Investment Real Estate

What is 'Investment Real Estate'

Investment real estate is real estate that generates income or is otherwise intended for investment purposes rather than as a primary residence. It is common for investors to own multiple pieces of real estate, one of which serves as a primary residence while the others are used to generate rental income and profits through price appreciation. The tax implications for investment real estate are often different than those for residential real estate.

BREAKING DOWN 'Investment Real Estate'

Common examples of investment properties are apartment buildings and rental houses in which the owners do not live in the residential units but use them to generate ongoing rental income from tenants. Those who invest in real estate also expect to generate capital gains as property values increase over time.

Ways Investment Real Estate Can Be Managed

Leveraging investment real estate can follow numerous paths. An investor might join a real estate investment group that pools its funds to acquire properties. The owner or owners of investment property may hire property managers to oversee the day-to-day upkeep and rent collection for a piece of real estate or an entire portfolio.

A real estate investor could also look to serve on the lending or funding side of projects with an expectation of a return on their investment. For example, investors could be the lenders behind hard money loans for real estate. The borrower in such an instance will likely pay higher interest rates to receive the funds and will need to repay the loan in short order. The lender might agree to the loan in the hopes of taking ownership of the property should the borrower default especially if the property has the potential for greater resale value.

Investment real estate can take the form of a piece of property that is in disrepair or otherwise underdeveloped that is built up with the intent to rent the space for a long-term return. The owner of the property might seek financing to cover the cost to improve the real estate and make it more attractive to tenants.

A real estate investor could acquire a property based on an expectation that demand for the space will increase because of external factors. New attractions such as a sports arena or infrastructure development such as a highway extension could make neighboring properties highly desirable. For example, a real estate investor might buy a commercial property next door to the site for a new theater that is under construction. The assumption is that there would be increased foot traffic passing by the purchased property, which would make the location a prime choice for retailers. The increased demand could give the owned cause to alleviate rent prices as well.