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What is Investment Property?

By Sherry Holetzky
Updated May 16, 2024
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Any property that is purchased with the intent of gaining a return is considered investment property. It can be an apartment building, a duplex, a single-family dwelling, vacant land, commercial property — basically any type of real estate. This type of property is purchased with the sole intent of realizing an income, either by renting the property, profiting over time from appreciation, buying low and selling high, or renovating the property and selling it for more than the purchase price. Although most owners of investment property don't live there, in some cases, the owner may occupy a portion of the property.

Purchasing investment property can be a lucrative venture, whether one simply hopes to purchase a home or plans to make a business out of such investments. One strategy for beginners is to purchase a property such as a duplex, or other multiple family dwelling, and live in one unit while renting out the other. This way, monies collected from the renter or renters covers the note, leaving the owner without a mortgage payment. Eventually the property is paid off, and the purchaser continues collecting the rent for a profit.

The owner may also purchase another investment property, using the equity in the first property to finance the purchase. Equity simply means the fair market value of the property minus the amount still owed, including any liens. It is common to borrow against the equity in a property. Rates for such loans are fairly competitive because the property acts as collateral to secure the loan. The less risk there is in lending, the better the rates are.

Sometimes an investment property is purchased at a tax sale. When the original owner defaults on property tax payments for a certain length of time, the property may be auctioned. An investor starts with a minimum bid, one that is high enough to cover the back taxes and the expenses of the sale, yet still allows the investor to purchase the property for minimal cost. Such a purchase is an investment property because the new owner will most likely attempt to resell it at market value, fix it up and sell it at a premium, or use it as a rental.

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Discussion Comments
By denatural — On Apr 27, 2011

A great idea and brilliant. Here I will just add a little bit about what I know about investing. Most people invest in order to obtain a higher sale value than the value at the time of purchase. So that not a few investors who invest in housing sector in particular and then rehabilitate the buildings bought by giving a little touch to enhance the sale value.

By cdoty37 — On Apr 26, 2011

The two biggest determinants of success in investment property are the market/location of the asset and the operator. A good property will not perform well in a bad market or with a bad operator. On the flip side, a good market and good operator can help a non-optimal property.

Focus your efforts accordingly and your results will improve.

"You make money when you buy" is a half truth. You establish your baseline profit when you buy.,You only make money when you operate and sell.

By denatural — On Apr 15, 2011

What if I have an opinion? If you want to invest in property, you should think about the following things: Strategic location, reasonable price, Having a high selling value when selling it later.

By cafe41 — On Oct 29, 2010

BrickBack- The only problem with a foreign property or any property that you try to manage from a distance is that you have to have an excellent property management company that will look after your property when you are away.

Property management companies normally charges from 5 to 10% of the gross rental fees. It is not unheard of to pay from 25% to 40% of the gross rental fees in some markets. You really have to weigh the pros and cons carefully.

By BrickBack — On Oct 29, 2010

Oasis11-I would love to make an international property investment.I watch House Hunters International and they always go to these exotic locales that I would love to spend some time in. I know that HSBC offers its Premier customers investment property mortgages in foreign locales.

There are some countries that actually promote overseas property investment. The countries that come to mind are Panama and Costa Rica. Panama and Costa Rica offers a low cost of living with many government incentives and discounts.

For example, in Panama, the government offers retirees major discounts on attractions, restaurants and transportation. Health care costs are significantly less and most retirees live comfortably with less than $2,000 a month.

By oasis11 — On Oct 29, 2010

Bhutan-I had a friend who bought a Fannie Mae foreclosure.

I think that an investment property sale that included multi unit buildings would actually offer a better return on the investment. Usually seasoned investors focus on investment property for sale that have several units so that if you have a vacancy it is not as hurtful as with a single family home when you only have one tenet.

Some people prefer to buy investment property land in order to build on it at a future date.

By Bhutan — On Oct 29, 2010

Magina- I do not know the answer to your question, but good luck in your investing. Buying investment properties is a good way to invest for retirement.

The properties generate income that could be used in retirement when you are no longer working. Fannie Mae offers investment property for sale on their site.

They have a program called Home Path Financing that allows investors and general buyers the opportunity to buy their foreclosures with only 3% down with no private mortgage insurance.

There is also an additional program called Home Path Renovation Mortgage in which Fannie Mae would lend a buyer the amount needed to make repairs in addition to a regular mortgage.

The Fannie Mae site offers information on the properties and they are aggressively priced. These homes are available in all areas. They offer cheap investment property that you can rent out and earn money from. With the property investment opportunity like this there is a lot of competition.

By magina — On Dec 30, 2008

Does any 1 have any idea if a property developer's portion of its investment property suddenly jumps skyrocket ie:) jumped to around 4.6X. Does that mean the company has too many investment properties on hand? or do we have to look at the numbers together with the expected future's growth of the housing market and the company's ability generating positive future CFs? Thanks.

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