How Much Money Do You Need to Buy Your First Rental Property?
The real breakdown of costs, down payments, and capital required to start your rental property investing journey in 2026.
By CashSmartGuide Editorial Team - Last updated: January 2026 | 8 min read
I hear this question constantly from aspiring real estate investors: "How much money do I actually need to buy my first rental property?" The answer isn't as simple as a single number, but I'm going to break down every cost you'll face so you know exactly what to expect.
Here's the truth most gurus won't tell you: buying a rental property requires significantly more cash than buying your own home. Investment properties have stricter requirements, and underestimating costs is the fastest way to turn a good deal into a financial disaster.
Quick Answer
For a traditional investment property purchase, expect to need $50,000-$80,000 for a $200,000-$300,000 property. This includes down payment (20-25%), closing costs, reserves, and initial repairs.
However, creative strategies like house hacking can drop this to as low as $15,000-$25,000 using owner-occupied financing.
Complete Cost Breakdown for Buying a Rental Property
Let's break down every dollar you'll need. I'll use a $250,000 rental property as our example since that's close to the median price in many solid rental markets across the United States.
1. Down Payment: $50,000-$62,500
Most lenders require 20-25% down for investment properties. Unlike primary residences where you might get away with 3.5% or 5% down, investment property loans are stricter.
On a $250,000 property, that's $50,000 at 20% or $62,500 at 25%. Some lenders will go as low as 15% down if you have excellent credit and significant cash reserves, but 20% is standard.
2. Closing Costs: $7,500-$10,000
Closing costs typically run 3-4% of the purchase price. These cover loan origination fees, title insurance, attorney fees, appraisal, inspection, and various other charges.
Unlike buying a primary residence, sellers rarely cover closing costs on investment properties. Budget for paying these yourself.
3. Cash Reserves: $10,000-$20,000
This is where beginners get burned. You absolutely need cash reserves for unexpected repairs, vacancy periods, and capital expenditures. Roofs leak. HVAC systems die. Tenants leave unexpectedly.
Many lenders also require you to show 6 months of reserves before approving your loan. Without reserves, one bad month can force you into credit card debt or worse.
4. Initial Repairs: $5,000-$15,000
Even turnkey properties usually need something. Fresh paint, new carpet, landscaping cleanup, minor repairs discovered during inspection. Budget at least $5,000 for initial work. Stick with turnkey properties for your first purchase unless you have construction experience.
Total Capital Required
Down Payment (20%):$50,000
Closing Costs (3-4%):$8,750
Cash Reserves:$15,000
Initial Repairs:$7,500
Total Needed:$81,250
This is for a $250,000 property. Scale these numbers up or down based on your market's pricing.
How to Start With Less Money
If $80,000 feels out of reach, don't give up. There are legitimate strategies to start with significantly less capital. These aren't gimmicks, but proven methods thousands of investors use.
House Hacking: Start with $10,000-$25,000
This is the single best strategy for beginners with limited capital. Buy a 2-4 unit property using an FHA or conventional owner-occupied loan, live in one unit, rent out the others.
FHA loans require only 3.5% down, conventional owner-occupied loans need just 5% down. You get lower interest rates and rental income helps qualify you for the loan.
Example on a $250,000 fourplex: $8,750 down (3.5% FHA) + $8,000 closing costs + $5,000 reserves = $21,750 total
You must live there for at least one year, but after that you can move out and rent your unit too. Many investors house hack, then repeat the process every year, building a portfolio with minimal capital.
Start in Lower-Priced Markets
You don't have to invest where you live. Many markets in the Midwest and South have solid rental properties in the $100,000-$150,000 range. Your capital requirements drop proportionally.
Just make sure these markets have strong fundamentals: population growth, job diversity, and solid rental demand. Check out our beginner's guide to real estate investing for how to evaluate markets.
Don't Forget These Ongoing Costs
Buying the property is just the beginning. You need to budget for ongoing expenses or you'll quickly find yourself underwater.
Mortgage Payment: Principal, interest, taxes, and insurance (PITI)
Property Management: 8-12% of monthly rent if you hire a manager
Maintenance: Budget 1% of property value annually
Vacancy: Set aside 5-10% for periods between tenants
Capital Expenditures: Big-ticket items like roofs, HVAC - budget $100-$200/month
These ongoing costs are why analyzing deals properly is crucial. A property that looks profitable on paper can lose money if you underestimate expenses. Learn more about rental properties vs REITs to see if direct ownership is right for you.
Credit Score and Loan Requirements
Having the cash is only part of the equation. You also need to qualify for financing.
Credit Score
Minimum: 620-640 for most lenders
Good rates: 700+
Best rates: 740+
If your score is below 700, spend 6-12 months improving it before applying. The interest rate difference can cost you hundreds per month.
Debt-to-Income Ratio
Lenders typically want your total debt payments to be less than 43% of your gross income. Some allow up to 50% with strong compensating factors.
They'll count 75% of projected rental income toward your qualifying income, but you need a signed lease to use this.
Your Next Steps
1. Calculate Your Target
Decide what property price range you're targeting in your market, then calculate total capital needed including all the costs we covered.
2. Check Your Credit
Pull your credit report and score. If it's below 700, focus on improving it before applying for loans.
3. Start Saving
Open a dedicated high-yield savings account for your rental property fund. Automate monthly transfers and don't touch it.
4. Get Pre-Approved
Once you have 50-75% of your target saved, talk to lenders. You'll know exactly what you qualify for and can move quickly when you find a deal.
Real estate investing is a marathon, not a sprint. Taking time to save properly and prepare will save you from expensive mistakes down the road.
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Investment Disclaimer
This article provides general educational information about real estate investing and should not be considered personalized financial advice. Real estate investing involves significant risk including potential loss of principal. Before making investment decisions, consult with qualified professionals including real estate attorneys, tax advisors, and financial planners who can provide advice tailored to your specific situation.