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What Is An Investment Property? The Smart Answers

Posted by Asad Rafi on May 18, 2019
| 0

If a college student was asked this very question; what is an investment property? He’d probably stay mute few seconds and answer; it’s any property you purchase, develop and expect some money in return.

While this would be a correct definition, it would be inadequate for anybody involved in the real estate business to sit by.

 

In the real estate field, an investment property is a house or land bought with an intention of reconstructions, development or a mere face-lifting to be later sold or open for rent ant a profit. Such a property could be a short term investment or in a long term investment, as it’s more commonly witnessed here in the UAE.

 

Pros of an Investment Property

Return on investment is a common term associated with all forms of investment; however, it’s a rather bogus term in the field of Real estate as investment property in itself isn’t as simply explainable as it is in general terms.

The benefit of an investment property as against a residential home is that your loans are easily paid back if such property was purchased and developed with a loan.

On the other hand, a residential home only serves its purpose when you are currently residing in it. During your absence, such property has no means of performing its duties as it raises no funds and also fails to serve as an abode for you at that moment.

Residential property for rent doesn’t share this burden anyway, it’s more like a commercial home which has its own pros and cons as well. This is because there might be long-standing periods where such houses remain uninhabited, and that means there would be no income for such periods.

 

Cons of an Investment Property

It’s Not Easy To Secure Loans

While it might be easy to secure loans to bring your primary residential projects to life, lenders are usually skeptical about investment properties. This oftentimes leads to a higher strain on the conditions that surround the release of borrowed funds for investment properties.

Your credit score becomes so important

To be eligible for borrowing, banks often require a high credit score from borrowers especially when their interest is on investment properties.

 

Final thoughts

For realtors, having an academic level understanding of what your field entails often comes in handy, especially when dealing with clients or investors that tend that way.

For buyers, this knowledge could equally be of great value in a bargain to secure a high-value loan to offset such projects. Some alternative lenders may seek to inspect your understanding of what you are going into, as an alternative criterion to accepting or declining your loans request. Such special requirements are used as remedial for candidates that primarily don’t qualify for loans but look like they have something good to offer.

Feel free to further research the topic if needs be.

Thanks for reading

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