Definition of "Investment property"

Tracy  Dombek real estate agent

Written by

Tracy Dombekelite badge icon

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.

image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.
 

 

Popular Real Estate Terms

Self-employed contractor who may perform work on a structure such as residential or commercial property. ...

Type of ownership by husband and wife, recognized in 27 states, in which the rights of the deceased spouse pass to the survivor. It is the same as joint tenancy, except that one spouse ...

Descriptive of the architectural development of property in a certain area. For example, a housing subdivision may use very similar building architecture throughout the development. All the ...

English-style home. It is usually 2-stories high. The roof is of a hip type. The chimney is on the side of the home. ...

The economic indicators that trail behind aggregate economic activity. Six lagging indicators issued by the government consisting of unemployment rate, corporate expenditures, labor cost ...

Federal agency within the Department of Housing and Urban Development that provides financing to home buyers, particularly those with little cash or with a need to lower monthly payments. ...

An easement granted to a public utility. ...

Same as term contract of sale: Written agreement between a seller and a buyer in which the latter agrees to buy real estate property upon mutually suitable terms. ...

An attic is an accessible room or space between the roof rafters and ceiling joists of a structure. The attic can be completely finished as a habitable place, complete with floors, ...

Popular Real Estate Questions