"Real estate is a great investment if people are paying their rent," says Princis. "If they're not paying their rent, it's a horrible investment."
2. BUY IN AN AREA WITH A HISTORY OF STRONG RENTAL DEMAND
Neighborhoods near universities are a good option. For homes in residential areas, proximity to schools can be a good draw for families.
Condominiums and similar properties in communities with a homeowners' association can be a great option because the association arranges for upkeep on the property.But check the fine print on your mortgage and homeowners' association rules to make sure turning your property into a rental isn't forbidden. If you're going to buy a foreclosure, be prepared to compete with other investors, many of them paying in cash. And because many require upgrades and repairs, expect that it will take longer until you'll be generating rental income. Websites like Zillow.com and Trulia.com list foreclosures, as well as rentals in a given area. Foreclosure tracker RealtyTrac Inc. recently ranked U.S. metro areas, with a population of 500,000 or more, according to the supply of available foreclosures for sale and their discount versus other homes, among other criteria. Among the top 20 cities deemed the best places to buy: Miami, Chicago, Philadelphia, El Paso, Texas; and Poughkeepsie, N.Y. Claire Thomas, a retiree in Phoenix who owns 10 rental condos in Las Vegas, says that landlords looking to keep their properties as income-generating rentals for many years should look into areas that are not too expensive. "I would rather have a middle-of-the-road rental that stays rented than a higher-end (property)," she says. 3. CONSIDER A USING A MANAGEMENT FIRM Determine whether you want to select the tenant and handle property issues or hire a company to do it. If you take on the responsibility, you are obliged to fix any problems (leaky faucets, broken furnace, etc.) or find professionals to do it.