. Before you decide to make changes, think about how much money you might get back.

For example, if you’re going for maximum ROI, you could get a 147% return on investment by refinishing existing hardwood floors. However, if you’re going for energy efficiency, you could replace wood windows with modern vinyl windows. The vinyl offers a 60% ROI, but the long-term energy efficiency may be well worth it.

Credit: Architectural Digest


Task 5: Build a Network of Professionals

As a property manager, you can benefit from making connections with experienced investors and other professionals. If you have a solid network of professionals you can rely on, you can handle maintenance issues quickly and keep tenants as informed as possible. Grow a list of trustworthy electricians, plumbers, contractors, and handymen who can help you with repairs and upkeep.

In terms of networking with real estate professionals and investors, there are many networking events across the country, Facebook groups, and forums you can turn to. When you surround yourself with like-minded individuals, not only can you learn from them and grow your skills, but they may let you in on potential investment options that you otherwise wouldn’t be privy to.


How to Buy Your First Rental Property: Final Thoughts

Deciding to get into the real estate investing industry isn’t something that you do on a whim. It takes a lot of careful planning and being able to realistically review your finances to see if you’re even in the financial position to buy a rental property. 

It’s true that you’re able to generate extra income and can grow your wealth with long-term appreciation, but it’s not as easy as kicking back and treating your investment property as a cash cow. You have to have a solid real estate investment strategy, maintain an adequate cash reserve for unexpected expenses, and not be turned off by the amount of research that goes into finding good properties with high profit potential

If you want to start building your network of real estate investors and mentors, contact us today, and you’ll learn a lot more than just how to buy your first rental property.

Disclaimer: The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only.