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Residential rental properties can be a fantastic investment if the buyer is careful. The first step is to determine where the location of the property should be. The more familiar you are with the neighborhood the better. Ask yourself, would I want to live in this place? Check websites that give information on neighborhoods and percentage of people who rent in the area. A very high percentage of home ownership can be a warning sign of a not so good rental town or mean that there is a shortage of rental property in the area. It is better for an investor if it is the latter of the two.

Next, decide if you prefer a single family home a multi-unit. Most lenders view anything four units or less as a residential investment. Over four units will classify as commercial property and be almost impossible to mortgage without at least a thirty-percent down payment.

Look at properties. Then look at more properties. It is very important to practice running a cash flow analysis on each property. A cash flow analysis is a detailed list of expenses and income for the property. Make sure the numbers are real not estimates. Factor in everything, even paying to have the grass cut if that will be an expense. Ask what the insurance will actually cost you not what the present owner is paying. Only include the amount of the rent the property has really generated, not how much you think you can get for it.

Screen tenants thoroughly. There are other articles that address this element of investment properties in great detail - be sure to read them.

Always set aside some of the profit every month for operating expenses. You never know when something will require repairs or a place will need cleaned up in between tenants. Larger purchases such as furnaces, boilers, and air conditioning systems can make a profitable property only break even - or worse. If a property does only break even there is no need for despair; someone else is still buying a piece of real estate for you that should appreciate over time. As long as the place is self-supporting it is a good deal.

Remember, real estate for most people is a long term investment strategy. A property purchased today will yield greater profits in twenty to thirty years once it is paid off. Enough properties can produce a very nice monthly income. Most importantly, study and research prior to buying any property. Proper preparation can save a lot of headaches down the line.

Learn more about this author, Bonnie Valentine.
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