Order matters when you buy a first rental. Shop before you know your cash and your loan, and you can fall for a house you can’t buy. Offer before you’ve counted every cost, and you can buy one that doesn’t pay. The steps below run in order, with one example house taken through each: a $200,000 single-family home that rents for $2,050 a month.
- Work out the cash you need.
- Get a quote for a loan on a rental.
- Pick an area and screen listings.
- Count every cost on the houses that pass.
- Confirm the key numbers, then make an offer.
- Close, then find a tenant.
How much cash do you need before you start?
Cash comes first, because it sets the price you can shop at. Freddie Mac’s limits on the loans it buys stop at 85% of the price on a one-unit rental, so plan on at least 15% down. On a building with two to four units that you won’t live in, it’s 25%.
The down payment isn’t the whole bill. Closing costs, any work before the first tenant and reserves come on top. Reserves are savings you still have after closing, and the reserve rules in Fannie Mae’s automated approval system ask for six months of payments when the property is a rental.
On the example house, 20% down, closing costs of 3% and $4,000 of paint and repairs come to $50,000. Six months of the monthly payment, about $1,389 with taxes and insurance, adds about $8,340 of reserves, for about $58,340 in all. How much money you need to buy a rental explains each pile, and how much less it takes if you live in one unit of a two- to four-unit building.
How do you get a loan for a rental property?
Talk to lenders before you look at houses, and ask for a quote on a rental. A published average rate won’t tell you what that loan costs. Freddie Mac’s weekly survey put the 30-year average at 6.76% on September 10, 2026, but it’s built from purchase loans on single-family homes their owners live in, made to borrowers with good or excellent credit.
Loans on rentals carry a cost those don’t. When Freddie Mac buys a loan on a rental bought with 20% down, it bills the lender a one-time fee of 3.375% of the loan (Exhibit 19, as of September 2026). This example assumes a 30-year loan at 7%, which puts the mortgage at $1,064 a month. Swap in a real quote as soon as you have one.
How do you find a rental property worth checking?
Pick one area and learn what homes there rent for and what they cost to own. Then use the 1% rule as a first screen: a house earns a closer look if a month’s rent is at least 1% of the price. Use the rent similar homes nearby actually lease for, not the figure in the listing.
The example house passes, at $2,050 on $200,000. Passing only earns it that closer look, because the rule leaves out every cost. Two houses that both passed the 1% rule ended up $450 a month apart.
How do you know if a rental property’s numbers work?
Put every cost against the rent, including the ones that don’t send a bill every month. For the example house, that means setting aside 5% of rent for empty months, 5% for repairs and 5% for big repairs like a roof or a furnace, and paying a property manager 8%, even if you plan to manage it yourself. Property taxes here are $2,400 a year and insurance is $1,500.
| Each month | |
|---|---|
| Rent | $2,050 |
| Empty months (5% of rent) | −$103 |
| Repairs and big repairs (10% of rent) | −$205 |
| Property taxes | −$200 |
| Insurance | −$125 |
| Property manager (8% of rent) | −$164 |
| Mortgage | −$1,064 |
| Cash flow each month | +$189 |
These are example figures, not a forecast for any market.
That $189 a month comes to $2,268 a year. Divide it by the $50,000 you put in and you get a 4.5% cash-on-cash return. The margin is thin: the house stops paying for itself if the rent slips to about $1,805, and at 8% interest instead of 7% it pays $79 a month.
Leave out a cost and the answer can turn around. One house in these seven rental analysis mistakes went from $966 a month on paper to a $34 loss.
What should you confirm before you make an offer?
Three numbers in any rental analysis should come from a real source rather than the listing: the rent similar homes lease for, the tax bill after you buy, and an insurance quote for the address. On the example house, a tax bill $100 a month higher than planned would cut the $189 to $89, and so would an insurance quote $100 higher. The 12-number checklist says where to find each of these, and nine more.
Once the numbers hold, make the offer. Write it so you can renegotiate or walk away if the inspection turns up problems. How that works varies by state, so ask your agent or a real estate attorney.
What happens after you close?
The last step is finding a tenant, and the law sets rules for it. The federal Fair Housing Act bars discrimination in renting a home because of race, color, national origin, religion, sex, disability or familial status, which covers households with children under 18 and people who are pregnant. Check your state’s and city’s rules too before you advertise.
Then decide who will handle repairs and rent collection. The example already pays a manager 8% of the rent, so its numbers hold if you hire one, and improve if you do the work yourself.
Rent also counts as income. In most cases, the IRS says, you must include all the rent you receive in your income, and you can deduct the costs of renting, such as maintenance, insurance, taxes and interest (Publication 527). Keep records from the first month, and ask a tax professional how the rules apply to you.
All six steps start from one listing. Pick a real one in your area, enter it in the rental calculator with the rent similar homes get, and see whether it still pays with every cost in. If it does, the checklist is your next stop.