An investment property is any type of real estate you purchase with the intention of earning a return on your investment. This may be through rental income, the future resale of the property, or both. There are many benefits—and risks, associated with owning an investment property, so it is important to do your research.

Many people earn a living, and some even make a fortune, by investing in real estate. No matter what type of property you are considering purchasing, or whether you plan to rent or resell it afterward, investing in real estate typically requires a good deal of money upfront. This is why it is crucial to do your research and ensure you make a profit on your investment and save yourself from a loss.

Things to Remember When Buying an Investment Property

1. Follow your head, not your heart: When you buy a home, you tend to think with your heart. This is fine when you are buying a home to live in, but when you consider an investment property, you need to think logically. Don’t let your emotions affect your decision. This is a business investment and should be treated like one.
2. Do your research: No matter your goals, you should do your homework before buying your first investment property. Make sure the potential property’s location is one that will attract the type of clients you are hoping to sell or rent to and that it will bring you the returns you are expecting. If you do your research and use a logic-based approach, instead of simply listing your personal likes and dislikes, you will find the best property for your investment needs.
3. Look at potential profits and expenses: Before you invest, calculate how much you will need, versus how much you have—which will tell you how much you need to borrow. Then, look at how much it will cost to renovate the property, operate it, and how much you plan to rent or sell it for. These calculations will give you an estimate of how much profit you stand to make or how much you can make each month.
4. Look to low-cost properties to begin with: No matter how much money you have to invest, it’s smart to start with a property (or properties) in the low- to mid-range price bracket. Keeping your investment low to start will help you keep your head above water as you renovate and find renters or buyers. A good first step is hiring an experienced real estate agent who respects your set budget.
5. Carefully consider your partners: A lot of people, especially first-time investors, think about investing in properties with their friends. Make sure you are carefully considering the risk factors involved when going into business with friends. Investing in real estate is always a risk; you and your partners could make a lot of money, or you could lose a great deal. Ensure you and your partners know what you are getting into, and you understand the implications of a partnership agreement.
6. Make sure investing in real estate is for you: Remember, real estate investments often take hard work. Do you know how to use a toolbox? Do you know how to unclog a toilet or replace a front door? If not, do you have someone you can call? Hiring a contractor can be costly, so factor that into your calculations.

An investment property could be anything from a rental home, a multi-family property such as an apartment building or townhome, or even a business rental. There will always be risks, but if you prepare yourself appropriately, purchasing an investment property can be a sound financial decision that may benefit you for years to come.