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Buying Your First Home As a Rental Property Feature Image
Posted on 05/12/2121 6 minute read

Buying Your First Home As a Rental Property


You have just been pre-approved by a lender for your first mortgage and are ready to start looking for a house. But you may be nervous about planting your roots and affording a mortgage.

There are options to buy a home, build equity, and increase your income. Invest in your future and consider buying your first home as a rental property.   

A rental property is a property purchased to rent out to a tenant for a monthly payment. A residential rental property can include a house, apartment, condominium, or mobile home. As the owner, you’re responsible for the property at all times, even if a tenant is living there instead of you. By purchasing your first home as a rental property, you can build equity and collect additional income from a tenant each month.

Reasons Why Your First Home Should be a Rental Property 

Making your first home a rental property allows you to maximize the time it takes to accrue value in the property. The sooner you enter the market, the sooner your property can start building value. Home values increased from 6% in May 2020 to 10.3% by November 2020.  With interest rates also at a historic low, this makes it a great time to purchase your first home rental property. 

Get a Good Deal – You may be able to get a bargain on a distressed sale, a home that has been foreclosed on that the bank is willing to sell at a loss. This means you could purchase this property for much less than market value.

Profit – If you’re purchasing a rental property, you could start making a profit as soon as you can find tenants. Be sure to set the rent payment for the property high enough to cover the mortgage payment and then some. The profit made from your tenants can then be either reinvested into the property or used to pay off other bills or debts. 

FHA Loans – If you need to use an FHA loan due to your credit or other financial needs, it will require that the house is your primary residence. However, if you can find a rental property with multiple units then one of them you can live there along with your tenets. An FHA loan is also helpful when purchasing a first home rental property because it typically requires a lower down payment. 

Owner-occupied investments are a great way to start in the real estate business. You can add improvements to the property while you live there to increase the property value. You can then either sell the property for a profit or use a cash-out equity loan to invest in other properties.  

The Freedom of Owning a Rental Property

Another perk of purchasing a rental property as your first home is that it allows you to supplement your income while you look for an affordable place to live. If the area that you ultimately want to live in is too expensive right now, purchasing an investment property for an affordable price will help you get your foot in the door of the area’s real estate. This will allow you to live somewhere you can currently afford, while still earning from your investment property. 

Alternatively, if you don’t want to live in the area of your investment or settle down anywhere, a rental property as your first home can help you grow equity while you travel and reach other goals. It can be a great opportunity to purchase a rental property when it’s your first time in the housing market. It may be harder to start investing in a property once you have children, other responsibilities grow, or if you start to accumulate large loads of debt. 

Pros and Cons to Consider for Owning a Rental Property

The benefits of a rental property as your first home are many. But there are plenty of cons that could affect your decision to purchase the property as well. 

Landlord Responsibilities – With tenants, you will be responsible for figuring out repairs, collecting rent, and knowing tenant laws. You will need to have insurance that covers any injuries that your tenant or a visitor sustains on the property. There are also strict codes with rental properties that must be met to rent out the space. 

Tenants and Turnover – It can be nerve-wracking if your income depends solely on someone else. That’s why you need to familiarize yourself with what makes a good tenant and pick those that are likely to be reliable with their payments, take care of your property, and won’t break any lease agreements.

More Up Front Costs – Investment property loans usually carry a higher interest rate. It can help to save an adequate down payment for the purchase, at 20% of the cost of the home or more. 

Fixer-Uppers Depending on the state of the property when you purchase it, you may need to make some improvements before someone can live in it. Those expenses will come out of your pocket. In addition to being up to code, your property will need the right curb appeal to attract tenants. Consider the amount of time and effort that you are willing to put into this project before making your purchase. 

Finding the Right First Home Rental Property

A tenant looking for a home to rent is likely looking for the same things that you would, so consider if the property is somewhere that you would want to live. What does the area have to offer? What are the crime rates in the neighborhood? What are the property taxes like? What services, such as snow removal and trash pick-up, are available? 

A rental property close to amenities such as schools, hospitals, shopping, dining, and public transportation may be a more successful rental property for you. Consumers or employees of those places will likely want to live close to convenience, making it easier for you to find tenants. Are you ready to take the dive and start investing in a rental property as your first home? Start the approval process by contacting a Homefinity loan officer and discussing your options for an investment property.

Photo by Andrea Piacquadio from Pexels


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