If you are reading this you probably already consider real estate investing a worthwhile endeavor. If you need a few more reasons to pull the trigger, here is the most basic understanding of why investing in real estate is a wise financial decision, not based on rental income alone:

• Appreciation - the value of your property will grow based on the market and based on any improvements you make

• Cash Flow - the amount of money you earn from tenants paying rent after you paid your mortgage, taxes, insurance, HOA, property management, etc.

• Depreciation - reduces the amount of taxes you owe by spreading out the cost of a property over its useful life.

• Leverage - using equity and cash flow to leverage one property into more properties and growing your investment portfolio

• Tax Benefits - write-offs, pass-through deductions, avoiding capitol gains, etc.

Choose Your Area of Expertise

What do you want to buy? Land? Townhomes? Condos? Single-family homes? Duplexes? Mobile Homes? Short-term vacation rentals? Commercial? REITs? I recommend choosing one area and becoming an expert in it so you can streamline your learning, costs and portfolio.

Choose your Strategy

How do you want to run this business? Do you want this to be a job that is full-time or at least very hands-on, or do you want this to be passive income? Are you going to have a partner or team or is it just you? Are you going to buy a long-term rental and sit on it for 30 years to pay for retirement? Are you going to buy a house that needs improvements and then sell it for a profit (flipping?). Are you going to buy a short-term rental and rent it as a vacation home? Are you going to manage tenants on your own or with a management company?

Choose Your Location

Location is everything in real estate, here’s a few questions to consider:

• What area do I want to own in? High-end or lower class? Do I want to be urban or rural?

• Who would want/need to rent this? Is it near a highway? Is it near a bus stop or mass transit? Is it in a city center where people work?

• Is this property for families? Or singles? If families, what is nearby that would draw a family? A park, pool or schools? 

• Is it safe? Would you live there if you needed to?

• Without a doubt, follow the Starbucks and Targets. Those companies spend billions on market research. If they are there (or better yet, moving into that neighborhood), you can follow their lead.

Determining Rent

An easy way to determine what you can get for rent is to use Rentometer to show you an average rent for the neighborhood based on property size. Other options are to check Craigslist, Facebook, Zillow or Apartments.com for rents, but it's tedious.

Calculating Your Profit and Loss

The most important step before you buy a rental property is not to determine how nice the countertops are, but to run the numbers! Will this property make money or lose money? Clearly, it’s crucial.

Here is a sample spreadsheet I made for a potential property, calculating cash needed, monthly costs and future savings. Remember, the benefits of real estate investing is not just in the monthly rental income but in the appreciation, depreciation, tax benefits and more. It’s compounding and can be very simple (even passive!).