4 questions to ask before you buy an investment property

November 23, 2021

Becoming a landlord can generate rental income and diversify your portfolio, but it also comes with risks.

 

Owning real estate can be appealing. With an investment property, there’s the real possibility of receiving regular monthly income while also gaining equity on a significant asset. 

However, being a landlord also takes a lot of work and a reasonable tolerance for risk. For first time investors a good way to start is by buying an investment property to use as your first home. But regardless of what type of property you ultimately choose, before you get an investment property loan, you should know the answers to these four questions that will help you determine whether becoming a landlord is right for you.

 

1. What are your basic responsibilities as a landlord?

There are both pros and cons to investing in income properties. As a positive, you can collect a monthly income simply by having renters live in your property, and the value of your property could appreciate, helping you grow your net worth. Also, some expenses associated with the property may even be deductible from your income taxes.

On the other hand, a property can also depreciate, depending on the housing market. Finding tenants will be your responsibility, and the amount you’ll be able to charge for rent can fluctuate, so you’ll want to stay well informed about the market’s ups and downs.

 

2. What is the right type of investment property for you?

Choices include condominiums, apartments, townhomes, single-family homes, multi-family homes and even commercial or retail spaces. Some factors to consider when deciding on the best type of property include the following:

  • Cost: How much can you afford to spend on the investment property?
  • Maintenance: No matter what type of property you invest in, it will need to be maintained. Consider how much immediate and ongoing maintenance a property might require before you purchase.
  • Rental income: In some areas, commercial spaces can command higher rents, but in others, residential spaces may be the better investment.

 

3. Where do you want to buy?

You should do as much research as possible before investing in an income property. Many factors can come into play when finding a property and deciding on a reasonable monthly rent for your tenants. Some of the variables you should take into consideration include the following:

  • Property taxes
  • Crime data
  • Proximity to schools, hospitals and shopping (“walk score”)
  • The number of similar rental properties
  • Average rental prices for comparable properties

 

4. How will you finance an income property?

While there are certainly some cash buyers, you’ll likely take out a mortgage in the form of an investment property loan. As with any loan, you’ll need to supply personal information about your annual income, assets and credit history, as well as other various documentation.

It’s important to compare several loan types such as conventional fixed-rate mortgages versus adjustable-rate mortgages. Also, talk with multiple lenders before you decide on a loan. If you already own a personal residence, you may be able to use a home equity line of credit to help finance an investment property.

Becoming a landlord may be a smart financial decision and a way to increase your net worth over time.

 

Continue reading to learn more about mortgages and investment property loans.

Related content

Leverage credit wisely to plug business cash flow gaps

How to open and invest in a 529 plan

How grandparents can contribute to college funds instead of buying gifts

Tailor Ridge eBill case study

5 times you may need a financial advisor

For today's homebuyers, time and money are everything

How do interest rates affect investments?

Effects of inflation on investments

How to use debt to build wealth

4 benefits of independent loan agents

7 year-end tax planning tips

The unsung heroes of exchange-traded funds

High-cost housing and down payment options in relocation

For today's relocating home buyers, time and money are everything

Crypto + Relo: Mobility industry impacts

Middle-market direct lending: Obstacles and opportunities

What type of investor are you?

How to build and maintain a solid credit history and score

How I did it: Deciding whether to buy an RV

Take the stress out of buying your teen a car

Retirement expectations quiz

Streamline operations with all-in-one small business financial support

Beyond Mars, AeroVironment’s earthly expansion fueled by U.S. Bank

Key considerations for launching an ILP

Credit: Do you understand it?

Personal loans first-timer's guide: 7 questions to ask

Dear Money Mentor: When should I refinance a mortgage?

How I did it: Bought a home without a 20 percent down payment

Starting your homebuying journey: Tips from a U.S. Bank Goals Coach

The lowdown on 6 myths about buying a home

How to use credit cards wisely for a vacation budget

How to choose the right rewards credit card for you

Evaluating interest rate risk creating risk management strategy

First-time homebuyer’s guide to getting a mortgage

Opening a business on a budget during COVID-19

What’s a subordination agreement, and why does it matter?

What is an escrow account? Do I have one?

What’s your financial IQ? Game-night edition

Understanding the true cost of borrowing: What is amortization, and why does it matter?

Money Moments: Tips for selling your home

Parent checklist: Preparing for college

What are conforming loan limits and why are they increasing

What types of credit scores qualify for a mortgage?

Should you get a home equity loan or a home equity line of credit?

Quiz: How prepared are you to buy a home?

Understanding yield vs. return

Retirement income planning: 4 steps to take

How to start investing to build wealth

How much money do I need to start investing?

Can fantasy football make you a better investor?

Investment strategies by age

Investing for beginners

Bull and bear markets: What do they mean for you?

