{"id":4255,"date":"2024-11-08T14:38:00","date_gmt":"2024-11-08T19:38:00","guid":{"rendered":"https:\/\/tomo.com\/blog\/?p=4255"},"modified":"2025-08-24T08:21:37","modified_gmt":"2025-08-24T13:21:37","slug":"how-to-buy-an-investment-property-your-guide-to-growing-your-money","status":"publish","type":"post","link":"https:\/\/tomo.com\/blog\/how-to-buy-an-investment-property-your-guide-to-growing-your-money\/","title":{"rendered":"How to buy an investment property: your roadmap for growing your money"},"content":{"rendered":"\n<p>If you&#8217;re thinking about buying an investment property, you&#8217;re aiming for <a href=\"https:\/\/tomo.com\/blog\/how-to-game-the-real-estate-wealth-building-ladder\/\" title=\"long-term wealth\">long-term wealth<\/a> and a steady income stream. But <a href=\"https:\/\/tomo.com\/blog\/is-buying-real-estate-a-good-investment\/\" title=\"real estate investment\">real estate investment<\/a> can be tricky if you don\u2019t know what to look for. Let\u2019s dive in.<\/p>\n\n\n\n<p><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Get your financials in order<\/h3>\n\n\n\n<p><\/p>\n\n\n\n<p>Investment properties are high-risk for lenders, which means you\u2019ll need a solid financial foundation:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Down Payment<\/strong>: Expect to put<a href=\"https:\/\/tomo.com\/blog\/what-should-i-put-down-for-my-down-payment\/\" title=\" down \"> down <\/a>at least 20-25%. Lenders usually require more skin in the game because investment properties aren\u2019t protected by the same laws as primary residences.<\/li>\n\n\n\n<li><a href=\"https:\/\/tomo.com\/blog\/what-credit-score-do-i-need-to-buy-a-home\/\" title=\"Credit Score:\"><strong>Credit Score<\/strong>:<\/a> Aim for 700+ to qualify for a better mortgage rate.<\/li>\n\n\n\n<li><strong>Debt-to-Income Ratio (DTI)<\/strong>: Your <a href=\"https:\/\/tomo.com\/blog\/what-is-debt-to-income-dti-in-mortgage\/\" title=\"DTI \">DTI <\/a>should ideally be below 43%, but lenders may be more strict depending on the size of your loan.<\/li>\n\n\n\n<li><strong>Reserves<\/strong>: Lenders like to see six months of mortgage payments saved up, covering both your <a href=\"https:\/\/tomo.com\/blog\/what-does-a-primary-residence-mean-when-getting-a-mortgage\/\" title=\"primary home \">primary home <\/a>and the investment property.<\/li>\n<\/ul>\n\n\n\n<p><\/p>\n\n\n\n<p><em>Tip: Ensure you\u2019re financially comfortable with the potential for vacancies, unexpected repairs, or periods where rental income might be slow.<\/em><\/p>\n\n\n\n<p><\/p>\n\n\n\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link wp-element-button\" href=\"https:\/\/tomo.com\/mortgage\/rates?utm_source=tomo_blog\">See today&#8217;s rates<\/a><\/div>\n<\/div>\n\n\n\n<p><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Location: the golden rule<\/h3>\n\n\n\n<p> <\/p>\n\n\n\n<p>When it comes to investment properties, location is everything. But it\u2019s not just about finding a \u201chot\u201d market\u2014it\u2019s about understanding the area\u2019s long-term potential. Here\u2019s what to look for:<\/p>\n\n\n\n<p><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Growing markets<\/strong>: Look for cities or neighborhoods with population growth, new job opportunities, and upcoming infrastructure developments. These areas are more likely to appreciate over time.<\/li>\n\n\n\n<li><strong>Rental demand<\/strong>: Check rental vacancy rates, average rental prices, and local tenant laws. College towns, urban centers, and tourist spots often have higher rental demand.<\/li>\n\n\n\n<li><strong>Amenities and schools<\/strong>: Proximity to schools, public transportation, parks, and shopping centers can make your property more attractive to renters or buyers.<\/li>\n\n\n\n<li><strong>Crime rates and future development plans<\/strong>: Research crime statistics and future zoning plans. A safe neighborhood with new developments planned is a solid bet for long-term investment.