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buying a rental property to ensure financial security

How to Buy Your First Rental Property (The Right Way)

Do you want to know how to buy your first rental property? If so, you’ve come to the right place. In this article, we cover some of the most important things you’ll need to know when owning a rental property.

The most important question you’ll want to ask yourself when buying a rental property is “What its purpose”? For example, are you looking for monthly cash flow or capital appreciation? No doubt, since 2008, it has become harder and harder to find properties with positive cash flow. Indeed, most properties today are financed with a mortgage, and the owner/investor has to cover a monthly shortfall. In exchange, the investor is hoping the property appreciates well in the future, and can sell it for a profit.

Finding an investment property that is a good deal right now is going to be very difficult. Inventory is at record lows, and most people underestimate how complicated the acquisition process is. Put in the research and create an intricate plan for acquiring property. Indeed, this is the key to everything in this business, says Bill Samuel, Owner of Blue Ladder Development

Let’s dig in and explore all the things you’ll need to have and know when buying a rental property.

Get Organized to Obtain a Mortgage

As a general rule, when getting organized for your mortgage, you will want an organized packet of information for the lender. For me, I like to keep all my statements and documents in PDF form on my computer. Indeed, they are organized by year, and statement type. If I’m buying a rental property and the lender requests two years of tax returns, no problem! I have them ready. Or, if the lender asks for a net worth statement, no problem my spreadsheet is up to date! Indeed, owning rental property requires a certain degree of organization!

Another thing to think about is whether or not the bank will require a co-signer / co-borrower. Indeed, having a co-signer can actually increase your chances of getting the mortgage on a rental.

When buying a rental property in Singapore, it’s a challenge to find banks that offer a mortgage on such properties.  In my experience, I found it easier to get a co-signer to be included as part of the owners. 

Cyrus Yung

2 Years of Tax Returns (To prove income)

Most lenders want the comfort of having two years of tax returns on hand. Indeed, this is a minimum requirement. You can get tax transcripts from the IRS here, or from CRA (In Canada) here. One thing to note: If you owe money to the government, this should be paid off before you make it to the mortgage pre-approval process. Certainly, a zero balance with the taxman will be necessary to obtain a mortgage when buying a rental property, or any property for that matter!

Know what’s on your credit report

When buying a rental property, you will likely be applying for a mortgage. Certainly, one of the first things the credit officer or underwriter will do is check your credit. On the credit report, the underwriter will have access to information (including, but not limited to) such as:

  • Credit Score
  • Payment history/late payments
  • Bankruptcies
  • Charge-offs (Forgiven debt)
  • Loans, Credit Cards, and Lines of Credit
  • Credit limits
  • Closed accounts and inactive accounts
  • Mortgages

How to get a free copy of your credit report

There are several places you can download a copy of your credit report. For example, in the United States and Canada, you can use Credit Karma. Obtaining your credit report before applying for a mortgage will save you time, effort. And, if you can improve your credit score, you’ll possibly even get a lower rate on the mortgage. And for sure, that will save you money when owning a rental property!

Once you have a copy of your credit report, go through it carefully. For starters, make sure you don’t have anything negative showing up. Well, if there’s something negative such as a late payment, ask yourself, is it accurate? Inaccurate negative info on your credit report will certainly drop your score, leading to paying a higher interest rate on the mortgage. And don’t fret, you don’t need a perfect credit score when buying a rental property. Rather, aim for a credit score north of 760.

Net Worth Statement

Even if your net worth is 0 (or a negative number), a lender will want to see your financial position. For example, do you have other investments (Savings, Stocks, other investment properties, etc.)? Naturally, you’ll want to list your debts here as well. A net worth statement can be incredibly helpful when buying a rental property as it indicates your creditworthiness to the lender.

Pay Down Revolving Debts

When buying a rental property, having too much unsecured/revolving debt can be a deal killer. Remember your credit report? Double-check all the balances, and monthly payments to make sure everything is correct.

You see, the mortgage underwriter will almost certainly subtract your estimated monthly payment on each of your unsecured debts from your “affordability”. For example, let’s say your combined minimum payments on credit cards and car loans are $750/mo. In this case, your affordability could get reduced by as much as $150,000! As a result, it’s important to pay down as much unsecured debt as possible, before obtaining mortgage pre-approval.

This list is not exhaustive, and not everyone will need all the information. But, if you have a small income but a large retirement account, it can always help your case.

Put Together Your Dream Team

Having a “dream team” working for you will surely be an invaluable asset and a contributor to your success as a property investor. I remember buying my first rental property at age 24 – it was my first!. And, I didn’t know any realtors, bankers, or any other professionals. I did, however, know the place I wanted to buy. So, I reached out to a friend in the car business. And, he put me in touch with my first banker. She was a loan officer with a credit union, and “took a chance” on me. I’ll never forget the day I was able to get my first mortgage. That relationship remained solid until she retired a few years ago.

