Getting started
Your first rental, from the cash you need to the numbers to check before an offer.
8 articles
One $250,000 rental explains ten terms: 8.4% cap rate, $420 a month
These terms all describe the same house from different angles: what it earns, what it owes and what you get back. In this example a $250,000 rental at $2,750 a month shows every one of them, from $420 of monthly cash flow to an 8.4% cap rate and a 1.32 DSCR.
Nothing down still leaves $20,730 to find, and the house loses $87 a month
No conventional loan finances all of a rental: 85% of the price is the most, so 15% down is the floor. In this example a 100% loan would still leave $20,730 of closing costs and reserves to find, and the house would lose $87 a month.
Your second rental needs $71,449, and $3,765 of it is the first house
A second rental works like the first, with one line added: your lender wants reserves set against the loans you already carry. In this example the second $250,000 house takes $71,449, and $3,765 of that is measured against the first house’s balance.
$50,000 of cash buys a $217,000 rental, and the rent decides if it pays
Your cash sets the ceiling: at 20% down plus 3% closing costs, every $23,000 of cash buys about $100,000 of house. In this example $50,000 buys a $217,000 rental, which keeps $365 a month if it rents for 1.1% of the price and loses $136 if it rents for 0.8%.
Replacing $5,000 a month takes 12 houses and $690,000 in cash
Divide the monthly income you want by what one rental clears, then round up. In the example below each house pays $420 a month, so replacing $5,000 takes 12 houses, and about $690,000 of cash to buy them.
A voucher caps this house’s rent at $1,000, and it clears $89 a month
The agency pays part of the rent directly each month, but a payment standard built from HUD’s Fair Market Rent caps what you can charge. In this example a $95,000 house is approved at $1,000 instead of the $1,100 it would fetch on the open market, and clears $89 a month instead of $166.
Your first rental in six steps: a $200,000 house that pays $189 a month
Save the cash, get a quote for a rental loan, screen listings, count every cost, confirm the key numbers, then close and find a tenant. In this example, a $200,000 house bought with 20% down pays $189 a month after every cost, on $50,000 of cash.
12 numbers to confirm before you make an offer on a rental
Get three numbers from a real source instead of the listing: the rent similar homes lease for, the tax bill after you buy, and an insurance quote. Estimate the other nine, from empty months to closing costs, then test the one that would flip the answer.