What is an Investment Property?

An essential property management term

Key Insights from the Article

  • Definition and Purpose: An investment property is housing, land, or commercial real estate bought to earn income. Investors can generate income through renting the property or through the property’s sale. Sometimes, investors rent the property, allow it to appreciate, and then sell it later for a more significant gain.
  • Financial Considerations: Investing in property involves understanding financing options, tax implications, and cash flow management.
  • Role of Digital Tools: Property management software like TurboTenant enhances the rental management experience of investment properties by streamlining critical operations like tenant screening, lease management, and maintenance management.

Definition of an Investment Property

Investment properties encompass various types of real estate, such as residential homes, commercial properties, or land, that investors buy to generate a return on their investment. This return can be realized through rental income, the future sale of the property, or a combination thereof.

Unlike primary residences, the owner does not personally live in their investment properties. Instead, they rent or sell them to build short-term or long-term wealth.

Types of Investment Properties

Investment properties come in various forms, each with its unique characteristics and potential for return:

  • Residential Properties: These include single-family homes, apartments, condos, and multifamily residences. Investors earn income through leasing residential properties to tenants, among other options, such as fix-and-flip projects.
  • Commercial Properties: This category encompasses office buildings, retail spaces, warehouses, and industrial buildings. Leases on commercial properties tend to be longer, which can provide more stable long-term income streams for investors.
  • Land: Investing in undeveloped land can offer significant returns if the property appreciates due to development and increased demand.

Financial Considerations

Investing in real estate requires careful financial planning and consideration. Key aspects include:

  • Financing Options: Most investors leverage mortgages or loans to finance their investments, so understanding interest rates, loan terms, and down payment requirements is crucial.
  • Tax Implications: Investment properties have unique tax considerations, including the possibility of deducting expenses such as mortgage interest, property tax, maintenance costs, and depreciation. Rental properties are great ways to reduce taxable income.
  • Cash Flow Management: Successful real estate investment involves managing cash flow to ensure that rental income covers the mortgage payments, maintenance, and other related expenses.

Role of Digital Tools in Managing Investment Properties

Digital platforms like TurboTenant revolutionize how investors manage their properties. These tools offer several benefits that help investors manage their investments after they’ve placed them in service.

  • Efficient Tenant Screening: Quickly identify qualified tenants to reduce vacancy periods and keep cash flow moving in the right direction.
  • Streamlined Lease ManagementDigital lease agreements and renewals simplify administrative tasks and ensure legal compliance. Plus, when you and your tenants can sign them online, you also save time.
  • Maintenance and Repairs Tracking: Online systems allow for efficient management of maintenance requests, ensuring properties remain in good condition and retain their value.
  • Financial Management: Digital tools can help track income and expenses, making tax time more manageable while allowing visibility into critical metrics like cash flow.

Investment properties represent a significant opportunity for investors to generate passive income and build wealth. Whether you’re considering residential, commercial, or land investments, you’ll have a number of considerations. Understanding the market, financial implications, and digital tools is critical to your investment success.

As it relates to digital tools, platforms like TurboTenant simplify the day-to-day management of investment properties and provide valuable insights that can help maximize profitability and streamline operations, making the management of real estate simpler than ever.

Investors who want to simplify property management can sign up for a free TurboTenant account today.

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