Rental Property Investment: How to Choose, Buy, and Make It Profitable

a white wooden miniature house on a welcome mat

Rental properties may provide a steady stream of income while also increasing in value over time. The Census Bureau estimates that there are around 48.2 million rental properties in the U. S. About a third of those units are owned by individual investors, including a considerable number of single-family and multifamily rentals.

There are various issues, charges, and expenses to consider before diving into rental property investment, such as how much house insurance you need and whether or not you need renters insurance.

Want to get a rental property finance loan without having to go through hoops? That’s simple. Give us a call at 800-816-7982 and check out which conventional mortgage loans are suitable for you!

Real Estate Investors’ Understanding of Rental Properties

Many Americans are moving to the property market as house values climb. Rental units are more lucrative than ever before, but they still require a significant financial investment on the part of purchasers. Before making a purchase, it’s critical to weigh the benefits and drawbacks.

Pros and Cons of Rental Property Investing

The financial consequences of rental properties necessitate an understanding of the accompanying risks and benefits. Here are several reasons why rental homes are a good investment, as well as some things to avoid.


It’s a good way to make money. Monthly income and house value growth are two sources of revenue for rental properties.

Deductions for taxes. Property insurance, mortgage interest, maintenance charges, and other required expenses can all be deducted from your taxes as an owner.

Protection against inflation. Real estate can be used as an inflation hedge. Regardless of the economy’s ups and downs, assets such as single-family houses tend to increase.

The accumulation of assets. You could only have to pay 10 to 15% of a mortgage if you buy a house and rent it out.

Predictability of income. The expenditures and returns on rental properties are predictable. You can correctly budget once you’ve determined your rental rate.


Tenants that are difficult to work with. Difficult renters might cause property damage or rent arrears.

The neighborhood is deteriorating. External factors such as local politics or unsuccessful redevelopment initiatives might cause the value of homes in a community to drop.

Maintenance is required on a regular basis. Regular maintenance might be challenging for individuals who work full-time and don’t have additional money to set away.

Participation that is active. Talking to renters on a regular basis, maintaining the property when needed, and submitting appropriate documentation are all part of owning a property.

Vacancies. Rental revenue can be hampered by high vacancy rates, and many properties are unoccupied for at least part of the year.

a real estate investor is talking to her mentor

Determine What Type of Investor You Will Be

Short-term rental apartments that demand consistent care are quite well for investors. Passive investors may choose to engage in REITs or pay for the services of home management to avoid inconvenience. Knowing what kind of investor you are might help you figure out which real estate approach is right for you.

Involved Investors.

Short-term rental and retail assets that require a lot of energy and dedication may not bother involved investors. Such assets can be profitable, but they are also time-consuming.

Uninvolved Investors (Passive).

The passive investor prefers to remain hands-off and may hire a property manager or engage in real estate investment trusts (REITs). You may receive money from a corporation that owns and runs real estate by investing in REITs.

Studious Investors.

Young professionals may be balancing the obligations of a full-time career with the needs of a family. Renting out a spare bedroom or converting a shed into an extra apartment are two options.

Full-Time Investors.

Full-time investors may devote a large amount of time to selecting properties and repairing them to the point where they may be sold or rented for the best possible price.

How to Make Profit via Rental Property Investing

Aside from owning and renting a home, there are a variety of methods to profit from real estate. You may construct a portfolio of various assets to assist you to reach your financial objectives by discovering and comprehending additional options.


REITs are a type of passive income that entails purchasing stock in firms that possess income-producing assets. These may be acquired on stock exchanges around the world and can help you avoid the hassles of owning and managing a home.

Short-Term Rentals

Short-term rentals provide more flexibility while still providing a reliable source of income. Popular services like Airbnb can help you break into this market, but you can also supplement your earnings by leasing out a spare bedroom or converting a garage into a second apartment. You may lower your overall housing expenditures while understanding more about being a landlord by developing rentable space.

Flipping Houses

Flipping houses is buying a house below market value, making required repairs, and then reselling it for the largest possible profit. Getting the most out of time-consuming procedures necessitates considering important elements such as cost-effective supplies and personnel.

making improvements on a house to increase the property value


This method entails acting as a “middleman” between buyers and sellers. The wholesaler looks for attractive bargains on the marketplace and then gets a buyer willing to pay a slight premium for the property. Consider wholesaling as a type of venture that necessitates strong sales and marketing abilities.

Purchasing and Keeping

This long-term investment plan entails buying and keeping a property for the purpose of selling it at a later date to profit from the appreciation. During the “holding” stage, the property is usually leased to aid with finance.

