The term “investment property” can be confusing, as it is pretty vague. Does it have to do with stocks? Do you need to invest short amounts of money at a time? Do houses count? All these questions and more are answered below.

Can Houses Be Investment Properties?

The answer to this question is, “it depends.” A house that a person bought to live in, with no ulterior motive, is considered to be a residential property. Even if the homeowner is renting out a room or two, has roommates, or rents out the house when they are away (like with an Air B&B), the home is still considered to be a residential property, which is not an investment property.

However, some houses do count as investment properties. These would be houses that are bought solely for the purpose of making money off of. The most common situations for these kinds of properties include buying a house to fix and flip, renting/leasing a property for a long-term arrangement, or renting/leasing property for vacation rentals. Buying or investing in commercial real estate, like hotels or apartment buildings, will fall under the same category.

Does the Property Need To Be Bought in Full?

Similar to buying a house, commercial real estate can be bought in full or with a loan. More likely than not, a person will need to take out some kind of loan in order to buy the property. This is simply because most people don’t have tens of thousands of dollars saved up in their bank accounts.

Just like with residential real estate, the bank will require a partial down payment. There are a variety of loan types that investors can take out. Generally speaking, short-term loans or balloon loans are better for people who are planning on buying a property to fix and flip. Long-term loans or mortgages are better for people who plan on renting out a property (for both residential and commercial real estate).

Does Investing Have Anything To Do With Stocks?

Investing in real estate has nothing to do with the stock market. Sometimes the two get confused because of the common usage of the word “invest.” It is still under debate whether investing in stocks or property is the better investment. However, there is nothing stopping a person from doing both, so long as they have the cash to fund the investment.

Investing in real estate can be confusing. Hopefully, the simple explanations here helped to make the process a little easier to understand.