Any property that is purchased with the intent of gaining a return is considered investment property. It can be an apartment building, a duplex, a single-family dwelling, vacant land, commercial property — basically any type of real estate. This type of property is purchased with the sole intent of realizing an income, either by renting the property, profiting over time from appreciation, buying low and selling high, or renovating the property and selling it for more than the purchase price. Although most owners of investment property don't live there, in some cases, the owner may occupy a portion of the property.
Purchasing investment property can be a lucrative venture, whether one simply hopes to purchase a home or plans to make a business out of such investments. One strategy for beginners is to purchase a property such as a duplex, or other multiple family dwelling, and live in one unit while renting out the other. This way, monies collected from the renter or renters covers the note, leaving the owner without a mortgage payment. Eventually the property is paid off, and the purchaser continues collecting the rent for a profit.
The owner may also purchase another investment property, using the equity in the first property to finance the purchase. Equity simply means the fair market value of the property minus the amount still owed, including any liens. It is common to borrow against the equity in a property. Rates for such loans are fairly competitive because the property acts as collateral to secure the loan. The less risk there is in lending, the better the rates are.
Sometimes an investment property is purchased at a tax sale. When the original owner defaults on property tax payments for a certain length of time, the property may be auctioned. An investor starts with a minimum bid, one that is high enough to cover the back taxes and the expenses of the sale, yet still allows the investor to purchase the property for minimal cost. Such a purchase is an investment property because the new owner will most likely attempt to resell it at market value, fix it up and sell it at a premium, or use it as a rental.