Nuts and Bolts Residential Income property is any building with 2 to 4 units.  These can be financed with loans more akin to normal residential loans in terms or rates, costs and lender requirements.  The down payment requirement can be as low as 5%.  Properties with 5+ units are considered Multi-Family Commercial property and require a Commercial Loan and Insurance Coverage.   The lending process on these is more thorough and expensive (rate and points) and usually require 25% or more down payment. Your individual investment scenario will revolve around a question of management involvement.   Do you plan on directly managing the property including collecting rents and screening tenants?  Will you allow section 8?  Do you want to actively maintain the structure and grounds?  These are all potential expenses that will impact your monthly cash flow and should be decided before setting out to look at property.   The following is a list of commonly used terms in Investment Real Estate   Adjusted basis - is the original cost of property adjusted for factors such as depreciation, purchase/selling costs, improvements & legal fees. Capital Gains - profit from the sale of a capital asset (property) over its adjusted basis.   Capitalization Rate - a measure of the ratio between the cash flow produced by an investment and its capital cost (the original price paid to own the asset). Cash on Cash Return - the ratio of annual before-tax cash flow to the total amount of cash invested, expressed as a percentage. Depreciation (Cost Recovery) - a term used to describe any method of attributing the historical or purchase cost of an asset, across its useful life.   Depreciation recapture - over the ownership period of a capital asset, depreciation is taken as a reduction against ordinary income for the taxpayer.  Therefore, upon disposal (sale) of the asset, the accumulated depreciation must be 'recaptured' and taxed at ordinary rates, not at the capital gains rate.  This can be avoided if the property is exchanged into another 'like kind' asset. Gross Rent Multiplier - factor used to calculate market value based on annualized rental income of a property. Installment sale - disposition of property where at least 1 payment is to be received after the close of the taxable year in which the disposition occurs. LLC (Limited Liability Company) - a legal form of business company offering limited liability to its owners.  LLP (Limited Liability Partnership) - all partners have a form of limited liability, similar to that of the shareholders of a corporation. However, the partners have the right to manage the business directly, and (in many areas) a different level of tax liability than in a corporation. POS ordinances (Point Of Sale) - inspections or disclosures required by law to legally complete a sales transaction.  These come from the federal, state and city government level.   Price per Unit - total price divided by number of units in a building. Price per Square Foot - the total price a property/unit divided by the square footage of the property/unit. Trust - an arrangement whereby money or property is managed by one person (or persons, or organizations) for the benefit of another but is owned by the 'Trust'. 1031 Exchange - a way of structuring a sale of certain kinds of property so that the seller's profit or gain is not currently taxed. Instead, the property that is sold is replaced with another "like kind" property.  If the transaction is properly structured, the seller's profit or gain is deferred to a future date.   Summary   I have had success creating Positive Cash Flow for investors with both Short Sale and Bank Owned Purchases.   If you have the cash to buy,  can obtain money by leveraging from your personal residence or are willing to get a hard money loan until the property is rented and refinanced, then a Bank Owned property will probably net you the best investment for the money.   If you are patient and willing to play the Short Sale game, you can end up with a dynamite property that is already fully rented and use traditional financing to purchase.   I think there are opportunities out there for every investor.     If you would like more investment information or advice about a specific property, please send me an e-mail or call me directly to set up an appointment.