Buying an investment property allows you to generate income through the renting or resale of a property that isn’t your primary residence. Investment properties can be single-family homes, multi-family homes, townhouses and condominiums. Investors with income properties make money by collecting rent from tenants, leveraging equity to purchase additional properties, and distributing tax deductions across the useful life of the property (depreciation). Over time, most income properties will increase in value.

Buying an investment property can come with challenges. The biggest challenge is finding, screening and managing qualified tenants. There are also maintenance costs and more stringent financing requirements (including higher interest rates and a larger down payment) compared with mortgages on primary homes. Despite these challenges, owning a rental property can be an attractive way to generate passive income, diversify your portfolio, and build security and wealth.