What is an investment property?

Any property that is obtained for the purpose of obtaining and expecting returns is classified as investment property. Investment property can be an apartment building, single-family home, vacant lot, or commercial property. It is essentially any type of real estate. The term investment property generally refers to property that the owner does not occupy, although in certain cases the owner may occupy a part of it.

Examples of investment properties as follows:

• Land held for indeterminate future use

• Vacant building to be rented under operating lease

• Any property that is currently built or developed for future use

• Land held for any long-term appreciation

Buying property can be a lucrative endeavor, whether it is purchased as a home or as a business. A beginner’s approach is to purchase a multi-unit home as an investment property. You can live in one unit while renting the remaining units. In this way, you can earn from your tenants and at the same time use the rent money for your mortgage payments. In the long run, when the property is paid in full, the landlord still enjoys collecting rent for a profit.

As a property owner, you can use whatever value you have in your properties to finance additional property purchases. When we say equity, we mean the fair market value of the property less its existing liabilities, including any ties. It is common practice to borrow against the equity of a property. The rates for these types of loans are somewhat competitive because your property will serve as collateral to secure your loan. Keep in mind that the less risk there is in the loans, the better rates will be offered to you.

Sometimes an investment property is bought at a sale with taxes. When the original owner fails to pay the property tax for a certain period of time, the property will be auctioned. You can start with a minimum bid that will be high enough to cover back taxes and other related expenses incurred during the sale. It can still allow the investor to buy the property at relatively minimal cost. This is an example of an investment property as it gives the new owner the opportunity to resell it at market value, renovate or improve the property and sell at a higher price or hold and rent, generating regular income and the hope of a profit. capital. .

To measure your return on investment, add your rental or resale cash flow and subtract any costs like taxes, mortgage, and insurance. Then divide this by the total amount invested, which could be the purchase price plus renewals. Multiply this by 100 to get a percentage. If you are buying for resale this will be calculated once, but if you are renting the property it is normally measured annually. Calculating the return on investment will give you an idea of ​​whether the property is worth buying or if there are better deals available.