Real estate investments are always something that has to be considered by people looking to make their money work for them. With this in mind, it should not be a surprise to see there are many that want to know the answer to this question: “What are investment properties?”
To put it as simple as possible, the investment property is defined as a real estate property that you buy with the clear intention to earn a return. This can be through rental income, through future resale or through both. A property can be held by one investor, many investors or even a corporation.
The investment property is either a short-term investment or a long-term investment. In the short-term option we usually talk about property flipping, which means you buy real estate, renovate it and then sell it for a profit as fast as you can.
Understanding Investment Properties
An investment property is never used as the primary residence of the investor. In order to generate income (like through rent, royalties, interest or dividends), different approaches can be taken. The way in which the investment property will be used does directly impact overall value.
The investment property will generate income and the investors often conduct comprehensive studies in order to determine the most profitable possible property use. As an example, when there is an investment property that is zoned for residential and commercial use, an investor has to weigh the advantages and disadvantages of both options in order to see where the highest possible return rate can be found.
Usually, the investment property is considered to be a second home. However, this does not mean what you are tempted to believe for the investor. For reference, the family can buy a cottage in order to use as a vacation destination. In such cases, we refer to personal use, not an investment.
Investment Property Types
- Residential Properties
Investors can supplement income with rental homes. Investors buy residential properties and then rent them out to tenants. As a result, monthly rents are connected. A residential investment property can be a single-family home, an apartment, a townhome, a condominium or many other residential structure types. Usually, this is the option that is recommended for the beginner investor that does not know much about the real estate market.
- Commercial Properties
An income-generating property does not need to be residential. There are many investors, especially large corporations, that buy commercial properties that will be used for a business purpose. Improvements and maintenance are always higher but costs are offset by much bigger returns. Commercial properties have leases that are much higher. Buildings can be retail store locations, commercially-owned apartment buildings or anything else that is related to a commercial purpose.
- Mixed-Use Properties
Just as the name implies, the mixed-use property is simultaneously used for residential and commercial properties. As an example, a building can include a large retail storefront at the main floor level. This can be a bar, a restaurant, a convenience store and so on. Then, the upper structure portion is housing residential units.