What is an investment property?
What is an investment property? The short answer
In a nutshell, an investment property usually refers to any item of real estate (house, apartment, shop, land, etc.) which is managed in order to generate a financial return for its owner. The owners of an investment property could be an individual, partnership, group or corporation.
What is an investment property not?
Certain types of money-making properties would not be classed as investment properties. These include owner-occupied properties (e.g. B&Bs) and commercial properties being sold in the ordinary course of business. Second homes are not automatically classed as investment properties, because these are often used solely for residential purposes.
Nearly all investment properties generate a return for their owners in one of two ways: rental income or capital growth (aka appreciation).
What is an investment property for rental income?
One way you can make money from property is to let it to residential or commercial tenants. There are many different type of rental property, from bedsits and family homes to student accommodation, house of multiple occupation (HMOs) and commercial premises.
While each market has its own rules and best practice, the concept is similar across the board. An investor will buy a property (either outright, or via a Buy-To-Let mortgage), and will make a return on their investment through collecting rental income.
The profit made on rental properties is taxed annually.
What about capital growth?
The other major way in which property investors make money is through buying a property, renovating or refurbishing it, and then selling it on at a profit. Investing for capital growth can be a short-term or long-term project. A short-term capital growth project is sometimes referred to as property ‘flipping’.
Buying land with planning permission, and building one or more properties on it, is another popular form of investment for capital growth.
When a property investor sells on property, the profit is subject to capital gains tax.
Professional property investors usually hold a portfolio of both rental and capital growth properties to spread their risk and ensure they are making a profit whether the housing market is currently favouring buyers or renters.
How do you get hold of an investment property?
As with other kinds of property, most people either buy an investment property outright or take out a mortgage. There are other ways to get hold of an investment property (as we detail in our property investment courses), and, of course, you could end up with one through inheritance.
You could also convert a house you already own, into an investment property, but that isn’t usually a wise idea. That’s because getting hold of the ‘right’ investment property requires a sound strategy. This is a huge part of what you will learn through our property investment courses.
Is property investing for you?
Almost anyone can become a successful property investor like Gill, and many people are put off by misunderstanding what’s needed to be successful. For example, some people think that they need to be wealthy to start off with, have immediate access to a large deposit or require skills or experience in the building trade. None of this is true.
There is also a tendency to overestimate the risks, and listen to horror stories or misinformation. The fact is that property investing is, and continues to be, one of the most secure and profitable ways to make a profit – if it is done properly.
We run regular FREE property investing seminars up and down the UK, so to find out more about this exciting opportunity, find your nearest seminar and book your spot.