<\/li>\n<\/ul>\n\n\n\n<p><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Set a budget and stick to it<\/h3>\n\n\n\n<p><\/p>\n\n\n\n<p>Once you\u2019ve found a promising location, you need to set a budget for the property. This isn\u2019t just about the purchase price\u2014factor in ongoing expenses like:<\/p>\n\n\n\n<p><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Mortgage payments<\/strong><\/li>\n\n\n\n<li><strong><a href=\"https:\/\/tomo.com\/blog\/are-property-taxes-included-in-a-mortgage-payment-short-answer-yes\/\" title=\"Property taxes\">Property taxes<\/a><\/strong><\/li>\n\n\n\n<li><strong><a href=\"https:\/\/tomo.com\/blog\/what-is-pmi\/\" title=\"Homeowner\u2019s insurance\">Homeowner\u2019s insurance<\/a><\/strong><\/li>\n\n\n\n<li><strong>Repairs and maintenance<\/strong><\/li>\n\n\n\n<li><strong>Property management fees<\/strong> (if you\u2019re hiring someone to manage the property)<\/li>\n<\/ul>\n\n\n\n<p><\/p>\n\n\n\n<p><em>Pro Tip: Don\u2019t forget to budget for vacancy periods, especially if it\u2019s a short-term rental property. A conservative estimate is to expect the property to be vacant for at least one to two months out of the year.<\/em><\/p>\n\n\n\n<p><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">What to look for in an investment property<\/h3>\n\n\n\n<p><\/p>\n\n\n\n<p>The condition and type of property you choose will directly affect your profits. Here\u2019s what to watch for:<\/p>\n\n\n\n<p><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Fixer-upper vs. turnkey<\/strong>: A fixer-upper can be a great deal if you have the time, skills, and capital to <a href=\"https:\/\/tomo.com\/blog\/renovation-loans-the-better-way-to-fund-home-improvements-than-a-heloc\/\" title=\"renovate. \">renovate. <\/a>But be wary\u2014unexpected repairs can add up quickly. A turnkey property (one that\u2019s ready to rent immediately) might cost more upfront, but it saves you the headache of renovations.<\/li>\n\n\n\n<li><strong>Single-Family vs. Multi-Unit<\/strong>: Single-family homes are typically easier to manage, but multi-unit properties can offer more income streams from a single purchase. Multi-units can also provide a cushion if one unit is vacant.<\/li>\n\n\n\n<li><strong>Cash Flow Potential<\/strong>: The property should generate enough rental income to cover the mortgage, taxes, and other expenses, with some left over. A good rule of thumb is the <strong>1% rule<\/strong>\u2014the property should rent for at least 1% of the purchase price per month.<\/li>\n\n\n\n<li><strong>Age and Condition<\/strong>: Older properties can have charm but may come with costly maintenance issues. Newer homes or those with recent updates often have fewer upfront repairs but might come with a higher price tag.<\/li>\n<\/ul>\n\n\n\n<p><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Understand the tax benefits<\/h3>\n\n\n\n<p><\/p>\n\n\n\n<p>Owning an investment property has tax advantages that can significantly boost your profitability:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Deductible expenses<\/strong>: You can deduct <a href=\"https:\/\/tomo.com\/blog\/how-do-interest-rates-work-understanding-how-mortgage-companies-make-money\/\" title=\"mortgage interest,\">mortgage interest,<\/a> property taxes, insurance premiums, repairs, property management fees, and even travel expenses if you need to manage the property.<\/li>\n\n\n\n<li><strong>Depreciation<\/strong>: Even though your property is (hopefully) appreciating in value, the <a href=\"https:\/\/www.irs.gov\/\" title=\"IRS \">IRS <\/a>lets you depreciate the cost of the property over 27.5 years for residential real estate. This can offset rental income and lower your taxable income.<\/li>\n\n\n\n<li><strong>1031 exchange<\/strong>: If you sell the property for a profit, you can defer capital gains taxes by rolling the proceeds into a new investment property, thanks to the <a href=\"https:\/\/www.irs.gov\/pub\/irs-news\/fs-08-18.pdf\" title=\"1031 exchange.\">1031 exchange.<\/a><\/li>\n<\/ul>\n\n\n\n<p><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Property management: to DIY or not<\/h3>\n\n\n\n<p><\/p>\n\n\n\n<p>Managing a property takes time and effort, especially if you don\u2019t live nearby. Consider your options:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Self-managing<\/strong>: You\u2019ll save money by doing it yourself, but you\u2019ll also be responsible for tenant screening, maintenance, rent collection, and handling any issues that arise.<\/li>\n\n\n\n<li><strong>Hiring a property manager<\/strong>: Property managers typically charge around 8-12% of the rental income, but they handle everything from tenant issues to repairs. This is a good option if you\u2019re busy or own multiple properties.