How Investment Property Works

How Investment Property Works

by

Pluto Becks

An investment property refers to that property which is purchased in order to gain returns. Apartment building, single-family dwelling, a vacant lot or a commercial property are the forms of investment property. Real estate is one of an essential type. Not occupying the property by the owner even though in certain instances the owner may occupy a portion of it pertains to an investment property.

The following are examples of investment property.

For undetermined future use the land was held.

Under an operating lease or a vacant building that is to be rented.

Any currently constructed or developed property for future use.

Holding a land for long term appreciation.

Whether bought as a home or as a business venture, buying a property is a lucrative venture. Purchasing a multiple unit is a beginner s approach. While renting out the remaining units, one can live on the other unit. In this way, you can use the rent money you earn from renters for mortgage payments. In the long run you can fully pay the property while enjoying the profit you made from the collected rent at the same.

Any equity you have as a property owner can be used to further finance property purchases. Fair market value of the property less the existing liabilities inclusive of any liens refers to equity. Borrowing against the property equity is a common practice. Rates of the property that will serve as collateral in securing loans are then somewhat competitive. Better rates are offered for those less risk in lending.

Sometimes those bought at a tax sale is an investment property. Property will be auctioned if there is a failure of the owner to honor the property tax payment for certain period of time. A minimum bid as a starter which will be high enough to cover the back taxes and other related expenses incurred during the sale. But at the relatively minimal cost the investors are still allowed to buy the property. When an owner has the opportunity to resell the property at the market value or upgrade it and sell in a premium price is an example of an investment property.

Adding the cash flow from rent or resale and subtracting it at any cost such as taxes, mortgage and insurance is a way of measuring the return of investment. The total amount invested which could be purchase price plus renovations shall then be divided. To get the percentage multiply this by 100. Renting out the property is normally measured on an annual basis but purchasing for resale will be calculated once. Whether the property is worth purchasing or if there are any better deals out there, return of investment calculation will give you an idea.

If you would like to learn more about

property investment

, feel free to consult the

real estate experts

on their site.

Article Source:

ArticleRich.com