What is An Investment Property?
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Did you know that approximately 51% of people in the UK lack important financial literacy knowledge? Despite a significant increase since 2023, more than half of the population still struggles with this key area. Luckily, we’re here to help!
At Peninsular Property, we know how confusing (and sometimes nerve-racking) it can be to get started with real estate investments, especially if you’re a novice investor or don’t have anyone around to simplify this complex topic.
If this sounds like you, don’t worry. With over 30 years of experience, we’re excited to help you understand the ins and outs of property investing by sharing our specialist knowledge in more digestible and jargon-free pieces of information.
If you want to learn what an investment property is, the benefits of adding real estate to your portfolio, what qualifies as a property investment, what doesn’t qualify, and key considerations to keep in mind to decide whether buying an investment property is ideal for you, keep on reading this blog.
What is An Investment Property?
An investment property is any real estate (i.e., land, a building, or part of a building) that is owned or leased under a finance lease with the primary goal of generating rental income or capital appreciation, or both.
Unlike properties used for personal residence or business trade purposes, investment properties are specifically acquired to provide financial returns through rental yields or increases in market value over time. Below are some examples of property types that qualify as investment properties and those that don’t qualify.
What Qualifies As An Investment Property?
If you’re looking to get started with investment property, the following options qualify as an investment property:
- Land held for long-term capital appreciation
- Land held for a currently undetermined future use
- Vacant building held to be leased out under an operating lease
- Buildings that are leased out under an operating lease
- Property under construction or development for future use as investment property
- Rental properties bought with buy-to-let mortgages
What Doesn't Qualify As An Investment Property?
Under IAS guidelines, investment property refers specifically to property held to earn rentals or for capital appreciation. However, several types of properties do not meet this classification and are instead treated under different accounting standards. These non-investment properties include:
- Property used in business operations
- Properties held for sale or development
- Properties constructed on behalf of third parties
- Owner-occupied properties
- Properties under finance leases
What Are The Benefits Of An Investment Property?
Owning an investment property is favoured by any keen investor, both new and experienced, as it offers the potential for long-term capital appreciation and rental income.
It also helps to diversify your portfolio, provide steady cash flow while building equity and potentially offer tax benefits, such as deductions for mortgage interest, property depreciation, and maintenance costs. While this sounds attractive, there are also risk factors that should be taken into account before eagerly investing in property.
Considerations Before Investing in Property
Before jumping straight into property investment, especially if you’re a complete beginner to real estate investing, you’ll need to do some research to ensure that you are making the right choices for your needs and investment goals. Here are 6 questions to kickstart your research into property investment.
- Does the location have growth potential and rental demand?
- What is the property’s current condition and will it need maintenance costs?
- What are the current housing market trends and economic conditions that could affect your investment?
- Are you aware of the current interest rates and finance options?
- Do you know the legal requirements regarding property, e.g., tenant regulations?
- What is the expected Return on Investment (ROI) and does this match with your financial goals?
Research is essential in property investment to ensure the location, time and property type align with your needs. After all, knowledge is power and it’s no exception with property. Remember, not every property type is available for investment purposes.
Choose Peninsular Property For Retuable Property Investment Guidance
With the right knowledge and resources, a good investment property can be a great strategic decision to expand your investment portfolio and increase your wealth.
Here at Peninsular Property, we have the privilege to share over three decades worth of experience with real estate to help people like yourself make the most out of their investment choices.
Investments are personal, which is why we take the time to build a rapport with our clients to understand which type of rental property (i.e. residential property or commercial property) would be most appropriate, along with the level of risk and investment approach required to increase your success with investing.
If you’re looking to make an informed investment property decision with expert guidance and personalised support, speak to our team today by calling +44 7501 928060 or fill out our contact form to make the first step.
Popular Investment Property FAQs
Which Type of Property Is Best for Investment?
The best income properties are typically multifamily properties, as these are easy to maintain, highly profitable and allow for hands-off ownership. Examples of these properties include townhouses, condos and apartments.
What Type of Investment Property Is the Most Profitable?
Making a commercial real estate investment is a highly profitable option. This is because these offer better cash flow potential, longer leases, and the opportunity for value appreciation through strategic improvements.
Which Type of Property Investment Has the Highest Risk?
Raw land can be considered one of the riskiest types of investment property, as it has no income until it is developed or sold. Another high-risk option is properties that are in emerging markets, as they tend to have a volatile property value and lack market data, which is commonly used to inform your investment.
