An investment property is an asset that you can buy to obtain income or profit from it in the future. Such assets may include land, securities, and other collectibles. Investment property for sale could either be a short term investment or a long term investment. This article discusses investment property.
What is a property as an investment?
Property as an investment is a real estate property that an investor buys intending to obtain income from it in the future. Income is in the form of rental income or lease. One may also buy a property then resell it and gain a profit. There are three major types of real estate investment properties, including residential property investment, commercial, and mixed-use properties.
Residential properties refer to an investment property that an investor purchases then rents out to tenants then collects rent from them. Residential properties are apartments, townhomes, or condominiums. On the other hand, commercial property refers to properties meant for business. Though they demand costly improvements and maintenance, they give higher returns. Commercial property can either be a retail store or an apartment building. Lastly, mixed-used property refers to property that is used for both residential purposes and business purposes.
Benefits of investment property
Purchasing an investment property is a great way to enhance financial security in the future. Once you retire, you need some cash to keep going. You realize that with the market fluctuations in the market today, you cannot solely rely on your retirement benefits or the stock market. Investing in property gives you capital growth and returns that you can depend on when you retire or lose your job.
Investment property can give you constant passive income for your expenses. Once you invest in a property, you start receiving income from it almost immediately. You can use such income to pay for expenses and even buy more properties.
You can use investment property as security to obtain loans. You can then use the loan to purchase more property hence increasing your wealth.
What is considered the best investment property?
Real estate is considered the best investment property. It will not only give you monthly cash flows from rental income, but they also deliver high capital growth. Financial institutions and most investors view real estate investment property as more stable compared to other investment properties like paper assets and stocks. It is not affected much by market fluctuations, and you can gain returns from it even when the market is not favourable. Furthermore, real estate property acts as a hedge against inflation. Often, when inflation increases, rent will also increase.
How to know if a property is a good investment?
The general status of the location of the property
In this case, look at factors like the economy of the area. If the economy is growing, more people are likely to move there; hence, it is a good investment. Also, check the likelihood of population growth in the area. The growth could be due to a new company or public infrastructure like public transit coming up. The possibility of growth in an area causes more people to settle in the area. Consequently, purchasing property in such an area is a good investment.
It meets your financial goal
Specify the financial goals you want to meet with your property. If you want to earn $200,000 from an investment property, choose one that can achieve this financial goal. In case you have a variety of properties to choose from, select the property that will meet your financial goal with less risk.
It is inconsistent with the 1% property rule
The 1% real estate rule provides that, for an investor to know if a real estate investment is good, the rental income they obtain must be 1% or higher of the property’s total cost. For example, if an investor buys a property for $400,000, the minimum monthly rent they should collect is $4000 monthly. The property’s total cost, in this case, entails the repair cost, all closing costs, and the purchase price.
An investment property helps you obtain future income. It is vital to invest in property since it enables you to acquire passive income to meet expenses and can also enhance future financial stability. A good financial property is one that meets your financial goals, is in a profitable location and meets the 1% property rule.