How to Build a Profitable Rental Portfolio for Beginners

Want to know how to build a rental portfolio from scratch?

But not sure how to minimize risks, choose the right property, or find the right tenants?

In this guide, you’ll learn how to build a profitable rental property portfolio (even if you don’t have any prior experience).

So that you can:

Achieve financial freedom
Create work-life balance
Build a flexible life and something to pass on to your kids

These are the same steps I’ve taken to build a seven-figure portfolio.

Want to learn more? Read on!

How to build a rental portfolio:

Define your goals
Educate yourself
Secure financing
Find your first property
Manage your property
Scale your portfolio

Key takeaways:

Every successful rental property business starts with setting clear goals, dedicated research, and a focused plan
Location, price, and condition are key factors when deciding on your first rental property purchase
It’s possible to secure financing with a low credit score via FHA loans, private lenders, and hard money loans

What is a rental portfolio?

At its core, a rental portfolio is a collection of real estate properties you own and rent out to generate steady, passive income. These properties can take many forms:

Single-family homes
Multifamily units
Commercial spaces
Vacation rentals

But here’s what makes a rental portfolio powerful: it works for you in two ways.

Rental Income: Monthly cash flow that keeps your finances strong.
Property Appreciation: Long-term value growth that builds wealth over time.

And if you’re thinking of getting into the rental property market, now is the time. There are 19.3 million rental properties in the US and according to some studies, real estate investors make $140,000 annually.

Creating your portfolio is possible. I started from scratch and today, my portfolio is worth seven figures. I share more about how I grew it here:

How to build a rental portfolio

What does it take to create a real estate portfolio? Most beginners don’t fail because they lack the resources—they fail because they get stuck. Analysis paralysis, overwhelm, and second-guessing can keep you spinning your wheels instead of making progress. But you don’t have to stay stuck. There’s a clear, step-by-step strategy to follow, and I’m here to guide you through it. In the next section, we’ll break down the exact steps you need to take to go from dreaming about real estate to owning a profitable rental portfolio.

1. Set goals

Building a rental portfolio starts with one essential question: What’s your why? Why do you want to create a rental property business? What’s driving you to take this step? When I started, my goal was simple: I wanted more financial freedom and the ability to create abundance in my life. Other reasons might include:

Passive income: Build a stream of income that works while you sleep.
Entrepreneurship: Leave the 9-to-5 grind and be your own boss.
Early retirement: Achieve financial independence faster.
Income diversification: Reduce risk by having multiple revenue sources.
Generational wealth: Secure long-term wealth for you and your family.

Whatever your reason, take your time to uncover it. Your “why” will be the foundation for every decision you make, from the properties you buy to the strategies you use. Take your time with this because your end goal will affect the real estate strategy you choose. Got it? Perfect—now you’re ready for the next step.

Agent Showing the Documents to the Woman Standing Beside Her

2. Research and educate yourself

Now that you’ve nailed down your goals, it’s time to map out how you’ll achieve them. The key? Choosing the right real estate investment strategy to support your vision. Here’s how to get started.

Property type

First, decide what type of property you want to invest in. Each option comes with its own pros and cons:

Single-family homes: Easy to manage and great for beginners, but a vacancy can hit your cash flow hard.
Multi-family properties: Higher upfront costs (and not ideal for beginners) but multiple tenants mean more income streams (and bigger returns).
Residential properties: Ideal for long-term wealth building, thanks to consistent property appreciation.
Commercial properties: High-income potential but comes with more red tape and higher vacancy risks.

I invest in single-family properties that I rent by the room as student accommodation. This model helped me quit my 9-5 and build a multiple seven-figure portfolio, with a low vacancy rate and financial stability. I’ve since helped others do the same!

Investment strategy

Next, decide what rental property investment strategy you want to pursue. Here are the most common strategies:

Fix-and-flip: Buy a fixer-upper, renovate it, and sell for a profit (high-risk, high-reward).
House hacking: Live in one part of the property while renting out the rest to cover your mortgage.
Short-term rentals: Think Airbnb—high turnover but potentially higher rental rates.
Long-term rentals: More modest income with predictable, steady cash flow from longer leases.

The right strategy depends on your goals and risk tolerance. For example, flip projects are riskier, while long-term rentals offer steady, predictable income.