Also, over the years, I’ve developed a network of trusted trades and professionals who I can contact for pretty much anything. After thinking about it, and relative to buying a rental property, here are the different types of professionals I recommend having at your disposal:

Hiring a Great Realtor

A good realtor is worth their weight in gold. When I worked as a realtor in Vancouver, I met many realtors, and some were REALLY good. So, if you don’t already have a realtor, it’s best to interview as many as possible, and don’t hesitate to ask for, and check references! One of the best values I thought I could bring to the table was my own team of experts, trades, and professionals who could assist with my clients’ every need. Whether it was a plumber to fix a broken pipe with 30 minutes notice, an electrician to inspect something or a painter for a last-minute job, it’s important that your realtor comes with a team.

Furthermore, a good realtor might specialize in working with different groups of people such as first time home buyers, or seasoned investors. If you are looking at buying a rental property, whether it be a house or condo, your realtor should have a long history in working with clients who are similar to you!

Last, a good realtor will keep in touch after the sale. Indeed, you want your realtor to be there for you when you need them most.

Be Prepared to Pull the Trigger

Be prepared to move forward when the right property comes on the market and work with a Realtor who has their finger on the pulse, says Dave Brown *Personal Real Estate Corporation from Whistler Real Estate. Have you financing pre-approved, know the area or neighborhoods you want to be in, and don’t get caught up in trying to save a couple thousand when the opportunity presents itself.

Read more: How Many Jobs Are Available in Real Estate Investment Trusts?

Finding the Best Banker/Mortgage Broker

When buying a rental property, you will quickly find that financing a rental will not be as easy or as straight forward as financing a single-family, owner-occupied home. Also, there will be differences between buying an investment property such as a condo, vs a house. However, a good banker or mortgage broker will help steer you in the right direction. Knowing what you can afford and being pre-approved will be incredibly helpful in your hunt. The last thing you want is to have an accepted offer on a home, only to find yourself scrambling for financing at the last minute.


While it’s true that notaries can do the conveyancing, if something goes wrong, you’ll need a lawyer. As such, I often recommend using a lawyer when purchasing or selling a home. And, in my experience, the cost difference is often negligible. Also, like any other profession, don’t hesitate to interview, ask questions, and references. It’s important to know what whoever you choose is educated, and used to dealing with the same type of transaction you’re about to be involved in!

Investing in real estate in a city with a high demand meant there were many regulations implemented by the government and municipality on the rental of housing. As we are not lawyers nor real-estate agents, getting acquainted with all the various laws regarding investing and renting real-estate was quite challenging, says Anastasia Schmalz and Tomer Arwas, Co-Founders of Generation Nomads. For this reason, it’s best to acquire the assistance of an expert lawyer to ensure the investment will be according to the latest regulations. 


Having an accountant you can save you thousands, if not hundreds of thousands of wasted tax dollars over a lifetime. Further, a great accountant can steer you clear of potential obstacles down the way. When buying a rental property, a good accountant can ensure that your tax structure is set up correctly. For example, are you buying the property in a company or trust, or individually? And, what are the implications of each?

When it’s time for buying a rental property

When the time has come for buying a rental property, you’ll now need to decide what type of property to buy, where, and the budget. To be sure, it’s important that each of the following get proper consideration.

House hacking (Buy a multifamily home)

Buying a rental property such as a townhome (displayed) allows the owner to househack!

If you aren’t already a homeowner, or you’re buying your first rental, you might consider buying a multifamily home instead. A multifamily home, such as a duplex, triplex, or fourplex offers you the ability to live onsite while having the other tenants pay (part, if not all) the mortgage. Also, buying a rental property that you can also live in, is a brilliant way to financial independence! In my own experience, living in or close to the investment property gives you peace of mind to be able to resolve issues fast. Also, you can check up on your investment regularly to see that all is well.

Search for positive cash flow

When I was searching for a house, I knew I was going to be buying a rental property. My goal was to have a positive cash flow while also living in it. I started searching for single-family homes with 2 kitchens that could be used as multi-family homes, which in Virginia, these homes sell fast. It took me quite a few tries over the course of 3 months to make an offer that didn’t get beat by all cash buyers or buyers that were offering way over market value. I ended up increasing my offer to get my first investment property, which was a challenge in itself to ensure I wasn’t overpaying and getting desperate just to get a property.

