Investment Property Defined

Investment property is any property that is purchased where the purchaser has the intent of renting it out; selling the property after improving, converting, renovating or refurbishing it; allowing it to lie fallow or be occupied with speculative motive, awaiting capital appreciation and with the aim of gaining a return on investment (ROI). Investment property can be vacant land, a block of flats, a condominium, a duplex, a detached house, office block, commercial property, and any type of real estate. The owner of investment property may or may not occupy it while the property gains capital appreciation. He or she may occupy some part and rent out other/s. The motive of investment is rate of investment (ROI). In most cases the new owners of investment properties will inherit renters/tenants. If they are good occupiers and not part of the problems of the former owner/s, the new buyer/s can keep them.

Buying investment property can be a lucrative exercise if well planned and researched, whether the purchaser simply wants to buy a home for dwelling or plans to make profit out of the investments. Because a lot of money will be involved and due to the risks involved, it will be better for investors buying investment property to contact a professional realtor or chartered surveyor. A good strategy for beginners is to purchase an investment property like two wing duplex, or other multi-family dwelling, and live in one unit while renting out the other(s). This way, income collected from the renter/tenant or renters/tenants will offset the note/monthly mortgage amount, leaving the owner without any mortgage responsibility or payment. After a period, the property’s liability will be fully discharged, and the purchaser continues to derive rents as profit.

An investment property buyer who cannot avoid multiple family properties can buy a single unit and occupy it so that he or she does not loose out from capital appreciation in the near future, or premium inherent in it. This owner can use the rent he or she would have paid in his or her rented property to off-set his or her mortgage liability while waiting for the property to gain capital appreciation. It is like eating your cake and keeping it! He or she can also make alteration or conversion so as to have a part for himself or herself while letting the other part out for income. For example, a three bedroom duplex can be converted into two units of one bedroom flat, or a four bedroom detached house with garage can be altered into three bedroom house without garage, while the garage and a room will serve as sitting and bedroom for an additional occupier (owner or renter). Investors are also in the habit of using the Boy’s Quarters of their investment properties or constructing one, where there is space and where town planning regulations allow this.

Getting onto the ladder of investment property is the most difficult aspect. Once you are there and you have the first investment in your protfolio, you would not want to stop acquisition as you can now buy with no down payment. Owners of investment properties may also purchase another investment property, using the equity in the first property to finance the purchase. Equity is the difference between open market value (OMV) of a property and the liability on it to a third party. It simply translates to the positive diffrence of the fair market value of the property and the amount of loan left unpaid, including any lien on the property, that is, the legal claims of one or more than one person on the property to secure the payment of a debt or the satisfaction of an obligation. It is common to borrow against the equity in a property transactions. Interest rates for such indedtedness are fairly competitive because your share of the property value (equity in your property) serves as collateral (security) to secure the loan and your collateral can be sold by your creditor to redeem your loan obligation in case of default. Because your asset is at stake, you will also have a better negotiating stance.

Different analysis will have to be done on the properties to ensure that the return on investment is competitive with other investment choices. As part of the property investment analysis, you would also need to have rough idea about the property taxes you would be required to pay government, the maintenance of the property, cost of renovation and the moving expenses you would need to pay the movers. There is the homeowner’s insurance and private mortgage insurance if you are using mortgage as means of payment for the property. You need to be analytical and good in addition and subtraction to prepare your list of expenses and income on the investment property.

Property investment is a complex process, particularly if you are a non-professional in this sector of investment. There are many first-time investors who think of property investment as getting-rich-quick scheme. However, unlike what they think, the process of real estate investment requires knowledge on its foundations and appropriate strategies on how to effectively put them into practice. There are seasons of the year when you expect property value to fall. Whole life cycle of a project also have impact on its value and eventual sale cost. A property bought off -plan will be cheaper than a property bought after completion. Property are also cheaper when bought at auctions than when closed bidding is involved. Foreclosures and distress properties are also sources of cheap properties.

Most investment properties investors buy investment property at tax sale. This is a sale where the property owner defaults on property tax payments consecutively for a certain lenght of time. They may also buy for-closed properties. The property may be auctioned or sell under close bidding. A prospective investor starts with a minimum bid that is adequate to cover the backlog or arrears of taxes (back rates) and the expenses of the sale. If these do not satisfy the minimum condition of the vendor, the investor will improve his offer. Tax sale and foreclosure are usually bought for resale by investors.

Due to the global economic crunch, the new trend in property investment is buying for alteration and conversion. Properties are bought in strategic locations and are either converted or altered. For example in a residential high street where succession is taking its toll on the land use, an investor can buy a residential property fronting the high street and convert the ground floor into shops for commercial use. Bigger properties like three bedroom flats can be bought and altered into two numbers two bedroom flats.

Investors in investment property want to maximise their returns on investments and usually forage for bargained properties. Bargained properties are property under force sale either because the owner is distressed, have been declared bankrupt or default in paying mortgages over the period allowed. They also include dilapidated or damaged properties that the owners are not considering renovation. The internet and bulletins of property brokers will serve as good instrument for searching for bargained properties. The new owners of bargained properties will put them back in shape by restoring their milieu and selling them at premium to new buyers or keeping them as rental properties (buy-to-let). Property market is plagued with bubbles, any investment property investor that worth its onion should know when to offload some of the investment properties in its management portfolio.