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Should you buy a rental property? Five honest questions

Five yes/no questions before buying a rental: 20–25% down + 6 months reserves? Stable income independent of the property? Willing to be a landlord (or pay 8–12% to a manager)? Know the local market? Could absorb a 30% price decline?

Direct ownership is the most common form of real estate investing for individuals. It's also the form with the highest workload, highest concentration risk, and highest tax benefits. Five honest questions stand between "I want one" and "I should buy one":

1. Down + reserves: a $300K property requires $60–75K down, $5–10K closing, and $5–10K of operating reserves. Without that cushion, one bad month spirals. 2. Stable independent income: a negative-cash-flow month is uncomfortable; one when you've also lost your job is dangerous. 3. Landlord temperament or budget: if you can't take the 11pm call, build the property manager fee into underwriting. 4. Local knowledge: out-of-state investing is doable but harder. 5. Stress test: real estate doesn't decline often, but when it does, leveraged investors can lose everything.

If five honest yes's, direct ownership probably makes sense. If not, REITs and funds give you real estate exposure without the demands.

#rental#first rental

Related answers

Buying rental property

How to evaluate a rental property — five numbers

Five numbers: purchase price (from comps), gross rental income (Rentometer + local comps), operating expenses (30–55% of gross), Net Operating Income (gross − op-ex), and the two yields — cap rate (NOI ÷ price) and cash-on-cash (cash flow ÷ cash invested).

 Buying rental property

Financing an investment property

Investment financing differs from primary-residence financing: 20–25% down (vs. 5–20%), rate ~0.5–0.75 points higher, more scrutiny on DTI. Loan types: conventional 30-year, 15-year, ARMs, portfolio, DSCR, hard money/bridge, cash-out refi.

 Buying rental property

Self-manage vs. hire a property manager

Self-managing saves 8–12% of rent but costs 5–15 hours per property per month (much more during turnovers). Hiring a PM pays for itself if you have multiple properties, are out-of-state, or value your time at more than ~$40/hour.

 Buying rental property

House hacking — the on-ramp strategy

Buy a 2–4 unit property with owner-occupied financing (FHA 3.5% down, VA 0% for eligible veterans), live in one unit, rent the others. The rent typically covers most or all of the mortgage. Repeat every year to build a portfolio with minimal capital.