Excellent question. Here are a few tips to help you along the way.

Do your homework on the market

A market bubble could very well mean profits for one investior and loss for another. A property in one market can give you sufficient rental income to cover the costs, but not enough to appreciate, while a property in another market can appreciate a lot more, but not give you enough rental income to make money. You have to know what you may be able to work with. A home in one market can be at a great price, but it may be extremely difficult to rent it, while a home in another market can be higher in price, but the return on rental income may be more than enough to cover the cost. Sufficient research should be done in terms of the ROI, opportunity cost, and increase in the home’s value over a period of time.

Buy your own home first

This not only gives you the experience in managing a property, but it also teaches you to look out for the pitfalls in real estate. For example the difference between gas heat and oil heat, which one is better and which one will save you more depending on the market.

Acquiring a mortgage

It is better to own a residential property before buying an investment property. The equity in the existing home can help you in getting a good mortgage on the investment property. It also helps build credit and improves your score. So, if you have had a home for six months+, and have paid the mortgage on time, it will improve your credit score. For those in the higher income brackets, 100K+, it is a good choice to have the spouse’s name on the primary residence (mortgage and deed), and then buy the investment property under their names. This will make a difference in the interest rate that they get.

Know the geographic location

Is it in a developing area or a developed area? Developing areas require patience and an insight into their future markets. If there is a train station coming up in a town five years from now, it may be a wise choice to buy property there, now. The appreciation that you will gain on that will more than offset buying the house at present. How close is the area to shopping center, schools, colleges, public transportation etc. Know the market that you want to target and then pick the area. Do you want to target commuters, or families with kids? That may make the difference between getting a property near public transportation or one near the school.

The type of rental property

There is a difference between buying a condo, townhome, or a single-family property for investment. It again goes back to the target market. Are you buying in a market that sees constant flux in the renters. Meaning, do they come and go, like in a college area, or do you want to buy in a suburbab town, where they rent for a longer term. For shorter rentals, it may be wise to buy condos or townhomes. The upkeep is considerably less, and the association in responsible for a lot of the maintenance. If you are targeting families, a single family house may be the way to go.