Any property that is obtained for the purpose of earning and expecting returns is classified as investment property. Investment property can take the form of 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 portion of it.
Examples of investment properties as follows:
• Land retained for indeterminate future use
• Vacant building to be rented under an operating lease
• Any property that is currently built or developed for future use
• Land held for long-term appreciation
Buying a property can be a lucrative undertaking, whether it is purchased as a home or as a business venture. A beginner’s approach is to buy a multi-unit home as an investment property. He can live in one unit while he rents out the remaining units. This way, he can earn from his tenants and at the same time use the rent money for mortgage payments. In the long run, when the property is paid for in full, the landlord still enjoys collecting rent for a profit.
As a property owner, you can use any equity you have in your properties to finance future property purchases. When we say equity, we mean the fair market value of the property less your existing liabilities, including liens. It is common practice to borrow against the equity in a property. The rates on 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 they will offer you.
Sometimes an investment property is purchased at a tax sale. 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 offer that will be high enough to cover back taxes and other related expenses incurred during the sale. It can still allow the investor to purchase 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 it at a premium, or keep it and rent it out, generating a regular income and the hope of earn capital gains. .
To measure your return on investment, add the rental or resale cash flow and subtract any costs, such as taxes, mortgages, 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. The ROI calculation will give you an idea of whether the property is worth buying or if there are better deals out there.