Yes, you can buy an apartment and rent it out, but the purchase alone doesn’t give you the right to place a tenant inside. Three separate gatekeepers have to say yes: the building’s governing board, your local government, and your lender. A single-family house gives an owner broad control over leasing; an apartment in a multi-unit building layers private rules on top of public ones, and any one of them can stall your plans. Most of the work happens before closing.
What the Building Itself Allows
The first obstacle is almost never the government. It’s the building.
Condominiums are governed by a Declaration of Covenants, Conditions, and Restrictions (CC&Rs), a binding document recorded with the state. Many CC&Rs include rental caps that limit the share of units in the building that can be leased at any one time. If the cap is 20% and the quota is already full, you join a waiting list regardless of what you paid for your unit.
Cooperatives are stricter. You don’t own real estate in a co-op; you own shares in a corporation that entitle you to occupy a unit under a proprietary lease. Co-op boards exercise far more control than condo associations. Many require prospective tenants to submit financial documents and sit for an in-person interview. Some ban subletting outright. Even boards that allow rentals often impose a waiting period requiring you to live in the unit for one to three years before leasing it.
Other restrictions show up in both condos and co-ops: a right of first refusal that lets the board review and reject your proposed tenant, minimum lease terms of six months or a year, prohibitions on short-term or vacation rentals, and administrative or move-in fees charged every time a new tenant arrives.
Before you buy, request the full CC&Rs or proprietary lease, the most recent board meeting minutes, and any pending rule changes. A building that allows rentals today can vote to restrict them next quarter. Ignoring these private rules can trigger daily fines or a court injunction forcing your tenant out.
What Your City or County Requires
Even with the board’s blessing, local government has its own say. Many municipalities require landlords to obtain a rental housing license or permit before placing a tenant in the unit. Applications typically run through a housing, building safety, or code enforcement department. Fees and renewal schedules vary — some jurisdictions charge modestly and renew yearly, others require biennial inspections.
The license usually comes with an inspection. Inspectors look for working smoke detectors, carbon monoxide alarms, adequate emergency exits, and basic structural safety. Buildings constructed before 1978 draw extra scrutiny because federal regulations require landlords to address lead-based paint hazards. Some jurisdictions also require the fire marshal to issue a separate certificate of occupancy before the unit can be leased.
Failing to register or pass inspection can mean fines, loss of your right to collect rent, or an order to vacate the tenant. Code enforcement departments in many cities actively audit rental registrations and respond to tenant complaints.
Short-Term Rentals Are a Different Regulatory Animal
If your plan is to list the apartment on a platform like Airbnb rather than sign a traditional lease, the rules change substantially. Zoning codes in many cities treat short-term rentals (typically stays of 30 days or fewer) as a commercial use that requires a conditional use permit, a separate business license, and transient occupancy tax filings. Low-density residential zones often ban short-term rentals entirely or limit them to a handful of days per year. Long-term leases are generally treated as a standard residential use and face fewer zoning hurdles. Check your local zoning classification before committing to a strategy.
What Your Lender Requires
Lenders treat investment properties as riskier than primary residences, and the terms reflect it. Under current Fannie Mae guidelines, the minimum down payment for a single-unit investment property is 15%, while two-to-four-unit buildings require at least 25% down.1Fannie Mae. Eligibility Matrix Interest rates on investment loans typically run 0.50% to 1.00% above the rate for a primary residence. Expect stricter credit score requirements and higher cash reserve minimums.
Investors who prefer not to qualify on personal income can look into DSCR loans (Debt Service Coverage Ratio). These qualify you based on the property’s rental income relative to its mortgage payment rather than on W-2s or tax returns. Most programs require a DSCR of at least 1.0, meaning the rent covers the full debt payment; a ratio of 1.25 or higher unlocks better terms.
Standard homeowners insurance (the HO-3 policy most owner-occupants carry) does not cover a unit occupied by a paying tenant. You need a DP-3 (Dwelling Property) policy, designed for non-owner-occupied rentals. A DP-3 includes liability coverage for tenant-related incidents and typically offers loss-of-rent protection if the unit becomes uninhabitable due to a covered event like a fire or major water damage. Lenders verify the insurance type during underwriting and won’t close a non-owner-occupied loan without proper coverage.
Landlords with significant assets or multiple properties should also consider an umbrella liability policy, which kicks in after the DP-3’s liability limit is exhausted. Umbrella policies typically start at $1 million in additional coverage. A serious injury lawsuit from a tenant can burn through a DP-3 limit quickly, and the umbrella is what stands between the plaintiff and your personal finances.
What You’ll Owe in Taxes
Rental income is taxable, and you report it on Schedule E of your federal return.2Internal Revenue Service. Tips on Rental Real Estate Income, Deductions and Recordkeeping Deductible expenses include mortgage interest, property taxes, insurance premiums, repairs, property management fees, and advertising. The biggest deduction for most landlords is depreciation.
Depreciation
The IRS requires you to depreciate residential rental property over 27.5 years using the straight-line method.3Internal Revenue Service. Publication 527 (2025), Residential Rental Property You deduct a portion of the building’s cost basis each year (not the land), even if the property is appreciating in market value. On a $300,000 apartment where $240,000 is allocated to the structure, that’s roughly $8,727 per year in paper losses that offset rental income. Depreciation frequently produces a taxable loss even when the property is cash-flow positive.