Terms and metrics

To make smart decisions, you need to understand key metrics. Here are a few must-know terms:

Cash flow: Your income after expenses (such as maintenance, taxes, and mortgage payments). If expenses eat up your rental income, you’re in the red, so you need to make more from your rental than you pay out.
Return on investment (ROI): Measures your profit relative to the property’s cost. Formula: (Net profit ÷ Cost of investment) x 100.
Cap rate: Predicts your potential gains (or losses). Formula: (Net operating income ÷ Current market value) x 100.

But, of course, there’s so much more to learn about how to build a rental portfolio! Reading reputable books and taking real estate investing courses are a great place to start. But if you really want to save money and time, learn from someone who’s been in your shoes. I learned this the hard way. When I started, I made a $30,000 mistake because I didn’t have the right guidance. It was a tough lesson, but it taught me the value of mentorship. That’s why I now help new investors avoid common pitfalls and succeed faster. With this foundation in place, you’re ready to tackle the next step: financing your first rental property.

3. Secure financing

The most common way to finance a rental property is to take out a conventional bank loan. You’ll need:

Down payment: Typically 15-20%.
Credit score: At least 620.
Debt-to-income ratio: Keep it low.
Financial history: A clean record.

But what if you don’t have that? Here are some alternative routes:

Federal Housing Administration (FHA) loans: These government-backed loans are designed for first-time buyers to get on the property ladder. You can pay around a 3% down payment, and they accept lower credit scores. However, you need to live on the property for at least the first year.
Veteran Affairs (VA) loans: These are similar to FHA loans, except they’re only open to veterans and their spouses. They don’t require a down payment at all, but there are more restrictions on the type of property you can buy.
Private lenders: Approaching a friend, family member, or colleague to lend you the down payment or build a partnership with you is a viable way to get started. Interest rates vary a lot more than traditional mortgages, though.
Hard money loans: These loans use the property as collateral. They come with high interest rates but accept applicants with lower credit scores.

For more on alternative financing options, check out this video:

Once you have a financing path, you’re ready to buy your first rental property.

4. Find your first property

Where you buy your property matters a lot for how profitable your portfolio is. The location doesn’t just influence how much rent you can charge—it also impacts the purchase price, mortgage payments, and long-term profitability. Choose the wrong spot, and you might find yourself in a negative cash flow situation. Before you commit, ask these critical questions:

What are the average property prices in the area?
How much is the typical rent in the neighborhood?
Does the area have a low crime rate?
Is there easy access to amenities your ideal tenants care about?

For example, I invest in student housing, so I focus on properties near reputable colleges. The closer I am to campus, the higher the demand—and the rent. You also have to think about the type of property your ideal tenant may be looking for. For example, if you want to start with a long-term rental for families, look at properties with adequate bedrooms and a yard that’s close to good schools. Here are some other factors to consider outside of location:

Property condition and age: Older homes might need more repairs.
Property type: Apartment, condo, single-family home—what fits your strategy?
Potential for appreciation: Will the property’s value grow over time?
Sale price: Ensure it aligns with your budget and financing plan.

Use tools like Zillow to scout potential properties and compare prices. Once you have a shortlist, it’s time to dive deeper:

Visit the property in person to assess its condition.
Arrange inspections to uncover any hidden issues.
Conduct title searches to confirm ownership and avoid legal headaches.

Don’t skip this step. And, hopefully, your chosen property passes everything so you can make an offer. This can feel like the scariest part, but trust in your research and due diligence. You’ve done the work; now it’s time to act. Need help navigating this stage? Watch this video for tips on making your first offer:

5. Manage your property

Once you have your property locked in and ready to rent, it’s time to turn it into a steady source of income. First, figure out your rental price. Your rental price needs to strike a balance. It should be competitive and affordable for your area while still ensuring positive cash flow. Research similar rentals in your neighborhood to find that sweet spot. Then, you need to attract good tenants. To do so, market your property in the right places, like Apartments.com, Facebook, Craigslist, and Zillow. Tailor your approach to your target audience. For example, if you’re renting to students, focus on platforms and groups they frequent. Now comes a big decision: Should you manage the property yourself or hire a property management company? Here’s the breakdown:

Property management companies: Handle everything from tenant screening to maintenance, saving you time and stress—but they come at a cost.

Self-management: Puts you in control and helps you save money, especially when cash flow is tight in the beginning.

If you’re just starting out, I recommend self-management. It’s a great way to learn the ropes and keep expenses low. Managing your property doesn’t have to be overwhelming. Here’s how to keep it simple:

Choose reliable tenants: Take your time with screening to avoid headaches later.
Empower tenants: Set clear expectations and encourage them to handle minor issues on their own (for example, replacing light bulbs or unclogging drains).

