Investment Property

Definition of "Investment property"

Written by

Tracy Dombek

Compass RE

The investment property definition is pretty simple: it is a property which its main purpose is not sheltering/housing its homeowner but acting as an investment asset.

The ways an investment property can bring return to investors are either instantly through rental income or over time, when the homeowner sits on the property until the value appreciation of the area is good enough for him (or her) to sell it, making money off of the interest appreciation – bought a house at $200,000, sold for $500,000 profiting $300,000 off of that investment. It can be both too: someone that, while waiting for the house to appreciate its value, rents the investment property to make money. Or even a rent with option to buy property.

However, the investment property definition can get murky when you buy second homes. Say you are a snowbird from Boston that buys a home in Florida to run away from the winter. While the rest of the year you use the southern home for airbnb renting, making money off of it like an investment property, you do live in the place for about 4 months a year. Does that make the house an investment property or not? And does it even matter what name is it called?

Actually, yes.

Investment properties, for instance, can’t benefit off a mortgage insurance, as insurance companies only provide a mortgage to primary residences. And that includes Federal Housing Administration (FHA) loans. Not to mention tax exemptions a vacation home cannot bring.

So there are a bunch of factors that determine if a home is an investment property or not – like the distance between the primary residence to the second home and even just to name one. It will depend on the loan originator and the story you tell them.

Real Estate Advice:

Have a chat with your real estate agent and a financial advisor so you don’t learn down the road that your money is going down the drain and you could be profiting much more.