Passive Activity Loss Rules
Rental real estate is classified as a passive activity, so losses generally can’t offset wages or other active income. There’s a meaningful exception: if you actively participate in managing the property (approving tenants, setting rent, authorizing repairs), you can deduct up to $25,000 in rental losses against other income.4Office of the Law Revision Counsel. 26 U.S. Code 469 – Passive Activity Losses and Credits Limited That allowance starts phasing out when modified adjusted gross income exceeds $100,000 and disappears entirely at $150,000.5Internal Revenue Service. Publication 925, Passive Activity and At-Risk Rules Above the threshold, unused losses carry forward to future years or until you sell.
The Qualified Business Income Deduction
The Section 199A Qualified Business Income (QBI) deduction allows eligible landlords to deduct up to 20% of net rental income before calculating their tax bill. The deduction was set to expire after 2025, but the One Big Beautiful Bill Act signed in July 2025 made it permanent.6Internal Revenue Service. Qualified Business Income Deduction To qualify, the rental activity generally needs to rise to the level of a trade or business. The IRS offers a safe harbor for rental real estate enterprises that meet record-keeping and hour requirements, and rentals that fall outside the safe harbor can still qualify if they constitute an active trade or business under standard tax principles.
Deferring Gains at Sale
When you eventually sell, you can defer capital gains tax by reinvesting the proceeds into another investment property through a like-kind exchange under Section 1031. The deadlines are strict: 45 days from closing to identify potential replacement properties in writing, and 180 days to complete the purchase.7Office of the Law Revision Counsel. 26 U.S. Code 1031 – Exchange of Real Property Held for Productive Use or Investment Miss either window and the entire gain becomes taxable. A qualified intermediary must hold the sale proceeds during the exchange; you cannot touch the money yourself.
Rules for Choosing and Signing a Tenant
Federal law prohibits landlords from discriminating against tenants based on race, color, religion, sex, disability, familial status, or national origin.8Office of the Law Revision Counsel. 42 U.S. Code 3604 – Discrimination in the Sale or Rental of Housing Many states and cities add protected categories such as sexual orientation, gender identity, source of income, or age. These rules apply to advertising, tenant selection, lease terms, and day-to-day interactions. Using a consistent, written set of screening criteria for every applicant is the simplest way to demonstrate compliance.
Even if your building bans pets, federal law requires you to allow assistance animals (including emotional support animals) as a reasonable accommodation for tenants with disabilities. You cannot charge a pet deposit or fee for an assistance animal, and you can deny the request only in narrow circumstances such as a direct safety threat or an undue burden on the property.9U.S. Department of Housing and Urban Development (HUD). Assistance Animals This catches many new landlords off guard.
HUD treats two persons per bedroom as a generally reasonable occupancy standard, though bedroom size, unit layout, and the ages of children can justify deviation. Setting a tighter limit without legitimate justification can trigger a familial status discrimination claim.
Adverse Action Notices
If you reject an applicant based wholly or partly on information in a credit report or background check, federal law requires an adverse action notice. The notice must include the name, address, and phone number of the consumer reporting agency that supplied the report, a statement that the agency did not make the rejection decision, and information about the applicant’s right to dispute inaccurate information and obtain a free copy of their report within 60 days.10Office of the Law Revision Counsel. 15 U.S. Code 1681m – Requirements on Users of Consumer Reports If a credit score was a factor, you must also disclose the score itself, the range of possible scores, and the key factors that hurt it. Skipping this step creates liability under the Fair Credit Reporting Act even when the rejection itself was justified.
What the Lease Must Contain
A lease needs the full legal names of every adult occupant, the unit’s complete address including unit number, the monthly rent, the lease term, and a clear statement of the security deposit. If the apartment was built before 1978, federal law requires a lead-based paint disclosure and an EPA-approved lead hazard pamphlet before the lease becomes binding.11Office of the Law Revision Counsel. 42 U.S. Code 4852d – Disclosure of Information Concerning Lead Upon Transfer of Residential Property Many states require additional disclosures covering mold history, flood zone status, bed bugs, or the identity of the property manager.
Security deposit limits vary. Most jurisdictions cap the amount at one or two months’ rent, and some require the deposit to be held in a separate escrow account. A handful mandate that the account earn interest paid out to the tenant periodically. Your state’s landlord-tenant statute spells out how quickly you must return the deposit after move-out and what deductions are allowed.
Before handing over the keys, walk the apartment with the tenant and have both parties sign a written condition report noting any existing wear or damage. Photograph everything. This document is the single most important protection against security deposit disputes at the end of the lease; landlords who skip it routinely lose those disputes because they cannot prove when damage occurred.
Shielding Your Personal Assets
Owning a rental in your personal name means a tenant lawsuit (a slip-and-fall, a habitability complaint, a negligence claim) can reach your personal bank accounts, your home, and your other investments. Many landlords hold rental properties inside a limited liability company (LLC) to create a legal barrier between the property and their personal assets. State filing fees for forming an LLC range from around $50 to over $500, with recurring annual or biennial report fees required to keep the entity in good standing. Some states also impose mandatory publication requirements or franchise taxes.
An LLC is not a substitute for insurance, and insurance is not a substitute for an LLC. They work in layers. The DP-3 policy covers repair costs and liability claims up to its limits. The umbrella extends that ceiling. The LLC ensures that if a judgment exceeds all insurance coverage, the plaintiff can generally reach only the assets inside the LLC rather than everything you own. Landlords who skip any one of these layers tend to discover the gap at the worst possible time.