Congratulations on deciding you’d like to own a rental property! Taking control of your investments and finances is exciting and you should look forward to those extra dollars in your wallet. Of course, there’s no such thing as passive income. Owning a rental property will either involve you 1) investing more money or 2) dedicating more time to the maintenance of the home. Read on to find out what you need to know before purchasing, what to do when you own one, how to get started with tenants.
What You Need to Know When You Buy a Rental Property
Start with a Single Family Home
The first thing you need to figure out is what kind of property you’d like to purchase. Since you are just getting started I would recommend purchasing a single family property. To be considered a single family investment, this property for rent can have at least four units.
There are a few reasons why I’d recommend purchasing a single family home over jumping right into a multi-unit building. First, it’s simply cheaper. Buying a multi-unit building is going to be expensive and if you are just starting out, it’s better to make a much smaller investment in case you realize this isn’t the right investment strategy for you.

Second, when you only have one or a few tenants to deal with you won’t get overwhelmed with issues. Multiple complaints, maintenance requests and vacancies will not result in cash flow – it will result in you going into debt. Start with a smaller investment so you have the time and energy to deal with anything that comes up.
Third, single family home tenants tend to have children and wish to lay down roots to the best of their abilities for school and stability. Therefore, they stay longer and are kinder to the home compared to tenants who feel they can easily leave after a year. Thus, this is the best kind of rental property to ease you into the industry.
An excellent option is purchasing a duplex and living in one side yourself. First, it will save you money. By living in your investment, you’re removing an added expense (which is your rent or mortgage somewhere else) and you don’t have to worry about an additional vacancy.
Also, if there are any issues with your tenant, you live right next to them. You can easily fix or address what ever they need. Developing a professional and courteous relationship with your tenant will also entice the tenant to be kinder to the home and even pay rent on time or in advance.
Focus on Return on Investment
When you are looking to owning a rental property, have your return-on-investment in mind at all times. Consider the 1% rule. If you bought a property for $350,000, that would mean that monthly rent would have to be $3,500. If you don’t think the market would be willing to pay that, move on, and find a rental property that is cheaper.
Many use the 1% rule, but there are other aspects of renting a property that you must consider. Some examples:
• Mortgage amount;
• Insurance;
• Property Taxes;
• HOA fees if any;
• Maintenance Repairs – ( This could be 5% of monthly rent to 8% depending on age and condition of the house);
• 8-10% management fee – (Even if you manage the house, this is important to consider and to add it, in case you hire a manager in the future);
If you really want to be in the black, you’ll need to acquire 10 or more homes to be converted as rental property. Let’s say you only have one property and your HVAC breaks. You might be net positive before this incident, you’ll be out $3,000 to $5,000 to repair it, setting you back and putting you in debt. By planning to buy 10 or more homes you’re guaranteeing yourself cash flow for repairs.
It’s important to do your research ahead of time and look at comparisons. What properties are renting and for what amount of money? What prices are people in your area willing to pay? The market will tell you one way or the other. Don’t let your property sit there for months, vacant, just because you own this rental property too expensive for your market or you’re trying to get a higher return.
Location, Location, Location
Don’t be afraid to look at locations outside of where you currently reside. You might know your hometown like the back of your hand or an area where you often do business for work. It may make things easier to be in close proximity to the property, but don’t rule out looking at other towns and cities that you know equally well. You might be able to get a higher return elsewhere owning rental property there.
Put Yourself in the Shoes of the Renter
Everyone has different wants and needs. Before owning this rental property, put yourself in the mind of a renter when looking at the property. For single family homes, consider the life of a family. Is it near schools? What about a community pool for the summer time? These are great selling points that will make your property rent faster.

Also look at the amenities of the home. How are the closets? Is the basement a usable hang out for kids or good for storage? Is there a garage? Again, you want to find a place that would be attractive to a tenant.
Plan Ahead
Always plan ahead. Figure out all your finances ahead of time. Let’s say you follow the 1% rule. That’s good, but you also need to factor in lease breaks and vacancies, natural disasters ruining the roof or flooding the basement, accidental holes in the wall, etc. Just make sure to give yourself some cushion room. I’d recommend being able to cover three months rent before putting it on the market.
You’ll also want to know your local and state laws when it comes to renting. For example, the laws regarding rent control. Or heat and hot water. Each city and state is different, so be sure to get educated on rules and regulations before buying.
Buy the proper insurance. Normal homeowner’s insurance just won’t do. If a tenant gets hurt on your property you may be liable. Cover yourself from possible future infractions.
Joining your local landlords association will be incredibly beneficial. You’ll get great advice from seasoned veterans and you can experience the wins and challenges of running a property with the rookies. Having a community to turn to when you’re in a tough spot can help when your morale is low.
What You Need to Know When You Rent to Tenants
Have Everything in Writing and Screen Your Tenants
I’m sure you have heard landlord horror stories before. Tenants leaving without a trace, apartments being trashed, etc. You can protect yourself by having an extensive contract for your tenants to sign that covers everything under the sun. Having a more detailed contract will also make your tenant feel safer in the partnership.
Speaking of tenants, make sure to screen them. An application with a background check is crucial so that you’ll be able to see any red flags that pop up. If at all possible, have a conversation with your prospective tenants, face to face. The more trust you create in the relationship, the better tenants they’ll be.

If you don’t have time to screen tenants you can hire a property management team to do it for you. Property management teams also take care of any maintenance inquiries and updates to the property as well as collecting rent. Of course, outsourcing this will cost you. In the beginning I think it’s best for you to do this yourself. But if you’re swamped, outsourcing is a viable option.
Think Customer First
When owning a rental property, consider your return on investment. This means the longer a tenant rents your property, the more guarantee you’ll have on a return. Make life as easy for them as possible so they won’t leave and stay longer at the rental property you own.
First, offer rent by ACH. As the world becomes more “digital-first,” offering a portal for your tenants to pay online will save them time and energy. While you’re at it, having a maintenance request portal would also be advantageous, especially if it tracks the progress of the request.
Of course, if you only have one single family home rental property, that latter portal might not be necessary. Just remember that the easier you make life for your tenant the more likely they’ll stay. We can’t control everything in our tenants’ lives, but working with us shouldn’t be a headache.
In Conclusion
In the beginning, consider starting with a single family home. And when you are touring homes, consider the life of the tenant. Is this home nice to live in and is it in a prime location? Consider your budget when you’re searching and check out comps. You’re buying this property as a form of an investment after all, so be sure that it’ll give you a return on your investment to the best of your abilities and that the rent will be the right price. Aim to own 10 homes so that you will always have necessary cash flow.
Once you begin renting, have everything in writing and properly screen your tenants. You’ll be glad you did when you get an application for a lease and they just aren’t qualified. Once you have your tenant, think of the customer journey first. How can you make their life easier? What problems do tenants and landlords typically have and how can you rectify those issues?
Overall, you’re going to hit some speed bumps if you are new. Owning a rental property would mean problems will arise and sometimes tempers flare. Prepare for the worst with an emergency fund and approach all issues calmly and logically. Network and join a landlords association for extra support.
As I stated in the beginning, purchasing a property and renting it out is exciting. If all goes well you’ll surely get a return. What questions do you have that I didn’t cover? Share with me in the comments!