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

Investment strategies by age

How much money do I need to start investing?

Myth vs. truth: What affects your credit score?

6 questions to ask before buying a new home

8 steps to take before you buy a home

What is refinancing a mortgage?

Are professional movers worth the cost?

What to know when buying a home with your significant other

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

Mortgage basics: 3 key steps in the homebuying process

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

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

How you can take advantage of low mortgage rates

Mortgage basics: Finding the right home loan for you

Home buying myths: Realities of owning a home

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

How does inflation affect investments?

What’s your financial IQ? Game-night edition

OCIO: An expanding trend in the investment industry

A checklist for starting a mobility program review

Common unexpected expenses and three ways to pay for them

How to build and maintain a solid credit history and score

How do interest rates work?

How to request a credit limit increase

At your service: outsourcing loan agency work

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

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

Asset classes explained: Cash, bonds, real estate and equities

How digital platforms streamline client onboarding for investment funds

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

Understanding yield vs. return

What type of investor are you?

How liquid asset secured financing helps with cash flow

Hybridization driving demand

The ongoing evolution of custody: Tips for renewing your custody contract

Key considerations for launching an ILP

A first look at the new fund of funds rule

Interval funds find growing popularity

An investor’s guide to marketplace lending

What is a CLO?

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

ABL mythbusters: The truth about asset-based lending

What type of loan is right for your business?

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

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

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

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

The unsung heroes of exchange-traded funds

4 questions you should ask about your custodian

Avoiding the pitfalls of warehouse lending

Evaluating interest rate risk creating risk management strategy

Employee benefit plan management: trustee vs. custodian

Tech lifecycle refresh: A tale of two philosophies

Changes in credit reporting and what it means for homebuyers

What’s the difference between Fannie Mae and Freddie Mac?

Why other lenders may be reaching out to your employees

How institutional investors can meet demand for ESG investing

High-cost housing and down payment options in relocation

4 benefits of independent loan agents

Middle-market direct lending: Obstacles and opportunities

Crypto + Relo: Mobility industry impacts

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

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

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

Costs to consider when starting a business

4 small business trends that could change the way you work

How jumbo loans can help home buyers and your builder business

When to consider switching banks for your business

5 tips to help you land a small business loan

Leverage credit wisely to plug business cash flow gaps

How to establish your business credit score

Do I need a financial advisor?

Good debt vs. bad debt: Know the difference

Retirement income planning: 4 steps to take

Year end tax planning tips

A guide to tax diversification in investing

Bull vs. bear market: What do they mean for you?

Start a Roth IRA for kids

Investing myths: Separating fact from fiction in investing

What Is a 401(k)?

ETF vs. mutual fund: What’s the difference?

What are alternative investments?

4 times to consider rebalancing your portfolio

7 diversification strategies for your investment portfolio

Why compound annual growth matters

How to start investing: A beginner’s guide

5 questions to help you determine your investment risk tolerance

Student checklist: Preparing for college

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

Pros and cons of a personal line credit

3 tips for saving money when moving to a new home

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

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

How grandparents can contribute to college funds instead of buying gifts

How to open and invest in a 529 plan

Your financial aid guide: What are your options?

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

Parent checklist: Preparing for college

How to apply for federal student aid through the FAFSA

What to consider before taking out a student loan

Are you ready to restart your federal student loan payments?

Everything you need to know about consolidating debts

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

5 steps to selecting your first credit card

How to use debt to build wealth

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

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

Know your debt-to-income ratio

How to use credit cards wisely for a vacation budget

Your quick guide to loans and obtaining credit

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

Dear Money Mentor: What is cash-out refinancing and is it right for you?

Overcoming high interest rates: Getting your homeownership goals back on track

For today's homebuyers, time and money are everything

Crypto + Homebuying: Impacts on the real estate market

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

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?

What are conforming loan limits and why are they increasing

The lowdown on 6 myths about buying a home

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: Tips for selling your home

Money Moments: How to finance a home addition

How I did it: My house remodel

First-time homebuyer’s guide to getting a mortgage

Dear Money Mentor: When should I refinance a mortgage?

What is an escrow account? Do I have one?

Is it the right time to refinance your mortgage?

These small home improvement projects offer big returns on investment

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

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

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

How to use your home equity to finance home improvements

How do I prequalify for a mortgage?

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

4 questions to ask before you buy an investment property

10 uses for a home equity loan

Improving your credit score: Truth and myths revealed

6 essential credit report terms to know

5 unique ways to take your credit card benefits further

Test your loan savvy

Decoding credit: Understanding the 5 C’s

Credit: Do you understand it?

Should you give your child a college credit card?

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

What types of credit scores qualify for a mortgage?

What is a good credit score?

How to improve your credit score

Take the stress out of buying your teen a car

Questions to ask before buying a car

What you should know about buying a car

How to choose the best car loan for you

Disclosures

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 through U.S. Bank National Association. Deposit products are offered through U.S. Bank National Association. Member FDIC.