Yes, you can buy a house and rent it out anywhere in the United States, but the purchase is structured differently from buying a home you plan to live in. You will need an investment-property mortgage (or an owner-occupied loan on a multi-unit building where you live in one unit), a landlord insurance policy instead of standard homeowners coverage, and clearance from local zoning and any homeowners association before a tenant moves in. Once the property is rented, federal and state law impose specific duties on you as a landlord, and the income is reported separately on your tax return.
Getting the Right Mortgage
Lenders price rental properties as higher-risk loans because borrowers in financial trouble tend to walk away from investment properties before abandoning their own home. Expect a down payment of 15% to 30% on a conventional investment-property mortgage, compared to as little as 3% on a primary residence. Interest rates usually run a quarter to three-quarters of a percentage point above owner-occupied rates, depending on your credit and the lender.
You cannot get around this by taking a residential loan and quietly renting the house out. Nearly every residential mortgage contains an occupancy clause requiring you to move in within 60 days of closing and live there for at least a year. Misrepresenting a rental as your primary residence to secure better loan terms is mortgage fraud under federal law, with penalties up to $1,000,000 in fines and up to 30 years in prison.1Office of the Law Revision Counsel. 18 USC 1014 – Loan and Credit Applications Generally Lenders check.
The FHA Multi-Unit Option
If you want a smaller down payment and are open to living in the building, an FHA loan on a two- to four-unit property is a legitimate path. At least one borrower must occupy a unit within 60 days of closing and intend to stay for a year, and the other units can be rented out. For three- and four-unit properties, FHA applies a self-sufficiency test: the total mortgage payment cannot exceed the net rental income from all units, with rental income calculated at 75% of the appraiser’s fair market rent estimate to build in a vacancy cushion.2U.S. Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook
Insurance Built for Rentals
A standard homeowners policy is written for owner-occupied homes and typically excludes claims tied to rental activity. If a tenant or their guest is injured on the property and you are carrying a regular homeowners policy, the insurer can deny the claim outright.
What you need instead is a landlord or dwelling fire policy. It covers the structure, provides liability protection for tenant injuries, and usually includes fair rental value coverage, which replaces lost rent for up to 12 months when the property becomes uninhabitable after a covered event like a fire or storm. Fair rental value coverage does not pay for ordinary vacancies or a tenant breaking the lease. Many landlords add an umbrella liability policy on top, especially once they own more than one rental. Holding the property in a limited liability company is another common structure; the two approaches serve different purposes and are often used together.
Zoning and HOA Rules to Check Before Closing
Confirm that local zoning allows your intended use before you sign anything. A single-family residential zone may prohibit renting individual rooms, converting the house into a duplex, or operating short-term rentals. Zoning violations can generate daily fines that accumulate until the property is brought into compliance, and repeated violations can lead to court orders.
Private restrictions add a second layer. Homeowners associations enforce restrictive covenants recorded in the deed and binding on every owner. Some HOAs cap the share of homes in the community that can be rented at any one time, producing a waiting list. Others require minimum lease terms of 12 months to shut out vacation-style rentals. Unpaid HOA fines can turn into liens against the property, and in extreme cases the association can pursue foreclosure to collect.
Rental License, Inspection, and Lead Disclosure
Many municipalities require a rental license or business tax receipt before a tenant moves in. The process usually starts with proof of ownership (the recorded deed or a recent title report), the parcel identification number from your tax assessment, and your taxpayer identification number.
If the home was built before 1978, federal law requires you to disclose any known lead-based paint hazards to prospective tenants and provide an EPA-approved lead hazard information pamphlet before the lease is signed.3eCFR. 40 CFR 745.107 – Disclosure Requirements for Sellers and Lessors You must also share any available records or reports on lead paint in the property.4eCFR. 40 CFR Part 745 Subpart F – Disclosure of Known Lead-Based Paint Hazards Upon Sale or Lease of Residential Property The obligation applies whether or not the property actually contains lead paint.
Most jurisdictions schedule a safety inspection after you apply for the license. Inspectors check for working smoke detectors, proper egress windows in bedrooms, safe electrical wiring, and basic code compliance. Fees range from under $100 per unit in some cities to several hundred dollars annually in others, and processing typically takes 30 to 60 days. Many jurisdictions also require you to name a local contact who can respond to emergencies.
Your Legal Duties Once the Property Is Rented
Owning a rental creates obligations that do not exist for a homeowner living in their own house, and they are enforced at both the federal and local level.
Habitability
Most jurisdictions recognize an implied warranty of habitability: you must keep the structure sound and ensure tenants have reliable heat, running water, and electricity. When essential systems fail, prompt repair is your responsibility. In many states, tenants of a landlord who neglects these duties can legally withhold rent, pay for repairs and deduct the cost, or terminate the lease.
