Getting Started
How much money do I need to buy rental property?
Minimum for investment property: 20–25% down payment plus closing costs (2–3%) plus 6 months reserves. On a $200,000 property: $40,000 down + $5,000 closing + $16,000 reserves = $61,000 minimum cash. With house hacking (FHA, owner-occupied): 3.5% down = $7,000 on a $200,000 property — dramatically lower.
What return should I expect from rental property?
Cash-on-cash: 6–12% is a realistic target in 2025. Total 10-year return (cash flow + equity + appreciation): 8–15% annually on invested capital in markets with solid fundamentals. Poor markets: 2–5% or negative. Market selection is the primary return driver.
Rental property return metrics and 2025 targets
| Return Metric | Definition | Target Range 2025 |
|---|---|---|
| Cash-on-cash return | Annual cash flow / total cash invested | 6–12% |
| Cap rate | NOI / purchase price | 5–9% in most markets |
| Gross rent yield | Annual rent / purchase price | 7–12% screens well |
| 10-year total return | Cash flow + equity + appreciation / invested | 100–200%+ over 10 years |
Financing Questions
Can I use FHA loan for investment property?
FHA loans require owner-occupancy for at least 1 year. House hacking (buying 2–4 unit property, living in one unit) uses FHA while generating rental income. After 1 year of residency, you can rent your unit and purchase a new property. This is the most common and effective path for low-capital investors entering real estate.
DSCR = NOI / Annual Debt Service. Example: $1,800/month rent, 8% vacancy, 45% expenses. NOI = ($1,800 × 0.92) − ($1,800 × 0.45) = $846/month = $10,152/year. Debt service on $200K at 7%: $15,984/year. DSCR = $10,152 / $15,984 = 0.64. Does not qualify — need more rent or lower purchase price to hit 1.25 DSCR.
Management and Operations
Should I self-manage or hire a property manager?
Self-manage if: property is local (under 30 min), you have time (5–15 hours/month), you enjoy the landlord role, and want to maximize cash flow. Hire management if: out-of-state, 3+ properties, time value exceeds the management fee, or you want passive income. Most investors scaling to 5+ properties transition to professional management.
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