What is an investment property in real estate?
In real estate investing, an investment property is any property that a real estate investor buys for the purpose of making a profit.
There are a number of ways that an investment property can generate a profit for a real estate investor. Some real estate investing strategies revolve around purchasing an investment property to generate a passive income, while others require the real estate investor to purchase the property and renovate it before selling it again for a profit.
This article will go through the most common types of real estate investment property that real estate investors all around the world use for profit and to generate money.
An investment property can be…
An investment property can be any real estate property, regardless of its type (residential, commercial, or industrial) for the purpose of making a profit.
Here are some of the most common types of investment property in real estate investing:
Rental Properties
The most common real estate investing strategy in the world revolves around the purchase of an investment property for the purpose of renting it out to either short-term or long-term tenants. There are two main types of rental properties in real estate: short-term rentals and long-term rentals.
Short-term rentals are mostly residential real estate that are rented out to tenants for short periods of time that can go from single night stays to a few weeks of stay. Short-term rentals have existed for a very long time. However, short-term rentals have been recently popularized by Airbnb, a short-term rentals company that operates short-term rental properties all around the world. An Airbnb rental property can be an investment property when it is being used as a source of rental income for the homeowner or the real estate investor who purchased it. Short-term rentals can generate very high profits for their owners, and they can be rented out on a nightly or a weekly basis, allowing real estate investors to generate a passive rental income from them.
Long-term rentals, on the other hand, are rental properties that are rented out to tenants for extended periods of time that can go from several months to several years.
Find the best performing rental properties in your city right now!
A real estate investor who owns an investment property and rents it out to tenants is also referred to as a landlord.
Traditional, or long-term rental properties, can also be commercial properties, such as office buildings or storage houses, which gives them the potential for a very high return on investment due to commercial real estate generally being more profitable than residential real estate.
Related: How to Make Money When Investing in Rental Property?
Fixer-Upper Properties
An investment property can also be a real estate property that is foreclosed or in a distressed state. A fixer-upper investment property is a distressed property that a real estate investor can purchase with the purpose of renovating or fixing it before selling it for a higher price. The main method for profiting from fixer-upper properties in real estate investing is to purchase the property at a price that is well below the market’s average and then sell the property at a higher price after renovating it.
In order to profit from the deal, a real estate investor who purchases a fixer-upper investment property must make sure that the costs of buying and renovating the property combined are less than the price at which he/she intends to resell the property for profits.
A foreclosed property can be an especially good investment property for a fixer-upper real estate investing strategy because foreclosed properties are often a distressed property that the previous owners could not afford to renovate or fix. Additionally, foreclosed properties are often left vacant for long periods of time during which they could be broken into or occupied illegally by outlaws. This leaves foreclosed properties in a bad enough condition to justify their drastically lower prices.
Find the best foreclosed properties for investing in your city right now!
Before purchasing a foreclosed investment property, make sure to assess the property’s condition and the amount of renovation and repairs that the property needs. Some properties are left in such a bad condition that even their low prices become obsolete when considering the amount of money that will be needed for the renovation of the property.
Related: Thinking of Investing in a Fixer Upper? Answer These Questions First!
Buy and Hold Properties
The simplest and most effortless real estate investing strategy is to purchase an investment property for the purpose of holding it for extended periods of time until its value appreciates and it can be sold at a higher price.
This is perhaps one of the biggest advantages of real estate investing in general. Most real estate properties can appreciate in value over time, allowing real estate investors to take advantage of this increase in value to make a profit.
An investment property that is located in a good area with good signs of development is almost guaranteed to appreciate in value. However, the buy and hold strategy is best known for its flexibility as the investment property could be used for any number of purposes during its holding time without necessarily affecting its value.
A buy and hold investment property can, for example, be rented out during its holding time, allowing real estate investors to generate an extra cash from the property or to use the rental income of the property to cover the costs of maintaining it or to pay off its mortgage.
Related: Why Is the Buy and Hold Strategy Best in Real Estate Investing?
Bottom Line
An investment property can be any real estate property that can be used to make a profit. This means that the real estate investing strategies mentioned here are not the only ways for turning a real estate property into an investment property. There exist numerous other investment strategies in real estate. Real estate investors have shown to be very creative when it comes to figuring out ways to invest in real estate and make money from it.
If you want to learn more about real estate investing and the different types of investment properties or investment strategies in real estate, make sure to visit our blog section at Mashvisor.com/blog and enjoy the 1,400+ articles that are all related to real estate.
