E-file your Income Tax Returns for FREE

E-file your Income Tax Returns for FREE

Investment Property

Reviewed by Annapoorna | Updated on Jan 29, 2021


What is Investment Property?

An investment property refers to a real estate property acquired to obtain a return on the investment by rental income, the property's potential resale, or both. The property may be owned by an individual investor, an investment company, or a corporation.

An investment property can be a long-term or short-term investment endeavour. With the latter, investors often engage in flipping, where real estate is purchased, remodelled or renovated, and sold within a short timeframe at a profit.

The term investment property can also be used to describe other properties acquired by an investor in the hopes of future appreciation, such as art, shares, ground, or other collectables.

Investment Properties Explained

Assets for investment are those that are not used as a primary residence. They produce some revenue, such as dividends, interest, rentals, or even royalties. These fall beyond the scope of the normal line of business of the property owner. The way an investment property is used affects its value significantly.

Often investors perform studies to determine the best use of land and the most lucrative. It is also called the highest and best use of the land. Suppose an investment property is zoned for commercial as well as residential use. The investor can consider the pros and cons of both before he figures out which has the highest potential return rate. He then makes use of the property in that way.

An investment property is frequently termed a second home. But the two do not necessarily have the same meaning. For instance, a family may buy a cottage or other holiday property for their use or someone with a self-owned house in the city may buy a second property in the country as a weekend retreat. In such cases, the second property is for personal use, not as an acceptable income property.

Types of Investment Properties

*Residential: *Rental homes are a common way in which investors can add to their profits. An investor who buys a residential property and rents it to tenants will receive monthly rentals. It may include single-family homes, condominiums, condos, townhouses, or other residential structures.

Commercial: Properties which generate income do not always have to be residential. Some investors, especially corporations, buy commercial properties that are explicitly used for business purposes.

Mixed-use: A mixed-use property can be used for both industrial and residential purposes simultaneously.

Related Terms

Recent Terms