What is Investment Real Estate?
Investment real estate refers to any residential structure owned solely for the purpose of generating investment returns, either through rental income or through market value appreciation.
How Does Investment Real Estate Work?
Often, an individual may own numerous residential properties and live in only one of them. The additional properties may be used to generate rental income or profits from increases in market value. When used for such purposes, these properties qualify as investment real estate.
To illustrate, person X owns a two-family house in addition to the house that person X lives in year-round. Person X rents out the two-family house and receives $1000 each month in rental income. This qualifies the two-family house as investment real estate.
To illustrate, from a market perspective, suppose person X keeps a watchful eye on the market value of that two-family house. One day person X sees a major jump in the house's value, and decides it's time to sell. Even if the house was not rented to tenants at the time, it would still qualify as investment real estate, because since person X does not inhabit it and is selling it in order to make a profit.
Why Does Investment Real Estate Matter?
Investment real estate, though residential, exists for the sole purpose of generating income for the owner(s) either through rent or market speculation. For this reason, investment real estate is taxed differently from real estate (e.g. private home) that the owner inhabits.