Identifying Good Rental Properties

Not every property is suitable for every investor. Aside from locating a home that suits your budget, property investment may be something you’re ready to handle on your own for the most part.

Taking the time to know about various sorts of properties might aid you in deciding how to go with the buying process.

Single-Family Properties

The most frequent form of property is a single-family dwelling. It is usually separate from surrounding homes and can be a safe investment during inflationary years.

Multifamily Properties

Duplexes, triplex, condominium groups, or even whole apartment complexes are examples of multi-family buildings with several rentable units. These investments create many revenue sources while adhering to the notion of economies of scale.

a luxury rental property in the winter

Vacation Homes

Vacation houses are often located in prominent tourist areas and are rented out for short periods of time. It’s also simple to create a listing and get takers on services like Airbnb. Vacation rental investments are getting more and more popular among seasoned investors, so without a doubt, they are worth considering!

Luxury Homes

Luxury apartments are designed for high-end renters and often have cutting-edge equipment, a modern design, and a variety of amenities. Such assets can be profitable, but the barrier to entry is high.

Assessing a Good Rental Property

In evaluating the value of an investment home and achieving a long-term profit, location and statistics play a vital impact. Knowing how to assess a property might be the difference between making a profitable investment and declaring bankruptcy.

Examine the surrounding area.

Neighborhoods are divided into three classes in real estate, with Class A having the lowest turnover rate, Class B being a moderate turnover rate, and Class C having a high turnover rate. A property’s long-term revenue potential is determined by its neighborhood, so consider yourself: Would it be safe? Are any redevelopment projects in the works? What are the occupancy rates in your area?

Look into the demographics.

As a landlord, demographics might have an influence on your income potential. Is the neighborhood, for example, densely populated with students or families? You could have a regular supply of renters if it’s full with students, but you could also have a higher occupancy rate. If the majority of the guests are families, you may wish to consider houses with numerous bedrooms.

Locate the nearby businesses.

A health center or clinic, pharmacist, school, police station, or store can increase the value of a property and make it a more feasible alternative for tenants.

Examine the building.

Examine the inside and exterior for repairs that have to be done right away or in the future. Avoid houses that require significant repairs or entirely rebuilt kitchens or bathrooms unless you’re solely focused on flipping homes.

a man holding a property inspection form

Before Investing

After you’ve found the perfect rental property, the next step is to purchase it. Purchasing a home necessitates more than just the capacity to pay a mortgage. Knowing what to expect in advance will help you prepare.

Clear your debts

You must have a minimal debt in your name to qualify for financing. Wait to acquire a rental property unless you’ve paid off all of your debts, including medical bills, school loans, credit cards, and auto payments.

Put money aside for a down payment.

Many mortgage programs only demand a 5% down payment, however investment properties could have requirements of up to 20% of the sales price. Before you make a commitment, figure out how much you can spend.

Decide if you’ll purchase or borrow.

You could purchase a rental property directly or finance it with investment loans, depending on your financial goals. You won’t be burdened by interest rates if you pay cash. A mortgage, on the other side, does not bind a great deal of cash in one place.

Examine the current interest rates.

Because lenders expect you’ll pay debts on your primary house first, interest rates for property investments are often higher than regular mortgage rates. Consider this and browse around and see what possibilities you have.

Calculating the Return on Investment Property

Your return on investment (ROI) can inform you whether you’re looking at a lucrative property with long-term appreciation potential. Mortgage rates, funding, property taxes, and other factors can all have an impact on your return on investment.

The procedures below will assist you in determining a rough estimate of how much you should anticipate earning.

mortgage payment papers on a blue folder

Calculate your yearly rental revenue.

Use the median cost of rent for a home similar to yours as a starting point. Rents should typically be around 1% of the home’s worth. If you already know your monthly rate, multiply it by a year to get your yearly revenue.

Calculate your cash flow.

Subtract your yearly expenses, which include upkeep and your monthly principal and interest payment, from your yearly rental revenue. This is your yearly revenue or return on investment.

Make a list of all of your out-of-pocket costs.

Out-of-pocket expenditures are all about how much you paid upfront for the house, closing charges, and renovation costs, among other things, whether you’re buying or financing.

Calculate your return on investment.

To calculate your ROI, divide your yearly income stream by your out-of-pocket costs and multiply by 100. One caveat: not all factors, such as time, can be measured. If you choose a high-cost fixer-upper, make sure to consider your income possibilities.

Costs to Be Aware Of

Rental properties come with a variety of charges, including homeowners and homeowner insurance in the event of damage to property or loss of revenue. Expenses like marketing, repairs, appraisal costs, and homeowner’s association fees should all be included.

