Owning a property be it residential or commercial is every person’s goal or dream. Never disqualify yourself that you will never own a property because of your current level of income or status as long as you are still alive there is hope for the living, a live dog is better than a dead lion.
What Is an Investment Property?
An investment property is real estate property purchased with the intention of earning a return on the investment either through rental income, the future resale of the property, or both. These two intentions qualifies the property to be called an asset, once a property ceases or stops to provide income it becomes a liability.
An investment property can be a long-term or a short-term investment. When a property is held as a short term investment the investor buys a property, renovates or remodel or spruce it up and sell it for a profit within a short period of time.
Investment properties are those that are not used as a primary residence. This point can be argued because in some instances a primary residence is also generating some income for the owner because some sections of the residence are let out to tenants so it’s a mixed use primary residence and investment property. This criteria can fail the true test of an investment property because usually such arrangements are for a short period of time not a permanent arrangement. They are mostly used to cover some cash flow gaps that would have befallen the property owner and as soon as the cash flow position improves the tenants are asked to leave and the property stops generating income through rentals, so an investment property MUST NOT be a primary residence. The property must generate income in the form of dividends, interest, rents, or royalties (that fall outside the scope of the property owner’s regular line of business).
The use of the property determines its value, generally a commercial property has more value than a residential property. This notion is sometimes not true because a commercial property in a high density suburb can be worth less than a residential property in a low density suburb. Location matters when it comes to deciding where to put or buy an investment property.
As an investor it is important to do some research or study to determine the best and most profitable use of a property. This study should also tell the investor the size of a house, apartment to build in a particular area. If you take a look at most residential properties, the owners are not realizing the most out of their investments because either the house is too big that they cannot find a suitable tenant to occupy the house or a tenant who affords to pay the desired monthly rental. The end result is that the house will have multiple tenants each occupying one room or two. Such occupancy devalues the property and maintenance costs are usually high due to poor up keep of the house. In this scenario the property investor has a long time to wait before they can recoup their initial investment.
Types of Investment Properties
Residential: Rental houses are a popular way for investors to supplement their income. An investor who purchases or builds a residential property does so with the intention to rent it out and collect monthly rents. The growth in urbanization and movement of people from one country to another has created an unjustified increase in rentals when one looks at factors which determine rentals that is location, size of property, market value etc. Tenants offer the property owner the rental amount they are willing to pay and the owner goes for the highest offer. As an intelligent investor before accepting any rental offer from a tenant look at your investment objectives whether that suites your objectives or not. A property which ends up with a high tenant turnover usually has high maintenance or renovation costs.
Commercial: Investors buy commercial properties that are used specifically for business purposes. Maintenance and improvements to these properties can be higher, but these costs can be offset by bigger returns. That’s because the leases for these properties often command higher rents. These buildings may be commercially-owned apartment buildings or retail store locations. Lack of new commercial property developments usually pushes the value of commercial properties up irrespective of the location of the property. In a number of countries the influx of foreign investors has contributed to rise in property and rental values. For an investor who already owned a property they benefited from this influx and some managed to recoup their initial investments or acquire more properties because of proceeds from rental incomes.
Mixed-Use: A mixed-use property can be used simultaneously for both commercial and residential purposes. For instance, a building may have a retail storefront on the main floor such as a convenience store, bar, or restaurant, while the upper portion of the structure houses residential units. Most mixed use properties are located around or in the central business district of towns and cities. The residential units command higher rentals as compared to the same apartment or flat located in a residential area.