First-Time Rental Property Investor

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First-Time Rental Property Investor

Erika JimenezPro Member
Los angeles Ca · Member since 2026 · 2 posts · 8 votes

Hi everyone!

I'm looking to purchase my first rental property and would love some advice from experienced investors.

I'm based in California but open to investing out of state. My maximum budget is $150K, although I'd prefer to spend less if I can find a property with good cash flow.

My main goal is to build long-term wealth through rental properties while generating positive monthly cash flow. Ideally, I'd like to net $600–$800 per month after expenses, but I'm also trying to understand what's realistic for my budget.

I've been researching markets like Montgomery, Alabama, but I'm not committed to any particular location.

I'd love to hear from other investors:

  1. What markets would you recommend for a first-time investor with my budget?

  2. Is my cash-flow goal realistic, especially if purchasing with cash?

  3. Would you recommend buying one property outright or financing to preserve capital?

  4. What should I look for in an investor-friendly Realtor and property manager?

I'm looking for a property that doesn't require major renovations, since I'll likely be managing it from out of state.

I'd really appreciate any advice or personal experiences. Thank you!

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Carl Millsap
Investor · Midwest · Member since 2019 · 357 posts · 235 votes
1w

@Erika Jimenez

What markets would you recommend for a first-time investor with my budget?

C: Where can you get to easily to check on the property? I think new investors miss a small but important fact: you're running a business. Even if you hire a property manager, you have to manage the person who is running your business. With that mindset I recommend you buy somewhere you can check on the business or develop the systems to check on the business independent of the property manager. So maybe it's some place where you have family / friends who can verify / check things for you.

Is my cash-flow goal realistic, especially if purchasing with cash?
C: If purchasing with cash or financing yes, but there are a lot of factors.

My question is how long would it take you to get that $150k back and what's that return rate? Factor property management fees, insurance, maintenance etc. and it's probably like a 4-6% return. Sure this doesn't factor in appreciation or tax implications but my point is you have to figure out what kind of return you want. The $500-$600 sounds good but this is an investment so look at the return on your $150k.

Would you recommend buying one property outright or financing to preserve capital?
C: This depends on your debt management ability. I would take $100-$125k to use as downpayment for as many properties as I could finance or a multifamily property 4,6, or 8 plex. I'd put $25-50k in a maintenance / rainy day account. Trust me when the hot water heater, HVAC, or roof needs replacing you don't want to scramble to find that money.

What should I look for in an investor-friendly Realtor and property manager?
C: I would look for a realtor who is an investor themselves. I have agents call me about properties, but they haven't done the math to see if it makes sense. So after a few questions about the math (rent / NOI) I can generally tell if it's worth looking at. I can't speak to the PM, because I self manage. I had one PM 20 years ago, it was enough to make me self manage. I do know some investors who have great experiences with/ PMs, again you have to manage the person managing your business.

Hope this helps.

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  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    1w

    I am not as pessimistic as @Nicholas L. on cash flow but I am as pessimistic at that price point. I believe up to 6% cash flow may be obtainable at higher rent points. On $150k mls rent ready purchase it is not happening and I offer anyone that believes otherwise to post their underwriting.

    The issue at that price point is many things will be at a higher percentage. This includes maintenance, cap ex, vacancy (I challenge anyone to find a market with a $150k rent ready mls listing with area vacancy rate of 5% or less) and even PM. In addition most of these markets have high eviction and delinquency rates.

    Now for leverage versus no leverage. I believe up to 6% cash flow can be achieved with no leverage. This return and even double this return (and for me 3 times this return) does not justify owning residential RE. This implies leverage is required to obtain the necessary return to justify the work and risk of residential RE. Leverage is RE’s super power, use it.

    I concentrate on total return and do not care if it cash flows. Most investors are not in a position to supplement heavy negative cash flow. Most newer RE investors require cash flow. I understand that. Here is the reality of cash flow, initial cash flow has a poor correlation to long term cash flow. Historically markets with good initial cash flow have produced poor long term cash flow. Case Schiller used to publish stats for return on residential rentals for this century. None of the top cash flow cities for this century had good initial cash flow.

    I will use my San Diego market (that has always had poor initial cash flow) to show how this is possible

    City of San Diego median rents

    - 2025: $2995/month. 2 Beds $3,095, 3 Beds $4200.

