Quick Facts on Investment Property
What is Investment Property?
Investment property refers to any form of land or any type of building that is purchased with the intent of generating a profitable return. As a result of this definition, investment property can take the form of an apartment building, a lot of land, a single-family dwelling, commercial property, or basically any type of real estate. The term real estate property, therefore, describes property that the owner does not occupy, but in some form, will assume a portion of it.
Obtaining a piece of investment property, given the stability of a market, can be a lucrative business venture. A basic strategy aligned with investment property (for beginner investors) is to purchase a piece of an investment property, subsequently live in a portion of that dwelling, while renting out the other portion of it.
Through this strategy, the individual has a place of residence and can use the money obtained from rental payments to help pay-down the underlying dwelling’s mortgage obligation. Under this strategy, the property is eventually paid off, while the purchaser of the investment property (assuming the individual finds suitable renters) will continue to earn monies through the delivery of rental payments.
Typically investment projects are purchased below market value; the lower the cost of an investment property, the higher potential returns for an investment. In most instances, when a piece of investment property is purchased the owner will pump money into the project by renovating the building, cleaning up the land, or modifying the property to entice prospective buyers who will purchase the property at a premium.
Regardless of the owner’s strategy, all types of investment properties are purchased with the sole and primary intent of generating an income. Profits are realized either by renting-out the investment property, generating revenue through appreciation, buying the property low and selling it high, or renovating the project to “flip it” for more than the purchase price.
How is an Investment Properties Purchased?
Contact a property lawyer for legal advice and assistance.
In some cases an investment property is purchased using the proceeds subsequent to a tax sale. When the original owner of the underlying property defaults on their property tax payments, the property may also be auctioned; in this format the investment property is assumed by the individual who bids the most money. In an auction process an investor will start with a minimum bid; however, one that is high enough to cover the money owed from back taxes and the expenses of the sale.
This bid requirements allows the prospective investor to purchase the property for a minimal cost. This form of investment will yield the purchase of an investment project because the assumed owner will, in all likelihood, attempt to resell the investment property at market value, renovate the project to sell it at a premium, or rent the property out.