Tax implications

Your property taxes will be determined by your location. An expensive property tax could drastically increase your expenditures, so keep that in mind when planning your budget. Ask for the most up-to-date property tax information from the municipality assessment agency area your property is located, as well as if any tax hikes are expected in the near future.

Mortgage loans and interest rates

The interest rate on investment homes is greater than on ordinary mortgages. Borrowers should expect an interest rate hike of 1% to 3% on property rental mortgages in general. This can mount up over time, so finding a cheap mortgage rate that won’t have a substantial impact on your annual rental revenue is critical.

a calculator and a magnifying glass on a black surface

Additional costs

Whether you’re purchasing or financing, you’ll incur out-of-pocket costs. You will have to deal with renovation expenditures, utility, property management fees, and homeowners association fees in addition to upkeep and repairs.

If your home remains unoccupied for an extended length of time, unexpected charges may arise since you will be responsible for the principal tax and other monthly payments until you find a renter.

Financing Your Real Estate Investing

You may have enough money saved to purchase your investment property entirely, but this is not a possibility for all. Individuals who cannot budget to purchase a property outright may profit from receiving mortgage financing.

Keep in mind that rental property mortgage loans are typically more costly and have stricter restrictions, like a larger deposit or a better credit score. Below are some other financing possibilities for your home.

If you’re searching for a terrific revenue-generating property investment and have a good investment strategy in place, you might be able to get started with a Debt Service Coverage Ratio mortgage. Learn more about the DSCR loan program here.

Specialist Mortgage Lenders

By giving you customized solutions that fit your financial condition with your investment goals, the proper mortgage lenders can save you effort and time in your search for the correct mortgage. Choosing the correct lender may help you save time and money, as well as escape the frustration of not being able to afford the home you want.

Even financially sound investors are having difficulty obtaining home loans or FHA and VA mortgages for the next investment because so many lenders are making it difficult to get authorized. However, you don’t have to pass on your ideal real estate investment opportunity.

The Mortgage Shop focuses on investment mortgages, and our solutions are designed with the real estate investor in mind.

Our team of professionals will identify the perfect credit loan options for your goals, whether you’re searching for short-term and vacation apartments, long-term rental properties, or a real estate property investment with up to 4 units, so you may invest in your next venture without worry.

FHA loans

After residing in a home for at least one year, you can acquire an FHA loan for a multi-family and lease it out. Construction, rehabilitation, purchase, and refinance of apartments and health care facilities can all be aided by financing provided by lenders licensed by the US Department of Housing and Urban Development FHA.

Blanket Mortgage

Cross-collateralization is used in a blanket mortgage to allow you to finance many assets at the same time. This can be beneficial for real estate developers who are seeking to fund many projects at once.

people talking about mortgage payments

A loan from the Veterans Administration (VA).

VA loans are backed by the US Department of Veterans Affairs. Only active military members, veterans, and qualified spouses are eligible for these loans, which have no qualifying deposit or credit score restrictions and enable you to buy up to seven units.

As your primary residence, you must reside in one of the units. Use the US Department of Veterans Affairs Regional Loan Center Contact Finder to help you. If you have any remaining entitlement, you may still be suitable for a VA loan.

Why Choose Mortgage Shop

We work accurately.

Our mortgage loan founders have over 15 years of expertise and understand how the short-term rental market works, how a property’s income flows, and the specifics of cash on cash returns. You may rely on the greatest American lender examiners to back you up and help you seal the deal.

We are familiar with your needs.

We not only have a deep understanding of financial institution operations, but we also have a thorough understanding of the demands of real estate investors. The Mortgage Shop is a loan provider dedicated to assisting you in realizing your goals.

We produce the best results.

You don’t have to be worried about losing out on your ideal investments due to a lack of loan approval. We provide the greatest outcomes for real estate investors that seek a house loan that is tailored to their specific requirements.

No need to worry about going through hurdles to get your mortgage lender to accept your house loan. Our mortgage application process is designed with investors in consideration, so you can get started on your next property investment quickly.

Call Mortgage Shop Today!

Mortgage brokers are available to save you time and effort. Explain to us about your position, and we’ll look for deals that can help you meet your financial objectives. Completing the proposal and signing the agreement is the last step toward getting your mortgage application accepted. You’re all set to select the ideal investment!


Brenna Carles

Brenna Carles

I help people who want a place to call their home, where memories can be made, and stories to be shared. Where i can help clients build generational wealth for years to come. I provide the perfect combination of southern hospitality and relentless knowledge and passion for mortgage lending as if you were family.