Some people buy property because they want to personally occupy it. For example, a couple may buy a house because they want to own the place where they live. Investment real estate, however, is property that is obtained or used to make money. This property is generally not directly used by the owner.
There is more than one way to use a property as an investment. Some peoples’ investment real estate strategy involves buying substandard property, renovating it as cheaply as possible, and then immediately selling it. Other people buy properties anticipating an increase in value. When this increase occurs, they sell at a profit.
Other people buy property to lease it out. Some attempt to make a profit before the mortgage is paid by charging rent that is higher than the mortgage and other property maintenance costs. Some individuals, however, do not seek to make an immediate profit. Instead they rent out the property at cost and anticipate making a profit once the mortgage is paid.
Investment real estate is not limited to residential property. Some individuals use commercial real estate as investment property as well. Many of the same strategies can be employed in both instances.
Intending to make a profit from investment real estate does not guarantee that this will happen. There are many factors that can cause a person to lose money in these types of investments. For example, a person may buy a property for resale and not be able to immediately sell it. By the time a sale is possible, the land value may have decreased, meaning the owner will be selling at a loss.
Many people often end up with alligator property. This term refers to a property with costs attached, such as mortgage and maintenance, which exceed the revenue generated from leasing it. This commonly happens in places where mortgage rates and property taxes tend to escalate.
Another common cause of loss with investment real estate is payment default. If, for example, a lease is signed for a property, the owner generally relies on the timely and full payment of the rent. When this does not occur, he may have to pay costs such as mortgages and property taxes from his own resources. Meanwhile, the renter may retain possession of the property until he is removed by a legal procedure, which often takes a great deal of time.