7 Steps to Buying a Rental Property

Purchasing a rental property can be one of the most exciting and financially rewarding decisions you make. Whether you’re hoping to build long-term wealth, create passive income, or diversify your portfolio, real estate is a proven path for new investors.

At Evernest, we’ve helped thousands of investors take that first step and beyond. We understand that the process can seem overwhelming, especially when you're new to the game. That’s why we’ve broken it down into seven straightforward, practical steps to help you go from curious investor to confident rental property owner.

Step 1: Arrange Financing

Before you start scrolling through property listings, it’s essential to understand exactly what you can afford. That means getting clear on your financial picture and speaking with a lender to explore your loan options.

Understand Your Financial Picture

Step one is reviewing your income, monthly expenses, and outstanding debts. Your lender will use this information to calculate your Debt-to-Income (DTI) ratio, which plays a key role in determining what loans you qualify for.

Most lenders follow the 28/36 rule, which states that no more than 28% of your gross monthly income should go toward housing expenses (including your future mortgage payment) and no more than 36% should go toward total debt, including student loans, auto loans, and credit card payments.

For example, if you earn $6,000 per month, your maximum housing costs should be around $1,680, and your total monthly debt should not exceed $2,160.

To find your Debt-to-Income (DTI) ratio, lenders will calculate the total amount you owe each month towards various types of debt, plus your estimated future mortgage payment, and divide that figure by your median monthly income. Common types of debt include:

Auto loans
Personal loans
Student loans
Alimony or child support
Minimum credit card payments

It is generally recommended to keep your debt-to-income ratio (DTI) under 36%, but some lenders may accept a DTI as high as 43%. Remember that this is the exception; the lower your DTI, the better.

Know Your Down Payment Options

The total amount you will be required to provide for a down payment depends on your loan type:

Conventional loans typically require a 20% down payment.
FHA loans require as little as 3.5% down but include required mortgage insurance.
VA loans are available to eligible veterans with 0% down and a one-time funding fee.

For a $300,000 property, this could mean anywhere from $10,500 to $60,000 or more upfront, depending on your loan structure; however, this amount varies based on your complete financial picture. That’s why it’s essential to speak to a lender to see what options are available to you.

Don’t Forget Closing Costs

Closing costs typically range from 2% to 5% of the property’s purchase price. These may include:

Loan origination and underwriting fees
Appraisal and inspection costs
Title search and insurance
Escrow and recording fees

You can sometimes negotiate with the seller to cover some of these costs or roll them into your loan. More on that in a later section!

Step 2: Find the Right Area

With your financial picture in focus, you can officially start the search for the right rental property. However, not every home makes a good rental. Choosing the right property is just as crucial as securing financing, and it starts with evaluating the surrounding neighborhood.

Neighborhood Classes

Neighborhoods are often categorized by classes (A–D), which help investors determine risk, reward, and the types of residents.

A-Class: Expensive neighborhoods with great appreciation potential but very little investment opportunity because most properties are owner-occupied.
B-Class: Upper-middle-class neighborhoods with solid appreciation potential and more investment opportunity than A-Class neighborhoods.
C-Class: Working-class neighborhoods with solid houses offering steady income and long-term appreciation.
D-Class: High-crime neighborhoods with older properties that require more rehabilitation and much lower appreciation potential.

When you review neighborhoods, consider factors such as average rent prices, vacancy rates, crime data, and the local economy. You need to ask yourself what your goals are and find a location and situation that best suits those needs.

Ask yourself:

What is my risk tolerance?
Do I want appreciation or cash flow?
What kind of resident do I want to attract?
How much time (or help) can I dedicate to property management?

Step 3: Choose an Investor-Friendly Real Estate Agent

Your real estate agent is one of the most important members of your investing team, and not just any agent will do. An investor-friendly agent will understand the local market, know how to evaluate rental potential, and advocate for your best interests throughout the purchase process.

What to look for when scouting agents:

Previous experience working with investors
Familiarity with rental neighborhoods and resident demographics
Positive reviews and references
A strong portfolio of rental properties (a major bonus)

At Evernest, our investor-friendly agents are handpicked for their experience and local expertise. They are experts in helping investors find properties that match their goals and set them up for success.

Step 4: Start the House Hunt

With financing arranged and a solid agent by your side, it’s time to start hunting for your investment property! This is the fun part.