    - 2020: $2344/month

    - 2010: $1323/month

    - 2000: $747/month

    Note over $600/month rent increase between 2020 and 2025, so an average of over $100/month increase YOY (($2995 - $2344)/5= $130/month average YOY increase). Average YOY rent increase since 2010 ($2995 - $1323/15 = $111 month YOY increase. Average YOY rent increase since 2000 ($2995 - $747/25 $90/month YOY increase. Has Cleveland, Detroit or Memphis ever had a year with over a $130/month average increase?

    Which market do you think has the better cash flow for the long term hold? I think the numbers answer that question.

    So what does have a good relationship to long term cash flow? I have found nothing that correlates better to long term cash flow than appreciation. Here is San Diego’s appreciation

    - 2026: $950k

    - 2020: $676k

    - 2010: $277k

    - 2000: $220k

    If you purchased in and had average appreciation

    - 2020 (69 months ago), you wound have $3,970/month appreciation.

    - 2010 (183 months ago, you wound have $3,680/month appreciation.

    - 2000 (303 months ago, you wound have $2,400/month appreciation.

    These numbers show why I emphasize total return.

    So what market should you start with:

    • diverse economy

    • Population growing

    • Building constrained (I like Austin but this is why Austin RE prices are falling, it is also why San Diego’s appreciation is so good)

    • Somewhere you can get to easily or have trusted friends and family that are willing to help on occasion. Note direct flights count as sometimes flying is less expensive than driving one person.

    Note if you have a market with a strong and trusted PM, I would consider that market even if it was not super strong in the 4 points.

    Note I did not include landlord friendly but I do understand those that do. They can be frustrating, but a market can do great even though it is not landlord friendly. I will use San Diego again as an example. San Diego has near lowest delinquency and eviction rates in the country.

    Simple Google search on delinquency rates.

    - Cleveland: 43.1% (this is crazy high),

    - Memphis: 20% (high),

    - Indianapolis: 14.2 (moderately high),

    - San Diego: 7.6% (just over half of Indianapolis and less than 1/5 of Cleveland’s delinquency rate.

    Per hemline the national rent delinquency rate is 11%. This depicts that LL friendly does not have a strong correlation with delinquency rates, eviction rates, or quality of tenants.

    Good luck

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  • Matthew MorrowBusiness Member
    Investor · PA - NY - NJ · Member since 2019 · 837 posts · 297 votes
    1w

    @Erika Jimenez I'd weigh the team more than the city. Out of state, the turnover itself isn't the headache. Managing the contractors and making sure the work gets done right is. Ask property managers exactly how they handle turns and maintenance, and ask the agent what they personally own. Run your numbers both with cash and with financing before you decide.

    [email protected]484-791-6200
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  • Matthew MorrowBusiness Member
    Investor · PA - NY - NJ · Member since 2019 · 837 posts · 297 votes
    1w

    @Erika Jimenez I'd sanity-check the $600-800 a month net before picking a market. On a $150K property, once taxes, insurance, vacancy, repairs, capex, and management come out, that's a high bar, and a deal that shows it on paper often looks different after the first turnover. With this many replies naming cities, I'd focus less on which one and more on whether you can build a team there: an agent who invests, a contractor you've tested, and a property manager. Hope some of that helps you work through the numbers.

    [email protected]484-791-6200
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  • Jimmy Samaha
    Staten Island, NY · Member since 2013 · 118 posts · 55 votes
    1w

    Quick reality check on the goal. $700/mo net = $8,400/yr. On $150k all-cash that's a 5.6% cash-on-cash, which is basically your cap rate since there's no debt. Doable in some of those markets on paper, but here's how a $150k house usually shakes out:

    Rent maybe $1,300-1,400. Take off ~10% PM, 8% vacancy, 8-10% repairs/capex, then taxes and insurance (insurance has gotten ugly in the Southeast, get real quotes). You often end up at $550-700/mo all cash. Finance it at today's rates and that same house is close to break-even.

    So: realistic if all cash and you underwrite conservatively, not realistic financed. I'd pick NOI as the number you screen with (rent minus all expenses, no mortgage), then divide by price. Under ~7% for an out-of-state, turnkey-ish house, I'd keep looking. And verify rent with signed leases or the PM's actual rent roll, not the listing.

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  • Matthew MorrowBusiness Member
    Investor · PA - NY - NJ · Member since 2019 · 837 posts · 297 votes
    1w

    @Erika Jimenez on the agent and manager piece, I'd ask both of them for specifics instead of taking 'investor-friendly' at face value. From the agent: how many investor deals they closed recently, and whether they'll show you sold comps and real rent comps, not just the listing. From the manager: average days to fill a vacancy, who their contractors are, what repair amount needs your approval, and how often you'll hear from them. On the $600-800 net, run it with vacancy and capex in as real numbers. One month empty can wipe out most of a year's cash flow. Best of luck getting started.