Security Deposits
Every state regulates security deposits. Common requirements include holding the deposit in a separate escrow account rather than commingling it with personal funds, returning it within a set window after move-out (typically 14 to 30 days), and providing an itemized list of any damage deductions. Some states cap the deposit at one or two months’ rent; others set no statutory limit. Deposit disputes are one of the fastest routes to small claims court, and judges tend to side with tenants when procedures were not followed.
Fair Housing
The Fair Housing Act prohibits refusing to rent, setting different terms, or otherwise discriminating based on race, color, religion, sex, national origin, familial status, or disability.5Office of the Law Revision Counsel. 42 USC Chapter 45 – Fair Housing It covers advertising, tenant screening, lease terms, and eviction decisions. Civil penalties assessed through administrative proceedings start at a maximum of $26,262 for a first violation and rise for repeat violations, with the current figures adjusted annually for inflation.6eCFR. 24 CFR 180.671 – Assessing Civil Penalties for Fair Housing Act Cases Federal lawsuits can add compensatory and punitive damages with no statutory cap.
Assistance animals are where landlords stumble most often. If a tenant or applicant has a disability and requests to keep an assistance animal, including an emotional support animal, you are generally required to grant that request as a reasonable accommodation, even under a no-pets policy, and you cannot charge a pet deposit or pet fee for the animal.7U.S. Department of Housing and Urban Development. Assistance Animals Denial is limited to narrow grounds: the specific animal poses a direct threat, would cause significant property damage that other accommodations cannot resolve, or the accommodation would be an undue financial burden.
Screening and Adverse Action Notices
Background and credit checks are standard, but the Fair Credit Reporting Act requires you to give an adverse action notice whenever you deny an application, raise the deposit, or require a co-signer based even partly on information in a consumer report.8Federal Trade Commission. Using Consumer Reports: What Landlords Need to Know The notice must identify the reporting agency, state that the agency did not make the decision, and tell the applicant they can dispute inaccurate information and get a free copy of the report within 60 days. If a credit score factored in, disclose the score and the key factors that affected it. Oral notices technically comply, but written ones protect you if the applicant later claims otherwise.
How Rental Income Is Taxed
Rental income and expenses are reported on Schedule E of your federal return, separate from wages or business income.9Internal Revenue Service. Instructions for Schedule E (Form 1040)
What You Can Deduct
You can deduct the ordinary and necessary costs of managing and maintaining the property, including mortgage interest, property taxes, insurance premiums, repairs, advertising for tenants, management fees, and travel related to the property.10Internal Revenue Service. Tips on Rental Real Estate Income, Deductions and Recordkeeping Capital improvements like a new roof or a full kitchen remodel are not deducted immediately; you recover those costs through depreciation.
Residential rental property is depreciated over 27.5 years using the straight-line method, applied to the building’s cost (not the land).11Office of the Law Revision Counsel. 26 USC 168 – Accelerated Cost Recovery System On a building worth $275,000, that produces roughly $10,000 in annual depreciation. Depreciation often creates a paper loss even when the property is generating positive cash flow.
The $25,000 Passive Loss Allowance
The IRS treats rental income as passive, so rental losses generally offset only other passive income. The main exception: if you actively participate in managing the rental by approving tenants, setting rent, and authorizing repairs, you can deduct up to $25,000 in rental losses against your regular income each year.12Office of the Law Revision Counsel. 26 USC 469 – Passive Activity Losses and Credits Limited Active participation is a lower bar than material participation, and hiring a property manager for day-to-day work does not disqualify you as long as you make meaningful management decisions.13Internal Revenue Service. Publication 925 – Passive Activity and At-Risk Rules
The allowance shrinks by 50 cents for every dollar your modified adjusted gross income exceeds $100,000 and disappears at $150,000.12Office of the Law Revision Counsel. 26 USC 469 – Passive Activity Losses and Credits Limited Married filing separately with any cohabitation during the year drops the allowance to $12,500 and the phaseout to $50,000.13Internal Revenue Service. Publication 925 – Passive Activity and At-Risk Rules Losses you cannot use carry forward and can offset future income or the gain when you sell.
The 20% QBI Deduction
Rental property may also qualify for the 20% deduction on qualified business income under IRC ยง 199A.14Office of the Law Revision Counsel. 26 USC 199A – Qualified Business Income The IRS safe harbor asks for at least 250 hours of rental services a year, backed by contemporaneous records.15Internal Revenue Service. IRS Finalizes Safe Harbor to Allow Rental Real Estate to Qualify as a Business for Qualified Business Income Deduction Rental services cover maintenance, repairs, rent collection, and tenant management. That works out to about five hours a week, achievable for a hands-on landlord who is willing to keep a log.