Real estate is one of the most solid fields of investment, and in most cases, a real estate investment can and should be rented out to generate income as its valuation increases. However, nothing about Buying an investment Property is cut-and-dry, so it’s important to do some research before jumping headfirst into a mortgage, a potentially dubious piece of property, and the burdens that come with being a landlord. Don’t think of this as a checklist, but treat it as a batch of standalone suggestions; mix and match as you need to, but try not to ignore any of these points of advice.

1. Develop a Financing Plan

Before you go shopping for anything, it’s good to have a budget. Of course, when buying a home, you’ll rarely be buying outright (but if you can, do!), so instead of budgeting, plan your financing early. All mortgages are not equal, so start with the basics, and then you can go fishing for exactly the right loan. You may have reasons to prefer a 30-year mortgage to a 15-year, or an adjustable interest rate rather than a fixed one. If you’re in the market for a loan, you’ll likely inspire some competition among lenders eager to impress.

2. Understand Differences in Loan Terms for Investments

Here’s something you shouldn’t forget: when buying a home for investment and Rental purposes, rather than a home that will serve as the primary residence for you and your family, your mortgage will likely be subject to 1-2% higher interest rates and higher down payments. You will probably need a higher credit score too for investment property. 20% down payment is standard, but it is possible to find lenders that will accept 10% down.

3. Consider Investing Your Retirement Fund

Investing your retirement fund isn’t a revolutionary idea, but instead of pouring it into mutual funds and other traditional investment programs, consider using your retirement fund to aid the purchase of rentable real estate. Ideally, you’ll see two returns: the gradual appreciation of the home’s value, and the monthly income received from tenants.

4. Pay Off Personal Debt

Warren Buffet’s recommendation to investors of all types: pay off your debts. Not only will debt negatively impact your net income, but it will make it that much harder to appeal to lenders, leaving you with limited mortgage options. Lenders evaluate your debt to income ratio even for rental property; they want to be assured you can make payments in months in between tenants.

5. Stay in Familiar Territory

One of the first tips a beginning author receives is “stick to what you know.” As it turns out, as great advice for buying real estate, too; if you’re buying your first rental property, you’re better off buying in an area you know well than you are buying in an area unfamiliar to you. Investing in something close by is key. as you gain experience and a trusted team of contractors and property managers, you can have success by choosing markets that are on an upswing.

6. Stay Away From Fixer-uppers

It may be tempting to grab that derelict, sagging, vine-covered two-story. After all, it’s selling at a fraction of the asking price of smaller homes, and with a little more money and sweat, it might become a real show stopper. But watch your ambitions; too often, amateur real estate investors buy a fixer-upper with just that intention and end up sinking years and thousands of dollars into a fruitless project. The expenses add up quicker than you think, and hidden repairs are nearly guaranteed. Unless you’re an experienced renovator or have a great working relationship with skilled contractors, steer clear of project houses and keep your eyes on rent-ready turnkey properties.

7. Look into Property Managers

Here’s a big one: no matter what kind of property you’re buying, you should strongly consider hiring a property manager. How badly do you want to wake up at 4:00 AM to fix a leaking toilet? Small property, large property, long-term rental or short-term, urban area or suburban; you and your time will only benefit from hiring a property manager. Property managers come in many forms, from single-person operations to fully staffed firms that handle properties in different locations, so you’ll have no shortage of options when searching for the right management. The typical rate is 8-10%. Your savings though should be equal to or greater than this cost, however. Utopia Management, major property management first on the West Coast has estimated they save their investors about 15% even though their rate is 8%. This is made up in part from being able to renovate cheaper than you, by using known contractors and in-house maintenance staff. They will fill the property quickly with a large client base and staff to show properties. They will screen and retain tenants better than an individual owner on average, which means fewer empty months. A property manager also understands and abides by all local real estate regulations and has legal protections in place to minimize losses from problem tenants and evictions.

8. Establish an Online Payment Method

Once you’ve locked in a quality tenant, you want to make sure they’re able to pay rent on time every month, and there’s no better way to do that than establishing a routine and easy online payment system. Tenants will usually feel more comfortable paying via an online service that stores payment records, rather than by physical means like cash or check. If you work with a property management company, they will likely have an online payment portal. If you’re managing the rental yourself, Venmo is an option. Many younger renters don’t even own a chequebook and are understandably cautious of landlords requesting cash payments.

9. Get to Know Any Inherited Tenants

Sometimes, the best investment purchase is an already established rental property. In that case, you’ll likely be inheriting renters, so you should make sure you get to know them. Ask the previous owner to provide all relevant documents such as background checks and applications before you close on the sale. If you’re purchasing a smaller property with a few tenants, introduce yourself and offer to answer any questions they might have for you.

10. Have a Target Renter in Mind

It may be a good idea to establish the type of tenant you wish to attract before purchasing an investment property. Different demographics prioritize different things when seeking housing; are you looking for students, single persons just entering the workforce, or established working adults who need space to raise a family? The kind of tenant you prefer to deal with should inform what kind of property you choose, as well as its location. Younger new renters can be less stable, but they also do not expect beautifully renovated property with upgrades. If you target a younger audience, there are ways to reduce your liability such as requiring last month’s rent in addition to the deposit.

11. Have a Marketing Strategy

The housing may be an essential expense in everyone’s life, but that won’t guarantee you any tenants, or at least any good tenants. Your mortgage won’t pause because you’re not collecting rent, so even a month of vacancy will cost you. Unless you make a bit of a marketing effort, your property may sit empty. Make sure you explore all advertising platforms. Craigslist and dedicated real estate apps like Zillow should be your first line of attack, but don’t forget Facebook Marketplace, NextDoor, and OfferUp; At the same time, the latter three may not be set up ideally for real estate listings, if your goal is exposure, they will certainly not hurt. Make your rental visible in every way you can to ensure you have a decent pool of prospective tenants. Answer every phone call and make yourself available for showings both days and evenings.

12. Consider Using Your Purchase as a Vacation Rental

If you’re buying in a vacation destination or tourism hub, consider using your investment property as a vacation rental. Services like Airbnb have made it easier than ever to monetize investment properties without the hassle of leases and the potential for bad tenants. In an area that attracts regular visitors, you may be able to turn a much greater profit with short-term rentals than twelve or six-month leases. However, beware of local regulations and restrictions regarding short-term rental services like Airbnb, and remember it’s always possible to advertise a short term vacation rental outside of such services.

13. Be Smart About Waterfront Property

When investing in real estate, think about the long game. While some are lucky enough to buy at the right time and see exponential rises in property value, most real estate investments that appreciate doing so over a long period of time. If you’re looking to buy property on the water, take into account changes in sea level and coastal erosion. In as little as a decade, you may experience property damage from changes in the natural landscape that require major alterations and repairs, putting a major dent in your margins.