Buying rental properties is a good way to increase your assets. Choosing the right rental property will be challenging. One of the surest pathways to wealth through real estate has always been the acquisition of cash flowing rental properties. However, as with any business, for every successful, happy landlord there are eight or nine others who are either struggling, sitting on the sidelines, or completely washed out.

There are at least three primary advantages of rental properties sought by portfolio investors. The main one is passive cash flow; once acquired, rental properties generate income without the landlord actively working. In addition the owner typically enjoys gains from appreciation as well, as property values tend to rise over time.

And finally, the tax advantages of owning rental properties can be substantial, the primary one being claimed depreciation. Although most properties go up in value year by year, the IRS allows property owners to deduct depreciation losses from their reported income as if the property were actually declining in value. Consult your CPA or tax professional for specifics on this subject.

Buying wholesale means buying at a price where the property will cash flow today, not after improvements are made or rent is increased. The second pitfall is buying a property that is unrentable or located in a neighborhood with a soft rental market. The ideal solution is to buy properties that are already tenant occupied, but if you do buy a vacant property make sure there is plenty of rental demand in the neighborhood or better yet locate several potential tenants before you buy.

The third roadblock comes from using conventional financing and reaching your lender’s loan limit. After you have a certain number of rental properties your lender will cut you off and not loan you money to buy more. The best solution for this is to avoid using conventional financing and acquire properties by alternative financing methods, such as subject to, seller financing, or private financing whenever possible.