    [email protected]484-791-6200
    CORE Team | Realty ONE Group Supreme548 Reviews
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  • Jim SternBusiness Member
    Real Estate Agent · ATLANTA Metro and Surrounding Counties · Member since 2025 · 28 posts · 11 votes
    1w

    Hey Erika,


    Lots of good advice here, so here are two things I haven’t seen yet.
    From the lending side: if you finance, check loan minimums before you pick a market. A lot of DSCR programs have minimum loan amounts, and a $100K–$120K loan can price worse or not qualify at all. Know that before you fall for a $130K house.
    From the PM side: ask any manager for a sample owner statement, their management agreement, and how you can cancel. The fee schedule and termination clause tell you more than the pitch does.
    For the agent, send them one listing and ask them to run it with real PITIA, a real insurance quote and leased comps. How they handle that tells you whether they’re actually investor-friendly.

    ALSO, consider putting in a little bit of work and self-managing for a season so that you understand the business you're getting into, then hand it off to a PM for better success.

    678-369-3793
    Atlanta's Investor Friendly Team533 Reviews
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  • Eric FernwoodBusiness Member
    Realtor · Las Vegas, NV · Member since 2014 · 1k+ posts · 1k+ votes
    2d

    Hello Erika,

    Where you invest matters more than which property you buy—especially when your goal is a reliable monthly paycheck that lasts 20 to 40 years and grows faster than inflation.

    Start with the city’s ability to support rising rents. Then choose properties that attract tenants who stay, pay on time, and care for the home.

    Choose a City That Supports Rent Growth

    Population growth is the main driver for increased demand for housing, which pushes rents and property values higher. But growth alone is not enough: local incomes and the pace of new construction also affect how much tenants can pay.

    Sustained rent growth is not a feature you can buy with a property. It depends largely on the market around it.

    Think of the city as a harbor and its rental properties as boats. Growing housing demand can raise the tide. When demand weakens, even a well-maintained property may struggle to deliver rent increases that keep pace with inflation.

    Can one property’s rent outpace the market? Sometimes, particularly after improvements. But comparable rentals limit what tenants will pay. Ask too much, and the property may sit vacant.

    Tenants Make the Income Reliable

    No property ever paid rent. The tenant pays it.

    The property and its expenses matter, but the reliability of your rental income depends heavily on the people who live in your property. You want tenants who:

    • Stay for many years

    • Pay rent on time

    • Take good care of the home

    That means choosing a property should begin with understanding the tenants you want to attract.

    Let Tenant Housing Requirements Guide What You Buy

    Different tenant segments need different kinds of housing. Location, size, layout, price, and amenities influence which homes they consider and how long those homes meet their needs.

    Identify the housing needs of tenants with a demonstrated record of long stays and consistent payments. Then look for properties that they currently rent.

    The right property type will vary by city. In one market, it may be a multifamily property. In another, it may be a single-family home. Neither is universally the better investment.

    To learn what works locally, ask several experienced property managers:

    “If you were buying rental properties to attract tenants who stay for many years, pay rent on time, and care for the home, what would you buy—and where?”

    Ask them to support their answers with actual experience: tenant turnover, payment history, maintenance, and vacancy.

    Then find similar properties. Let the demonstrated rental behavior and housing needs of your target tenants guide what you buy. Don’t follow the dogma of online gurus.

    [email protected]702-358-8884
    FERNWOOD Team, KW VIP Realty520 Reviews
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  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 13k+ posts · 9k+ votes
    1d

    A common issue, so Copy & Paste info below:

    You’re ALWAYS better off investing locally, where it’s easier to:

    ·         Learn the market

    ·         Network to find deals

    ·         Network to find contractors

    ·         Be more hands-on

    ·         Driveby property to keep tabs on it

    ·         Network to find a decent Property Management Company (PMC)

    Next best location is somewhere else you lived, where you have an existing network of family & friends to help you as accomplish the above list as needed.

    If you invest OOS, your biggest challenge won't be finding properties to meet your goals on paper, it’ll be successfully building a knowledgeable & trustworthy local team.

    The biggest mistake we see OOS investors making in our market, over and over again, is not fully understanding Neighborhood/Property/Tenant Classes and how they impact your probability of success!