A guide to tax diversification in investing

7 diversification strategies for your investment portfolio

Good debt vs. bad debt: Know the difference

Avoid these 6 common mistakes investors make

4 strategies for coping with market volatility

5 questions to help you determine your investment risk tolerance

How to establish your business credit score

4 times to consider rebalancing your portfolio

4 major asset classes explained

What are alternative investments?

What is a CLO?

When to consider switching banks for your business

Common unexpected expenses and three ways to pay for them

5 tips to use your credit card wisely and steer clear of debt

How I did it: Bought my dream home using equity

Buying a home Q&A: What made three homeowners fall in love with their new home

Saving for a down payment: Where should I keep my money?

4 ways to free up your budget (and your life) with a smaller home

Get more home for your money with these tips

Money Moments: How to finance a home addition

How I did it: My house remodel

Are professional movers worth the cost?

How you can take advantage of low mortgage rates

Is it the right time to refinance your mortgage?

4 questions to ask before you buy an investment property

What is a home equity line of credit (HELOC) and what can it be used for?

Is a home equity line of credit (HELOC) right for you?

10 uses for a home equity loan

How to use your home equity to finance home improvements

What to know when buying a home with your significant other

Webinar: Mortgage basics: What’s the difference between interest rate and annual percentage rate?

Webinar: Mortgage basics: How much house can you afford?

Webinar: Mortgage basics: Buying or renting – What’s right for you?

Webinar: Mortgage basics: What is refinancing, and is it right for you?

Webinar: Mortgage basics: Prequalification or pre-approval – What do I need?

Webinar: Mortgage basics: How does your credit score impact the homebuying experience?

Webinar: Mortgage basics: Finding the right home loan for you

Webinar: Mortgage basics: 3 Key steps in the homebuying process

8 steps to take before you buy a home

These small home improvement projects offer big returns on investment

What is refinancing a mortgage?

How do I prequalify for a mortgage?

6 questions to ask before buying a new home

Student checklist: Preparing for college

Webinar: Uncover the cost: College diploma

Checklist: How to gain financial independence from your parents

The A to Z’s of college loan terms

Co-signing 101: Applying for a loan with co-borrower

Practical money skills and financial tips for college students

How to build credit as a student

How I did it: Paid off student loans

Everything you need to know about consolidating debts

5 steps to selecting your first credit card

Know your debt-to-income ratio

Dear Money Mentor: How do I begin paying off credit card debt?

Your quick guide to loans and obtaining credit

5 unique ways to take your credit card benefits further

Myth vs. truth: What affects your credit score?

Test your loan savvy

Should you give your child a college credit card?

U.S. Bank asks: What do you know about credit?

6 essential credit report terms to know

What is a good credit score?

How to improve your credit score

Is a home equity loan for college the right choice for your student

How to apply for federal student aid through the FAFSA

Be careful when taking out student loans

Your financial aid guide: What are your options?

Decoding credit: Understanding the 5 C’s

5 tips to use your credit card wisely and steer clear of debt

ABL mythbusters: The truth about asset-based lending

Collateral options for ABL: What’s eligible, what’s not?

Crypto + Homebuying: Impacts on the real estate market

Employee benefit plan management: Trustee vs. custodian

Renewing your custody contracts? Negotiate the fees.

How jumbo loans can help home buyers and your builder business

Private equity and the full-service administrator

Capitalizing on growth in the private equity space

How liquid asset secured financing helps with cash flow

Hybridization driving demand

When small companies buy big: The potential of asset-based lending

How to maximise your infrastructure finance project

Questions to ask before buying a car

What you should know about buying a car

How to choose the best car loan for you

What you need to know before buying a new or used car

Improving your credit score: Truth and myths revealed

Can you take advantage of the dead equity in your home?

How to get started creating your business plan

How to fund your business without using 401(k) savings

Costs to consider when starting a business

How a small business is moving forward during COVID-19

Prioritizing payroll during the COVID-19 pandemic

5 tips to help you land a small business loan

How to establish your business credit score

Investing in capital expenditures: What to discuss with key partners

Interval funds find growing popularity

Can ABL options fuel your business — and keep it running?

ESG-focused investing: A closer look at the disclosure regulation

4 questions you should ask about your custodian

Tech lifecycle refresh: A tale of two philosophies

OCIO: An expanding trend in the investment industry

Avoiding the pitfalls of warehouse lending

At your service: Outsourcing loan agency work

Maximizing your infrastructure finance project with a full suite trustee and agent

An investor’s guide to marketplace lending

What type of loan is right for your business?

A first look at the new fund of funds rule

Should you buy a house that’s still under construction?

Start of disclosure content

Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rate and program terms are subject to change without notice. Mortgage, home equity and credit products are offered by U.S. Bank National Association. Deposit products are offered by U.S. Bank National Association. Member FDIC.

U.S. Bank is not responsible for and does not guarantee the products, services or performance of U.S. Bancorp Investments, Inc.