6 Factors to Consider When Buying an Investment Property

Buying an investment property can be a smart financial decision. Do it right, and you can get a strong return through passive income, tax breaks, and equity gains. But a big return on your investment is not a guarantee—you need to think strategically when choosing and purchasing your investment property, and to work in line with both market trends and the general guidelines that dictate whether your investment is poised to succeed.

If this is your first time venturing into the world of investment properties, then it’s normal to feel a bit overwhelmed by the process. There is a lot to consider, and a lot on the line, too. Whether you’re planning to buy a vacation rental property, a condo in the city to rent out year round, a commercial investment property, or some other type of real estate investment, you need to go in with a clear head and a strong understanding of what makes a good purchase.

To help you get there, we’ve put together this quick guide to the major factors that you need to consider when buying an investment property. While each situation needs to be considered individually and with local trends in mind, these factors are a good jumping off point for determining whether it’s a good idea to take the leap.

Location, Location, Location

Down Payment Differences

The 1% Rule

Fixes and Variable Expenses

  • Property taxes
  • Homeowner’s insurance
  • Property management expenses (if applicable)
  • HOA fees (if applicable)
  • General upkeep costs (cleaning, landscaping, etc.)

Property Management

Know the Risks

  • You might not have the rental interest that you anticipate.
  • You could end up having to front for expensive repairs.
  • Property taxes could go up.
  • The local market economy could change.
  • You could have bad tenants, resulting in repair costs or even eviction costs.

An investment property can be one of the most fruitful purchases that you ever make. Work with an experienced advisor who can help you navigate the process and make the best purchase possible, and be sure to thoroughly evaluate all of the factors above to ensure that the investment you make is a smart one.