Stay Focused With a Priority List

Before diving headfirst into online listings, create a list of must-haves and nice-to-haves so you can keep your search process focused. Consider the importance of elements like:

Location
Number of bedrooms and bathrooms
Type of property (single-family, duplex, etc.)
Renovation needs
Expected cash flow or return

Discuss the final list with your agent and ask for their feedback. They can help you understand what’s realistic in your price range and steer you toward high-opportunity properties.

Step 5: Make a Strong Offer

Once you’ve found the right property, it’s time to put together your offer. In today’s competitive market, especially for investor-friendly properties, how you structure your offer can make or break the deal.

A common misconception is that a higher offer will always win, but this isn’t always the case. Even if you’re working with a tighter budget, there are ways to create an offer that will be attractive to a seller. Your agent will help you analyze the market and determine a price that accurately reflects the property’s value, aligns with your investment goals, and takes into account the local competition. In some cases, a slightly lower offer with better terms may be more attractive than a higher one.

Here are our recommendations for how to up the value in the eyes of the seller.

Act Quickly, But Not Hastily

Great investment properties don’t sit on the market for long, especially in high-demand areas. If you’ve done your homework, have your financing ready, and feel confident in the property, be prepared to move fast. A quick response shows the seller you’re serious and can help you beat out less-prepared buyers.

That said, don’t skip your due diligence. Work with your agent to review the property’s rent potential, neighborhood comps, and investment risks before submitting an offer so you can be entirely confident in your choice and ready to move forward.

Include Strategic Contingencies

Contingencies are your legal exit ramps if things don’t go as planned. However, too many contingencies can deter sellers. Strike a balance by only including what’s necessary:

If you’re in a highly competitive market and feel confident about the property, you may consider waiving one or more contingencies to strengthen your offer. However, always do this in consultation with your agent and only if you understand the associated risks.

Sweeten the Deal for the Seller

Winning an offer isn’t always about who pays the most. Sellers want a clean, straightforward transaction. You can make your offer more appealing by offering flexible closing dates or agreeing to handle post-closing tasks, such as trash removal or minor repairs.

If the inspection reveals issues, rather than requesting the seller to fix them, you could also ask for a repair credit: a cash concession at closing that reduces your total out-of-pocket expense.

This makes the closing process more streamlined and is often more appealing to sellers. It also gives you control over how and when to complete the work.

Request Seller Concessions (When Appropriate)

In some cases, particularly with motivated sellers or in buyer-favorable markets, you might be able to request that the seller cover some or all of your closing costs, which can include:

Title fees
Recording fees
Appraisal costs
Prepaid taxes or insurance

These concessions can free up capital that you can use for renovations or as a financial cushion when renting the property.

Lean on Your Agent’s Expertise

Your agent is more than just a transaction facilitator; they’re also your strategic partner, drawing on experience from dozens or even hundreds of investor deals. They’ll help you weigh the trade-offs of different offer terms, craft a compelling presentation, and negotiate firmly but respectfully with the seller’s agent.

Step 6: Get a Home Inspection

After your offer has been accepted and you are officially under contract, it’s time to have the property professionally inspected. A home inspection provides a detailed assessment of the property’s condition and can help protect you from costly surprises in the future. The information gleaned from a thorough inspection allows you to go into ownership with eyes wide open.

Sometimes your agent will recommend reputable home inspectors, or you may choose to find someone on your own. Either way, a licensed inspector should assess:

Roof
Plumbing
Electrical system
HVAC
Foundation
Structural integrity
Septic system (if applicable)

Following the inspection, you will receive a detailed report outlining the condition of each of these major systems. Use this report to confirm the property’s condition and determine if repairs are needed before finalizing the deal. Depending on your offer, you may be able to renegotiate based on the findings.

Inspection contingencies can provide you with the flexibility to back out or adjust the offer based on the results.

Step 7: Order an Appraisal

Once the inspection phase is complete, an appraisal will be ordered to confirm the home's market value. If you’re using financing, your lender will typically require this. If the appraisal comes in higher than the purchase price, you gain instant equity. If it comes in lower, you may need to negotiate with the seller or bring more money to closing.

Appraisal contingencies can provide you with the flexibility to back out or adjust the offer based on the appraisal results.

Final Thoughts: Start Your Investing Journey with Confidence

Buying your first rental property doesn’t have to be overwhelming. With the right knowledge, team, and strategy, you can build a strong foundation for long-term real estate success.

At Evernest, we’re here to help you every step of the way, from financing and finding the perfect property to managing it for maximum return. If you’re ready to take the next step, connect with us at any of the links below!

Connect with an investor-friendly agent at Evernest and start building your portfolio today!