    They all run their ROI numbers assuming Class A results – when buying Class B, C & even D rentals.

    Then they’re shocked when their performance expectations aren't met😞

    If you choose to invest OOS, and have little to no landlord experience, we highly recommend targeting Class B Neighborhoods/Properties/Tenants. If you target Class C, you better be prepared emotionally & financially for plenty of challenges.

    You can find Class B properties in the Midwest to BRRRR, but it will take more digging and YOU will need to understand how to analyze & identify them - because a lot of agents, wholesalers, PMCs, etc. will try to sell you Class C or D misrepresented as Class B:

    ·         Many of them don't know/care what Class the properties are, so they're incompetent.

    ·         Others know exactly what they are doing, so should be labeled as crooks!
    EITHER WAY YOU LOSE!

    Why is Property Class so important for investors to understand and apply in their investing strategies?

    Because the Property Class dictates the Class of the tenant pool that the property will attract.

    The Tenant Class greatly impacts rental income stability and property maintenance/damage by tenants.

    Both Property Class and Tenant Class will affect what type of contractors, handymen and property management companies you should target and be willing to deal with a property.

    The Property Class will also impact the maintenance & renovations you do to, “Maintain to the Neighborhood/Market”.

    Why is that important?

    Well, if you buy & renovate a property in Class D area to Class A standards, what Tenant Class will actually rent it?

    Or, if you put several Class D tenants in a Class A four-plex, what do you think will happen to the property?

    What do you think will happen if you rehab a Class D rental to Class A standards?

    So, if you fail to apply the correct assumptions to a property, your expectations won’t be met, and it may even be a financial disaster.

    We use the following to rank Property Classes, in order of importance:

    • Property Tenant Pool: closely linked to location, but not always.

    • Property Location: closely linked to tenant pool, but not always.

    • Property Condition & Amenities: it’s important to, “Maintain to the Neighborhood/Market.”

    Key metrics for each Property Class:

    Class A Properties:
    Tenant Pool: Majority of FICO scores 680+, no convictions/evictions in last 7 years.
    Tenant Default: 0-5% probability of eviction or early lease termination.
    Section 8: Class A rents are too high and won’t be approved.
    Vacancies: 5-10%, depending on market conditions.
    Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.

    Class B Properties:
    Tenant Pool: Majority of FICO scores 620-680, some blemishes, no convictions/evictions in last 5 years.
    Tenant Default    : 5-10% probability of eviction or early lease termination.
    Vacancies    : 10-15%, depending on market conditions.
    Cashflow vs Appreciation: Typically, 1-3 years for positive cashflow, balanced amounts of relative rent & value appreciation.
    Section 8: Class B rents are usually too high for the Section 8 program.

    Class C Properties:
    Tenant Pool: Majority of FICO scores 560-620, many blemishes, but should have no convictions/evictions in last 3 years. Verifying recent 2-years of rental history very important! Same for 2-years of job/income stability.
    Tenant Default: 10-20% probability of eviction or early lease termination.
    Section 8: Class C rents usually meet program requirements, proper screening still recommended.
    Vacancies: 10-20%, depending on market conditions and tenant screening.
    Cashflow vs Appreciation: Should cashflow immediately, at the lower end of relative rent & value appreciation.

    Class D Properties:
    Tenant Pool: Majority of FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, but should have no convictions/evictions in last 12 months. Verifying last 2-years of rental history and income/employment extremely important to find the “best of the worst”.
    Tenant Default: 20-30% probability of eviction or early lease termination.
    Section 8: Class D rents meet program requirements, often challenges to pass Section 8 inspection.
    Vacancies: 20%+, depending on market conditions and tenant screening.
    Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciation.

    Where did we get our FICO credit score information from?

    Check out this chart:

    FICO Score

    Pct of Population

    Default Probability

    800 or more

    13.00%

    1.00%

    750-799

    27.00%

    1.00%

    700-749

    18.00%

    4.40%

    650-699

    15.00%

    8.90%

    600-649

    12.00%

    15.80%

    550-599

    8.00%

    22.50%

    500-549

    5.00%

    28.40%

    Less than 499

    2.00%

    41.00%

    Make sure you understand the Class of properties you are looking at and the corresponding results to expect.

    For example, Metro Detroit has 132 cities and the City of Detroit 183 Neighborhoods, which we’re analyzing and classifying to make better investing decisions.

    [email protected]248-209-6824
    Logical Property Management4.9469 Reviews
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