<\/li>\n<\/ul>\n\n\n\n<p><\/p>\n\n\n\n<p><em>Tip: If you decide to hire a property manager, make sure they have solid reviews and a good understanding of the local rental market.<\/em><\/p>\n\n\n\n<p><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Factor in extra costs<\/h3>\n\n\n\n<p><\/p>\n\n\n\n<p>The mortgage is just the beginning. You\u2019ll need to budget for these extras:<\/p>\n\n\n\n<p><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Repairs and Maintenance<\/strong>: Properties inevitably need repairs\u2014factor in about 1-2% of the property\u2019s value annually for upkeep.<\/li>\n\n\n\n<li><strong>Insurance<\/strong>: Investment property insurance can be more expensive than standard homeowner\u2019s insurance, especially if it\u2019s in a high-risk area (like a vacation home in a hurricane-prone region).<\/li>\n\n\n\n<li><strong>HOA Fees<\/strong>: If the property is part of a <a href=\"https:\/\/tomo.com\/blog\/hoas-the-good-the-bad-the-ugly\/\" title=\"homeowners association\">homeowners association<\/a>, budget for monthly or yearly fees.<\/li>\n<\/ul>\n\n\n\n<p><\/p>\n\n\n\n<p><strong>Utilities<\/strong>: Depending on the arrangement, you might be responsible for some or all of the property\u2019s utility bills, especially in multi-unit properties or short-term rentals.<\/p>\n\n\n<div style=\"padding-top:var(--wp--preset--spacing--30);padding-bottom:var(--wp--preset--spacing--30);padding-left:var(--wp--preset--spacing--30);padding-right:var(--wp--preset--spacing--30);margin-top:var(--wp--preset--spacing--30);margin-bottom:var(--wp--preset--spacing--30);margin-left:0;margin-right:0;\" class=\"has-link-color wp-elements-c54b177fd5d2f341f8967a20726f2ac0 wp-block-post-author has-text-color has-contrast-color has-background has-tertiary-background-color has-large-font-size\"><div class=\"wp-block-post-author__content\"><p class=\"wp-block-post-author__name\"><a href=\"https:\/\/tomo.com\/blog\/author\/clairegtomonetworks-com\/\" target=\"_self\">Claire Gallaudet<\/a><\/p><p class=\"wp-block-post-author__bio\">Claire is a Mortgage Analyst at Tomo, where she explores the data and trends shaping the housing market. She is especially interested in how economic forces impact homebuyers. A Seattle native, she now lives in Austin, where she balances analysis and communications with teaching yoga and walks around the lake with her dog.<\/p><\/div><\/div>\n\n\n<p>If you&#8217;re ready to start your journey to homeownership, <a href=\"https:\/\/tomo.com\/mortgage\/app\/preapproval?utm_source=tomo_blog\" title=\"\">get pre approved with Tomo Mortgage today.<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>If you&#8217;re thinking about buying an investment property, you&#8217;re aiming for long-term wealth and a steady income stream. But real estate investment can be tricky if you don\u2019t know what to look for. Let\u2019s dive in. Get your financials in order Investment properties are high-risk for lenders, which means you\u2019ll need a solid financial foundation: [&hellip;]<\/p>\n","protected":false},"author":31,"featured_media":4256,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"","fifu_image_alt":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[287],"tags":[],"class_list":["post-4255","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-investing"],"aioseo_notices":[],"jetpack_featured_media_url":"https:\/\/tomo.com\/blog\/wp-content\/uploads\/2024\/11\/how-to-buy-an-investment-property-jpg.webp","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/posts\/4255","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/users\/31"}],"replies":[{"embeddable":true,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/comments?post=4255"}],"version-history":[{"count":3,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/posts\/4255\/revisions"}],"predecessor-version":[{"id":4274,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/posts\/4255\/revisions\/4274"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/media\/4256"}],"wp:attachment":[{"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/media?parent=4255"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/categories?post=4255"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/tags?post=4255"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}