Andy Kolodgie, Co-Owner – The House Guys

Getting credit for rental income

One giant benefit of buying a multifamily home is that banks will often “give you credit” for a portion of the rents! For example, if you’re buying a rental property and affordability is a little low on your own, some banks can even add a portion of the rents to your income, thus allowing you more buying power. If they do, it’ll make it so much easier to afford the property. However, each lender is different, so, don’t feel bad if you’re rejected at one company.

Location, location, location

Having owned investment properties since my early 20’s, I can legitimately say, it’s best to start investing in real estate when you’re young. And, always own a property that you yourself would live in. To be sure, that includes the location, and it always applies when buying a rental property.

Some of the very best locations for buying rental property are those that are close to transportation and shopping. For example, would you really want to drive an hour for eggs and bread? Or, would you want to walk 30 minutes to the nearest bus or train station? Also, consider if the area is generally safe. Are you able to freely go out for a stroll?

Related read: The Basics of Investing In Real Estate

Focus on the purchase price

One of the biggest mistakes someone can make when buying a rental property is only considering the future sale price. Rather, when buying your first investment property, you want to consider the purchase price first. Indeed, considering the purchase price gives you full control over the first part of the investment (Do you have a crystal ball that tells you what the property will sell for in the future?).

Cost of updates and renovations

Also, when buying a rental property, it’s important to consider the cost of any updates or renovations to make the home livable. Indeed, it’s rare to buy a rental property ready to rent out because the asking price is usually too high. Of course, if you’ve found a diamond in the rough, a home that is ready to rent out without making any updates or modifications, congratulations!

renovated kitchen high end

Be sure to have your inspectors, contractors, and architect evaluate your investment property thoroughly and give scope/cost of work to be completed in writing. Exceeding a renovation budget can lower your return on investment and take you years to collect, says Chris McDermott, Real Estate Broker/Investor – Jax Nurses Buy Houses

Finding Balance

Should renovations be necessary, you’ll also want to be sure to find a balance between too high-end, and too low-end. For example, if you’re buying a rental property, consider using durable, long-lasting finishes. Flooring, such as carpet or laminate flooring might be attractive due to its cheaper price, however, it will not last as long as engineered wood. Also, going too high end could cost you in the long run. Consider the image above. Do you think this kitchen would be more suitable in a rental property worth $200,000 or $400,000?

Get a Home Inspection

Another important factor when buying a rental property is to have it inspected. Qualified, professional home inspectors will know what and where to look and find problems before they happen. In my experience, the best home inspectors are thorough, and their reports might scare you. But I assure you, they aren’t there to scare you, but rather, to make an informed decision.

Questions to Ask when buying a rental property

If you’re buying a rental property such as a condo, knowing things like the HOA (Home Owners Association) fees will be important. Indeed, a condo with very low, or similarly, very high HOA fees can be a red flag. Also, try and get a copy of the documents related to the history of the property. To be sure, most HOA will provide the “minutes” to the previous meetings. READ THEM!

On the other hand, if you’re buying a detached house, you’ll want to have a closer look. For example, have there been renovations made, and was a permit used? Renovations must be done the correct way, following all the local laws. Otherwise, you might find yourself in a bind later on.

I have delayed purchases, walked away from opportunities after due diligence over price, inspection issues, disclosures, and pending assessments at Condo associations.  There are many reasons to proceed with caution and to walk away.   

Tom Mercaldo, President – Aquinas Consulting

Do the numbers (calculations, costs, etc.)

Whatever you do, when buying a rental property, it’s imperative to do the numbers. Grab a spreadsheet and get the best estimate of your costs. For example, there will be closing costs before you get the keys. Then, there might be renovations. Also, you’ll need to consider property taxes, utilities, and estimates for ongoing maintenance. The better you know this information beforehand, the better you will know how much you can afford down the line!

Inexperienced investors ignore or underestimate many of the expenses associated with rental properties, such as vacancy rate, repairs and maintenance, property management costs, and legal and accounting fees, says G. Brian Davis, Director Of Education – SparkRental.

Buying a rental property with no money down

Seasoned investors might be happy buying a rental property by borrowing the down payment. For example, they might use a line of credit, find the money from other investors (friends, family, etc.), or more commonly, they will use equity from other properties in their portfolio. While I’m not necessarily an advocate of borrowing a downpayment, it’s important to know how it works.

Say you have an investment property that you bought a few years ago, and today, your realtor tells you it’s probably worth $300,000. Further, you have a mortgage of $200,000 outstanding. This means you have $100,000 of equity, that you can partially use to fund the purchase of another investment property!

Finding the perfect tenant

If you’re buying a rental property that already has tenants, then you’re likely in good shape (if the tenants are decent). However, if the property is vacant, you’ll need to consider finding the perfect tenant. In my experience, the perfect tenant is sort of like finding a unicorn. When you find one, treat them like family.

