Analyzing Your First Rental Property

Your first rental can be the deal that launches a portfolio or the deal that drains one. The difference is disciplined underwriting. Here's the checklist.

Step 1: Estimate true gross rent

Don't trust the seller's pro forma. Verify:

• ▸Check Rentometer, Zillow Rentals, and Apartments.com for current rents in the micro-market.
• ▸Vacancy rate: 5–8% is standard for well-managed single-family.
• ▸Other income: laundry, parking, storage ($50–200/mo).

Conservative = right. Model at 92% occupancy minimum.

Step 2: True expenses (the 50% rule)

A quick screen: operating expenses typically run 45–55% of gross rent for single-family, 40–50% for multifamily with professional management. The line items:

• ▸Property tax: 1–2.2% of value annually.
• ▸Insurance: 0.5–1.5% of value, higher in risk zones.
• ▸Property management: 8–12% of gross rent.
• ▸Maintenance: 1% of value/year (more on older homes).
• ▸CapEx reserve: $50–150/unit/month for roofs, HVAC, etc.
• ▸HOA, utilities (if you pay), turnover costs.

Step 3: The 1% rule screen

Does monthly rent exceed 1% of the purchase price? On a $200K property, you want $2,000+/month rent. It's a quick filter, not a verdict — many great deals miss it in high-cost markets but win on appreciation.

Step 4: Down payment & financing

• ▸Owner-occupant (if house-hacking): 3.5–5% down.
• ▸Investor: typically 20–25% down, higher rate.

Run the DSCR — lenders want 1.25x minimum on investment loans.

Step 5: The 5-year reality check

Build a 5-year projection:

1. Rent growth (conservative — 2–3%/yr).
2. Expense growth (3%/yr).
3. Appreciation (market-specific).
4. Refi or sale proceeds.

If the deal only works with aggressive assumptions, it doesn't work. The Rental ROI tool runs all five years with your inputs so the answer is a number, not a feeling.