As your portfolio grows and your cash flow improves, you can always transition to a property management company to free up your time.

6. Scale your portfolio

So, you’ve successfully managed your first property—what’s next? It’s time to think about scaling your portfolio and taking your real estate business to the next level. Whether your goal is to own a handful of properties or build an empire, growing your portfolio is the natural next step. The good news? You can use the success of your first property to fuel your growth. Here’s how:

Reinvest your profits: Take the income from your first property and put it toward buying your next one.
Leverage equity: If your property has appreciated in value, consider using its equity to fund additional investments.

You can also diversify your income by experimenting with different types of properties and real estate investment strategies. For example, my portfolio includes single-family properties, multi-family properties, and a flip project. But scaling too early can lead to unnecessary risk. Here’s how to know you’re ready:

Your first property is generating consistent, positive cash flow.
You’ve saved enough for a down payment on a second property.
You feel confident in managing your current investment(s).

Once you’re ready, explore your options and keep building toward your financial goals.

Example: How I grew my own portfolio

I went from zero properties to a seven-figure rental portfolio while in my day job. I’ve since retired from my pharmacy job, but here’s how I got started:

It all started with inspiration from my grandpa. He managed to put me and my brother through college with the income from just six rental properties. Watching his success sparked a fire in me.

At the time, I was working as a pharmacist, clocking in overtime to save enough money for my first property. When I finally bought it, I was thrilled—but the challenges hit hard. A broken sewage line and thousands of dollars in damages tested my resolve.

But I didn’t quit. Instead, I built a strategy.

I focused on student housing, renting out properties by the room. This strategy boosted my income per property, allowing me to reinvest faster. My goal was simple but effective: buy one property per year.

Over time, that approach helped me grow a seven-figure rental portfolio, quit my job, and create the life I truly wanted.

Today, I share my blueprint with newbie real estate investors like you. My goal is to help you avoid the mistakes I made, overcome challenges, and achieve your financial goals faster than I did.

If I can do it—starting from scratch and facing setbacks—you can, too.

Pros and cons of building a rental portfolio

Building a rental portfolio can be life-changing—I’ve experienced it firsthand. But like any investment, it’s important to weigh both the pros and cons before diving in.

Pros of building a rental portfolio

Here are some of the pros:

Passive income: While not entirely hands-off, rental properties generate regular monthly income that can help you build long-term financial security.
Tax benefits: Rental property expenses—like repairs, insurance, and mortgage interest—can often be deducted, which means a lower tax bill for you.
Simple to get started: Starting isn’t easy, but the steps are straightforward. With the right guidance and strategy, anyone can build a successful rental property business.

Cons of building a rental portfolio

Of course, there are challenges, too:

Market unpredictability: Real estate markets can fluctuate, affecting property values and potential returns.
Stressful tenants: Managing tenants can be tough, especially if you encounter issues like late payments or property damage. The solution? Take your time screening for reliable renters.
Potentially high maintenance costs: Repairs and upkeep can add up quickly if you’re not careful. Regular property inspections and a maintenance fund can help you stay ahead of unexpected expenses.

FAQ: How to build a rental portfolio

How do you structure a rental portfolio?

How you structure your rental portfolio depends on your goals and risk tolerance. If you want to make steady long-term rental income, starting with residential properties and later diversifying property type makes sense. For higher-risk strategies, you can look into flip projects and short-term rentals.

What is the 1% rule in rental investment?

The 1% rule is a quick way to assess a property’s potential profitability. It states that your monthly rental income should equal at least 1% of the property’s purchase price, including repair expenses.

Example:
If you buy a property for $200,000, your goal is to generate at least $2,000 in monthly rental income.

What is the 2% rule for rental investments?

The 2% rule is a more aggressive benchmark, suggesting that your cash flow should be at least 2% of the property’s purchase price.

Example:
For a $100,000 property, aim for $2,000 in monthly rental income.

This rule is harder to achieve in many markets but can indicate exceptionally strong investment opportunities.

What’s next?

And that’s how to build a rental portfolio!

As you can see, investing in real estate can be straightforward, but there are a lot of common mistakes to avoid.

My mission is to help beginners like you achieve their financial goals and build solid rental property businesses from scratch.

If you want my help getting started, you can check out my coaching program here.

Read more:

How to Make Money on Rental Properties

The Most Profitable Rental Properties

The Best States to Buy Rental Properties