Try to find tenants that will treat the home the same way you might treat your own home. Indeed, you’ll likely want some sort of proof of income, and maybe even assets. References can be helpful, but, I generally prefer references from those who have little to gain (I.e. I don’t want to call a family member or a friend). However, a banker, doctor, or employer would be a great choice!

Screen your tenants

Screen your tenants as best as possible. Indeed, there will always be people looking for how to get a rental with bad credit. Elandas Miller, CEO & Founder, Kicking It Sports says he learned this the hard way at the beginning. Many of his tenants didn’t have the greatest credit score, which usually means they are not the best at paying on time. To alleviate any hassle, do your best to screen tenants and find people who have a good credit score, a stable background, proof of income, and will take good care of your property. There are dozens of tenant screening software out there to help you find the right tenants. 

Tenant placement services

Finding a great tenant is a little bit like finding a unicorn. Indeed, model tenants are few and far between. But, when buying a rental property, you want to improve the chances of finding a great tenant. For example, you, the landlord, will need to do your due diligence. For finding tenants, I say, leave it to the professionals. Tenant placement services usually cost between 1/2 and 1 month’s rent. And in exchange, they will screen prospective tenants, run credit checks, check references, and finally, write the tenancy agreement.

Unless you have a (close) family member or a friend moving in, if you’re new to buying rental properties, I highly recommend hiring a tenant placement service at a minimum.

Property Management

Like tenants, good property managers are worth their weight in diamonds. A good property manager will not only screen prospective tenants but, will collect the rents and handle the day to day maintenance and issues that will come up. Also, property managers act as the emergency contact for landlords in the event something happens. For example, if the basement floods at 2 am, it’s the property manager’s issue. But, don’t forget, you, the investor, will pay for it.

It’s inevitable that life changes in ways that we don’t expect it too, says Shawn Breyer, Owner – Dough Hackers. Make sure that the area you are buying a rental property in has at least 5 property management companies. If you move away and cannot manage the property yourself, you don’t want to be stuck with a terrible property management company.

Avoid the bad apples

A bad property manager can make you lose tens of thousands of dollars every year. And if your property management company turns out bad, later on, you want to be able to easily switch to a better one. 

Like all good professionals, property managers aren’t cheap. Indeed, they generally cost 8-12% of the gross rent. To be sure, this could mean the difference between profit and loss in any given month. So, when buying a rental property, give it some careful consideration!

Frequently Asked Questions (FAQ)

Is owning a rental property worth it?

Owning a rental property can be one of the most significant wealth-builders you will ever encounter. But, like every investment, you have to do your research.

Can I buy a rental property without owning a home?

Buying a rental property without owning a home can be risky if you’ve never owned a home before, as you might not be aware of all the things that could happen. Perhaps consider buying a duplex, triplex, or even a fourplex instead. By owning a rental, and living in it, you will always be nearby should you need to be available.

How much should a rental property cost?

When buying a rental property, it’s important to first have a solid idea of your affordability. For example, how much do you have for a down payment? A mortgage broker or banker will certainly help out to determine your affordability.

Is it better to buy a rental property first?

It’s always better to buy a home you will live in first. However, if you do end up buying a rental property first, consider a multifamily home such as a duplex, triplex, or fourplex. If you’re owning a rental property and living in one unit, the other tenants can live in the other units.

Is it harder to get a loan for a rental property?

Yes, it is generally more difficult to obtain a mortgage on a rental property. However, if you are organized, it is certainly possible! One thing I’ve learned about buying a rental property is that the more times I did it, the easier it got!

Can you get a 30-year mortgage on a rental property?

Yes, you can get a 30-year mortgage on a rental property. However, each lender will have their own individual requirements. When buying a rental property, it’s suggested to borrow as much as you can, for as long as you can, for the cheapest amount possible. Indeed, that will give you the most flexibility!

Can I live in a rental property?

Yes, you can certainly live in a multifamily rental property, and I highly recommend it!

When is the best time for buying a rental property?

Buy earlier and as soon as you can.  I lived in my first property, a multifamily home, while I fixed it up.  When the tenant’s stove and refrigerator broke, I gave them mine and lived with a cooler and microwave for nine months until I could replace mine.  I had fun with it and never regretted diving in. I only wish I had gotten started earlier.
Attorney Michael Robbins – Crowley & Cummings

Final Thoughts About How to Buy Your First Rental Property

I hope these tips have been helpful. Should I have missed something about buying a rental property, don’t hesitate to first reach out and let me know. And, if you found this article useful, let me know in the comments below!



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