How to Buy a Rental Property

Let’s face it – we can only teach so much about how to buy a rental property in a short blog post. But this will at least give you the basics, and you can continue to dive into the topic with further research if you’re still interested. 

At a high level, here are the three most important steps to buying a rental property:

  • Determine where you want to buy the property
  • Figure out how much you’re comfortable financing
  • Get pre-approved

Let’s explore each of these a bit. 

Step 1 to Buy a Rental Property: Pick a Location

The first step in buying a rental property is to pick a general area for where the home will be located. This is important because it leads into the next step. 

What goes into this part of the process? Here are a few things to consider. 

Proximity to You- Is the area close to where you live? This is ideal for your first rental, so you can easily drive over to the property if necessary. Plus you already know the area, assuming you’ve lived there for a while. 

Neighborhood Condition and Demographics – What kind of neighborhoods are around? Is every single house well-kept by a lawn service, or are there expensive cars in the driveway? If so, it will be hard to find a good investment there. Likewise, you don’t want to buy a home in a shady part of town just because costs are low. Instead, the sweet spot is in the middle. 

Schools – The quality of the local schools is often an important factor. Everyone, both renters and homeowners, want to know their kids are going to a great school. If you can find a home in an area with great schools, it’s more likely to attract a lot of tenants. 

Got an idea of which neighborhoods you want? Good deal – let’s move on. 

Step 2 to Buy a Rental: Determine Your Budget

Even within a small area, home prices can vary, but using online tools you’re able to see what homes in those neighborhoods are selling for and renting for. 

As you look at the numbers, set a goal that you want the rent to equal at least 1% of the home price. So if a home costs $200,000 you’d want the monthly rental to be at least $2,000. That may sound like a lot, but it’s important to be able to cover all of your costs. 

The second thing to consider is your savings. Even though you don’t need it right this second, aim to save at least 6 months worth of the rental’s mortgage to account for maintenance surprises and vacancies. 

Step 3 to Buy a Rental: Get Pre Approved

The last major step is getting pre approved for your rental home’s mortgage. This is the scariest part for most new investors, as they’re worried they won’t be able to get a good deal. That’s where we come in! Give us a call at (949) 651-6300 and we’ll get you all setup with a great deal so you can focus on the next thing – closing on the home and getting your first tenant.