How to buy investment properties through 6 practical steps

4. Plan your financing

Providing funds for investing property is different from buying a major home. For beginners, lenders usually require a higher down payment (usually 15% to 25%) and you need a stronger credit profile. If you plan to invest repeatedly, Johnson says you need a strategy to keep cash.

“BRRRR is a great strategy so you never run out of money, which means buying, renovating, renting, refinancing, refinancing, duplication,” Johnson said.

The focus of the BRRRR approach is to buy undervalued properties, refurbish them, rent them, refinance them to recover the cost of renovation and equity, and then repeat the process to expand the real estate portfolio.

Here are some common financing options for investment properties:

• Regular loans: This is the most common route. Expected advance payments and stricter eligibility criteria than typical home loans. Depending on your lender, you may need to keep funds for at least six months to pay your loan without the income from investing in the property.
• Portfolio Loans: Some local banks offer more flexible terms and will hold loans internally. Lenders set their own terms and eligibility criteria to make them a more personalized option, but they can lead to higher interest rates.
• HELOC or home equity loan: Investors who have fairness in their main homes can sometimes lightly pay down payments. Traditional home equity loans offer a one-time payment on fixed interest rates and predictable repayment terms. HELOC acts as a rotating credit line with variable interest rates, but you can borrow money to a predetermined limit as needed.
• Private or hard money loan: These types of loans focus on the value of the property, rather than your credibility, making it faster and more flexible. However, they usually have higher interest rates. Investors see these as short-term bridge tools, rather than more permanent sources of financing. They are particularly common in house limbs.

Johnson recommends you surf around lenders familiar with investment loans and prepare documents that showcase your income, assets and the property’s game plan.

5. Understand property management early

Managing a rental property by yourself may save money on paper, but Johnson said it is not always the smartest move for new investors.

“I know people manage themselves, but not us; we spend thousands of dollars a month paying management fees,” Johnson said, adding that in some cases, it works. “No one cares more about your property than you.”

Johnson recommends that you decide early: Are you running a business or just buying real estate? If you take responsibility for the landlord, he warns: “It costs much more to a bad tenant than to pay 90% of the good tenants you want.”

For this and other reasons, many investors like Johnson choose to hire a property management company to handle:

• Tenant Screening and Lease Agreements
• Rent and law enforcement
• Repair and maintenance
• Legal compliance and eviction procedures

Property managers typically charge 8% to 12% of monthly rent. While this reduces cash flow, the right manager can relieve stress, improve tenant retention and help you scale. If you choose to self-manage, make sure you are aware of state landlord tenant laws and have a reliable system to maintain request and rent tracking.

6. Manage your expenses wisely

Even huge property, if the expenses roll spiral, it can lose money. New investors often underestimate the speed of nearly a small amount of expenses, such as lawn care, replacement equipment or secondary repairs, Johnson said.

He advises new investors to build mats by putting each check from each rent check into the maintenance fund. This way, water heaters or alternating current equipment will not ruin the month.

To this end, many investors follow the 50% rule, which guideline shows that about 50% of total rental property revenue should be allocated to operating expenses. This is a general rule of thumb and may not apply to all markets, especially those with high taxes or insurance fees.

If you manage your property yourself, see some ways to control your expenses:

• Proactively handle small fixes to avoid bigger problems later
• Keep tenant turnover low with responsive service and fair pricing
• Regular review of insurance, tax assessments and other property expenses

Final Thought: How to Buy Investment Property

Buying an investment property can be a meaningful move, but it takes good luck to be right. Here is a quick review of Johnson’s first investor tips:

• Clarify your goals: Before starting the search, please know what success looks like.
• Choose your market carefully: Focus on stable areas with rental demand and manageable price points.
• Doing math: Use cash flow and cap rate calculations to potential veterinary characteristics.
• Arrange the correct financing: Higher payments and higher interest rates than major home loans are expected.
• Management plan: Make sure you can self-manage or hire a property manager from the start.
• Control your expenses: Budget repairs, track your costs and put reserves on hold.

Real estate investment is not a shortcut to wealth, but it can be a path to long-term financial independence, especially when you learn from experienced investors and make informed decisions along the way.

If you are considering buying an investment property, Homelight can connect you with top local real estate agents who understand the rental market in your area.

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Editor’s Note: This article is intended for educational purposes and is not intended to be interpreted as financial advice. Homelight always encourages you to contact your consultant about your situation.

Title image source: (Thomas Werneken/Unsplash)