How to Buy an Investment Property to Generate Rental Income

Most of us like to invest our money in ways that make us more money. But most people tend to invest only in the stock market. There is nothing wrong with that, but it looks like next year could be a good year to buy an investment property to generate rental income.

With rental income, you can enjoy passive cash flow without too much work, if you do it right. The way the economy is shaky, but 2025 could still be a good year to invest in real estate. The timing looks favorable for buying investment properties and rental income homes in may regions of the country in 2025. The RefiGuide can help you get educated on how to buy real estate investments, generate rental income and get connected to trusted lenders for investment property loans.

18 Reasons to Buy an Investment Property to Generate Rental Income in 2025

Here are some of the reasons why below. Also, we provide you with some ideas on where and how to invest to generate your rental income.

Investing in rental properties remains a powerful wealth-building strategy in 2025, driven by steady demand, rising home prices, and favorable financing options. With U.S. median home prices at $412,300 and rental demand strong (19% of households rent), rental properties offer both passive income and long-term appreciation. Here are 12 compelling reasons to buy an investment property for rental income in 2025, supported by two case studies demonstrating real-world success.

1. Steady Passive Income Stream

Rental properties generate consistent monthly income, covering mortgage payments and expenses while providing profit. In 2025, average U.S. rents are $2,094, per Zillow, offering reliable cash flow. Properties in high-demand areas like Nashville or Austin ensure stable occupancy, making rentals a dependable income source.

2. Rising Property Values

Home prices have risen 4% nationally in 2024, per the National Association of Realtors (NAR), with projections for continued growth in 2025. Investment properties appreciate over time, increasing equity and net worth. Markets like Colorado Springs (5.2% growth) offer strong appreciation potential for long-term investors.

3. Leverage Low Mortgage Rates

Mortgage rates for investment properties average 7.5–8% for non-QM loans in 2025, lower than historical highs. DSCR lenders offer rental property loans, allowing investors to qualify based on rental income. Financing a $300,000 property with 20% down amplifies returns through leverage.

4. Tax Advantages

Rental property owners benefit from tax deductions, including mortgage interest, property taxes, insurance, and depreciation. The IRS allows write-offs for maintenance and travel costs, reducing taxable income. In 2025, consult a tax professional to maximize deductions, as noted by Investopedia.

5. Hedge Against Inflation

Real estate is an inflation hedge, as rents and property values typically rise with living costs. With inflation concerns lingering in 2025, rental income keeps pace, preserving purchasing power. Properties in growing markets like Tampa ensure income adjusts to economic shifts, per Forbes.

6. Diversify Investment Portfolio

Adding rental properties diversifies investments beyond stocks or bonds, reducing risk. Real estate’s low correlation with markets stabilizes portfolios. In 2025, with stock volatility possible, a rental property in a stable market like Raleigh offers balanced returns, per BiggerPockets.

7. High Rental Demand

The U.S. rental market is robust, with 44 million renter households in 2025, driven by millennials and Gen Z delaying homeownership. Cities like Denver and Charlotte see vacancy rates below 5%, ensuring consistent tenant demand. Properties near universities or job hubs thrive.

8. Build Long-Term Wealth

Rental properties build wealth through appreciation, equity growth, and debt paydown. Tenants’ rent payments reduce your mortgage, increasing equity over time. A $400,000 property with a 30-year mortgage could be paid off by 2055, creating a valuable asset, per NAR.

9. Flexible Financing Options

Non-QM and portfolio loans, offered by lenders like Kiavi and Lima One Capital, cater to investors with flexible terms. DSCR loans focus on property cash flow, requiring no personal income verification. In 2025, these options make financing accessible, even for self-employed investors.

10. Potential for Short-Term Rentals

Short-term rentals via Airbnb or Vrbo yield higher returns in tourist-heavy areas like Miami or Asheville. In 2025, short-term rental income averages 20–30% above long-term leases, per AirDNA. Investors can pivot between short- and long-term strategies based on market trends.

11. Control Over Investment

Unlike stocks, rental properties allow direct control. You choose the property, tenants, and upgrades, influencing returns. In 2025, strategic renovations (e.g., modern kitchens) can boost rents by 10–15%, per HomeAdvisor, giving investors hands-on wealth-building opportunities.

12. Community Impact

Owning rental properties improves neighborhoods by maintaining quality housing. In 2025, investors in revitalizing areas like Memphis can offer affordable rentals, fostering community stability while earning income. This dual benefit enhances the investment’s value, per Urban Institute.

13 Economic Growth Looking Strong

There were indications that Q4 2019 and Q1 2020 could experience strong economic growth beyond what has been achieved in 2023.

