What Is An Investment Property?
An investment property is a piece of real estate purchased by an individual or a group of investors with the goal of making a profit. Investing in real estate can be a rewarding way to earn money through rental income, property development, and reselling.
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When you’re looking to buy a rental property, you’ll come across various types, such as residential rentals, commercial properties, and multifamily homes. One exciting option is investing in multifamily homes, where you can live in one unit and rent out the others. This not only helps you earn rental income but can also significantly lower your living expenses. It’s a fantastic strategy for beginners eager to dip their toes into the market while boosting their chances for a good return. Happy investing!
Pros
There are plenty of benefits to owning investment properties, some of these benefits include but are not limited to:
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Passive income: Renting out property to tenants allows you to generate passive income; an income acquired with little to no effort or labor. Tenants make regular payments providing a steady and relatively hands-off income stream. Passive income is one of the most prominent benefits of owning investment property, as it’s an attractive option for those looking to make an easy return on their investment
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High return on investment (ROI): Return on investment, or ROI, is a metric that tells you what kind of profit you’ll make on an investment. It compares the amount of money you’ve put into the property to its current value. ROI’s depend on many factors including careful property selection, effective cost management, and strategic improvements to enhance both rental income and property value.​
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Equity buildup: Building up equity in an investment property typically involves consistently paying down the mortgage, which increases the owner’s stake in the property over time. This increased equity can be advantageous for investors, as it represents a higher ownership share, potentially leading to greater profits upon selling the property or using the equity for other investments.
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Appreciation: Considering our nation’s current financial status, the implications of inflation make it likely that investment properties will appreciate over time. Property appreciation, especially in residential properties, increases a real estate investor’s profits, especially if the investment is long-term.
Cons
While one may reap many benefits of an investment property, there are potential downsides and risk to investing:
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Limited investment opportunities: Limited opportunities in certain areas for real estate investing can stem from factors such as oversaturation of the market, stringent zoning regulations or a lack of economic growth. ​
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Cash flow: Cash flow issues in real estate can interfere with expensive investments by creating challenges in covering mortgage payments, property maintenance costs and other ongoing expenses. Insufficient rental income or unexpected vacancies can lead to financial strain, potentially forcing property owners to sell hastily or seek additional financing, both of which may negatively impact long-term returns. Effective management of cash flow is essential to sustain and maximize returns on high-value real estate investments.
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Market risk: While navigating the real estate market, investors have no control over the market, posing a potential risk factor. A fluctuating market can be an even bigger risk to those planning on investing for the long term as there can be unexpected changes in economic conditions, interest rates and even demographic shifts. As an investor, be sure to thoroughly assess and adapt your strategies to mitigate potential risks associated with market volatility.
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Upkeep: Depending on the size and condition of your investment property, it may require a significant amount of upkeep and maintenance, as keeping the property in its best condition would be in your best interest to preserve its value and appeal to potential tenants or buyers.
