Do the math
Unlike a primary residence, a rental property isn’t an emotionally driven purchase—it’s an investment.  And as an investor, you should think about it primarily in terms of profit and loss, risk and reward.  Whether you come out on top will depend mostly on two factors:

• Cash flow.  Consider how much rent you can collect each month, and how much will be left over after mortgage payments, maintenance costs, and other expenses. 

• Appreciation.  Rental-property owners can’t rely only on appreciation to make their investments profitable, but it certainly can help. 

Evaluate the market
Like any other business, rentals are subject to the basic forces of supply and demand.  If apartments are in short supply, you probably won’t have trouble filling yours.  When you are trying to generate positive cash flow from a rental property, vacancies are perhaps your greatest enemy.  They cost you money and generate no income in return.

Your first line of defense against vacancies is a good evaluation of the rental market before investing.  Talk to Realtors and property managers in the area, and check the frequency of rental listings in the local paper.  Keep in mind that certain neighborhoods, such as those near schools or universities, may have higher demand for rentals than others.

Investigate the Financing Options

Be aware that mortgage rates are higher on investment properties.  One to four family properties can be financed as conventional mortgages.  However, properties with five families or over are financed by commercial lenders at higher rates, typically adjustable not fixed and less lucrative terms.  There are now programs that allow you to finance a higher amount of the property value.  This would command an addition to the rate, and perhaps change the cash flow picture of the investment.  A better option might be to consider an equity line or loan on your personal residence for a larger down payment on your investment.

Many programs require that an investor have previous rental management experience and/or rent loss insurance.  This is typically required on loans with less down payment.  Six months or more reserves are usually required on investment loans.