Buying rental property and becoming a landlord can generate passive income, accumulate wealth through property appreciation, and deduct taxable income through expenses such as depreciation, making it a great investment. However, to ensure you purchase a profitable rental property, I recommend you thoroughly research the following three areas:

First, choose a good neighborhood. Characteristics of a good neighborhood include low crime rates, low property taxes, excellent school districts, convenient transportation, and a growing job market.

You should also thoroughly understand the local housing market, such as historical price fluctuations, appreciation cycles, the ratio of owner-occupied to rental properties in different areas, trends in rental income, and vacancy rates.

Additionally, familiarize yourself with local government regulations regarding rental properties. For instance, cities like Los Angeles, San Diego, and Tahoe have strict regulations on short-term rentals. As I mentioned in How Much Can Landlords Increase Rental Annually for Rental Properties in CA cities like San Francisco, Mountain View, and San Jose have stringent rent control measures. Some cities, like Hayward, have a Residential Rental Inspection Program, where the government conducts regular, in-depth inspections of rental properties.

Secondly, prepare your finances, including the money for purchasing the property and for its operation. For purchasing, you need to decide whether to buy outright or take out a loan. If you opt for a loan, ensure your credit score is good. Generally, a down payment of at least 20%-25% is required, and you should prepare for closing costs in advance. Some lenders might also require you to have six months' worth of mortgage payments in a reserve account in case rental income is lower or expenses are higher than expected.

For operational costs, estimate the expenses of running a rental property in advance. These include maintenance fees, property management fees, insurance premiums, property taxes, and HOA fees if applicable. In Why Full Payment Investment Properties in the Bay Area Might Not Be the Best Choice Right Now， explained in detail why I sometimes advise clients against buying investment properties.

Additionally, you should understand the basics of property depreciation. Depreciation can significantly affect the amount of income tax you pay, which we can discuss in more detail at another time.

Thirdly, choose a property with an investment perspective. For example, should you select an apartment, a townhouse, or a single-family home? Conveniently located apartments may attract young professionals working nearby, but they might have rental restrictions and HOA management. Newly built townhouses often have complete amenities, but they may have multiple stories and higher HOA fees. Single-family homes in good school districts appreciate quickly, but they are usually older and come with higher maintenance costs.

Once you decide on the type of property you want to invest in, consider whether there are new constructions in the neighborhood, the ratio of rentals to owner-occupied homes, any rental restrictions, the number of rooms in the house, whether it has front and back yards, if there are landscaping features, the lifespan of the roof, and the current condition of indoor air conditioning, appliances, plumbing, and electrical systems. All these factors will affect whether you can find a profitable rental property.

If you are considering buying an investment property but don't know where to start, I can definitely help you.