According to the GDPNow Real GDP forecast for this quarter, growth for Q4 could top 4. If the growth rate indeed is in this range, this will bring about some very tantalizing possibility for those who buy investment properties. GDP growth in the range of 4% has not been seen for at least a decade. If there is that type of growth, more workers will have money in their pockets and will be working more than they have in years.

When workers have more money, it is natural for the housing market to get stronger. More workers are going to be renting homes and apartments. So, with strong economic growth on the horizon for 2025, buying investment properties in strong markets could be a great decision for 2018.

14. Unemployment Rate Is Approximately 4%

It appears that unemployment will be only 4% or so for 2023. This also suggests that economic activity is picking up. When more people are working, more people need places of their own to live. This means that rental property investors should see lower vacancy rates and tighter demand for rental housing.

15. Interest Rates Are Still Low on Investment Properties and Rental Homes

Mortgage interest rates have not climbed as much as many people expected in 2024. For owner-occupied homes, it is possible to get a fixed rate mortgage in the near record-lows. Get more details on  rental property loans.

While it’s true you will likely pay higher rates for a loan on an investment property, it is still a good move to buy rental homes and investment properties with loans if you have the credit and assets to do so. Check mortgage rates for second homes and investment properties now.

16. Home Ownership Is Still Near All-Time Lows

The US government does not consider it good news that home ownership is near an all-time low of 62-63%, but it can be very good news for rental property owners.

Obviously, the more people who are in the rental market, the greater the demand for rental properties. With the economy heating up and many people still unable to buy their own homes due to credit problems from the last economic downturn, rental property owners will be in a very good position in 2018.

17. Rents Are Near an All-Time High

Rents as a percentage of income are near a high of 29%. For comparison’s sake, the rate was 25.8% from 1985 to 2000. So, this is allowing may rental property owners in major cities to increase rents. This means a better rate of return for your financial investment.

If you own rental properties in Los Angeles, New York, San Francisco or Miami, you probably can do extremely well in 2018. In those cities rents are costing people 45% of their income. Meanwhile, in cities such as Dallas and Houston, it is more around 30%. Many believe that 2018 will be another great year to buy a rental home with affordable financing still being predicted.

18. Oil and Gas Prices Are Staying Low

Gas prices in much of the country continue to be at $2 per gallon or below, unless you are in California or other high-priced areas. With gas prices low, more renters are able to afford living in their own places, which leads to a lower vacancy rate for rental property owners in 2025.

Case Study 1: Sarah’s Denver Duplex

Location: Denver, CO
Challenge: Sarah, a 32-year-old tech worker, wanted passive income but had limited savings for a down payment.
Solution: In 2024, she purchased a $600,000 duplex using a non-QM DSCR loan from CoreVest, requiring 25% down ($150,000). She lived in one unit and rented the other for $2,500 monthly, covering 80% of her mortgage. Upgrades like new flooring increased rent by 10%.
Outcome: By 2025, the property appreciated 5%, adding $30,000 in equity. Rental income of $30,000 annually provided $12,000 net profit after expenses, and tax deductions saved $3,000. Sarah plans to buy another property, leveraging Denver’s 4% vacancy rate.
Reference: Zillow. (2025). Rental Market Trends.

Case Study 2: The Martinez Family’s Tampa Triplex

Location: Tampa, FL
Challenge: The Martinez family sought retirement income but faced high property costs in Florida’s hot market.
Solution: In 2024, they bought a $750,000 triplex with a portfolio loan from Kiavi, putting 30% down ($225,000). Each unit rented for $2,200, generating $6,600 monthly. They used a property manager (8% fee) to handle tenants, focusing on long-term leases in Tampa’s 6% growth market.
Outcome: In 2025, the triplex produced $79,200 annually, netting $50,000 after expenses. Appreciation added $45,000 in value, and depreciation deductions saved $4,500 in taxes. The family plans to refinance in 2026 to fund another investment, capitalizing on Tampa’s 5% vacancy rate.
Reference: NAR. (2024). Housing Market Forecast.

Additional Considerations

Investing in rental properties carries risks, including maintenance costs, tenant issues, and market downturns. In 2025, mitigate these by:

• Choosing the Right Market: Target areas with job growth (e.g., tech in Austin) and low vacancies, per RentCafe.
• Screening Tenants: Use services like Cozy to verify income and rental history, reducing default risks.
• Budgeting for Expenses: Allocate 20–30% of rental income for maintenance, taxes, and vacancies, per BiggerPockets.
• Hiring Professionals: Property managers and accountants streamline operations, saving time and maximizing returns.

Financing Strategies

Explore these options in 2025:

• FHA Loans: For owner-occupied multi-family properties (up to four units), limits range from $524,225 to $1,209,750, per HUD.
• Non-QM Loans: DSCR loans from RCN Capital require a 1.0–1.25 ratio, ideal for investors with irregular income.
• Cash-Out Refinance: Tap equity from existing properties to fund new purchases, with rates at 7.07%, per Bankrate.

Market Outlook

The 2025 rental market favors investors due to:

• Demographic Trends: Millennials (ages 29–44) and Gen Z drive rental demand, with 35% renting, per Pew Research.
• Economic Factors: Stable job growth (2.5% projected) supports tenant affordability, per BLS.
• Policy Changes: Potential tax incentives for landlords in revitalizing areas, per Urban Institute.

As far as where to consider investing your money for rental properties, these look like good bets for multifamily properties for 2018:

• Sacramento
• Seattle
• Tacoma
• Portland
• Colorado Springs
• Phoenix
• Tampa
• Chicago
• Jacksonville
• Los Angeles

For buying rental homes, experts believe that these cities have very good potential for 2018:

• Pittsburgh
• Louis
• Indianapolis
• Oklahoma City
• Richmond
• Memphis
• Columbia
• Cincinnati
• Cleveland

Investing in real estate can be a smart way to grow your wealth and diversify your financial portfolio. However, securing the right financing for an investment property is crucial. Here are the top five home loans for buying an investment property:

Conventional Mortgage
A conventional mortgage is a popular choice for investment properties. To qualify, you typically need a good credit score (around 620 or higher) and a down payment of at least 20%. These loans offer competitive interest rates, and you can choose between fixed-rate and adjustable-rate options. The terms and rates can vary, making it essential to shop around for the best deal.

FHA Loan
While FHA loans are primarily designed for owner-occupied properties, they can be used for multi-unit properties, which can serve as both an investment and a primary residence. To qualify, you’ll need a credit score of around 580 or higher, and you can make a down payment as low as 3.5%. However, you must live in one of the units for a minimum period, making it ideal for house hacking or a property with multiple units.

VA Loan
If you’re a qualified veteran, you may be eligible for a VA loan to purchase an investment property. VA loans offer favorable terms, including low or no down payment requirements, competitive interest rates, and no private mortgage insurance (PMI). Keep in mind that VA loans have strict occupancy requirements, so you should plan to live in one of the units.

HELOC
If you own your primary residence, you can leverage the equity in your home to finance an investment property. A HELOC allows you to tap into your home’s equity as a revolving line of credit. This flexible financing option can be a great way to fund your investment, but remember that it’s secured by your primary residence, putting it at risk if you default.

Private Portfolio Loan
A portfolio loan is a unique option offered by some local banks or credit unions. These investment loans don’t conform to standard guidelines, allowing for greater flexibility in lending decisions. If you have a non-traditional property or unique financial circumstances, a portfolio loan might be your best bet. Interest rates and terms can vary widely, so you’ll need to research local lenders to find the right fit.

When considering a home loan for an investment property, it’s essential to keep the following factors in mind:

1. Property Type: Different loan options may have specific requirements based on the type of property you intend to purchase. Whether it’s a single-family home, multi-unit property, or condominium, make sure you choose a loan that aligns with your investment goals.

2. Down Payment: Your down payment can significantly impact your loan options and terms. A higher down payment often leads to more favorable rates and less stringent requirements.

3. Credit Score: Lenders consider your credit score when approving your loan application. A higher credit score can open the door to better interest rates and terms.

4. Local Market: Interest rates, loan programs, and eligibility criteria can vary by location. Research your local market and consult with lenders who are familiar with your area.

5. Long-Term Strategy: Consider your long-term investment strategy. Some loans may be more suitable for long-term rental properties, while others are better for house hacking or short-term flips.

6. Consult with a Professional: It’s advisable to work with a mortgage broker or financial advisor who specializes in investment properties. They can help you navigate the complexities of real estate financing and identify the best loan option for your specific circumstances.

Investing in real estate can be a lucrative venture, and choosing the right home loan is a critical step in your journey. By carefully evaluating your options and considering your investment goals, you can secure the financing that best aligns with your objectives and financial situation.

Summary on Buying a Rental Home or Investment Property

2025 looks to be a strong year to invest in real estate properties. The market generally is getting stronger, rental demand and prices are going higher, and the job market is strong. For investors with less cash, you may want to go for lower cost but high growth cities such as Oklahoma City and Cleveland. But investors that have a lot of cash will definitely be attracted to the strong markets in San Diego, San Francisco, Seattle and Los Angeles.

Buying an investment property for rental income in 2025 offers financial and personal rewards, from passive income to community impact. With rising rents, appreciating values, and accessible financing, the timing is ripe. The case studies of Sarah and the Martinez family illustrate how strategic investments yield strong returns. Research markets, leverage financing, and plan for expenses to succeed. Consult lenders like Kiavi or brokers to start building your rental portfolio today.

References: Retrieved from, Ways to Invest in Real Estate. (2015).   and Retrieved from, US Economic Outlook 2018. (2017).  

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