What are Property Investments?

Ken Black

Property investments are real estate parcels bought as a way of making money, usually either by renting, developing, or flipping the land. The level of involvement in each depends on the owner and how much of a return is desired, as well as how much the owner has to spend. Property investments are subject to property taxes, much like most any other property, but the rate could be higher than owner-occupied residential property in some cases.

Some farmers cannot use all of the acreage they own.
Some farmers cannot use all of the acreage they own.

Renting the land is a common way to make money from property investments, even from undeveloped land. Many farmers, especially in the Midwest, rent land from other property owners. Investors may buy land specifically for this purpose, or farmers may put their own land up for rent if they cannot use their entire acreage. The price charged for the rented land may be different each year, depending on market conditions and what the person farming the land feels he or she can earn off the property.

Investment properties are subject to local real estate taxes.
Investment properties are subject to local real estate taxes.

Development is also a way to make money from property investments. Common projects include developing land for retail or industrial use, or for both single family and multifamily housing. Once the development is completed, the developer may then sell the property, or keep it and rent the units individually. This type of investment requires a substantial amount of capital, but can also offer very good returns, which can continue over a long period of time.

Another form of property investment is known as flipping, which is when an investment property is bought with the intention of selling it again, usually quickly. The investor may simply hold the land for a period of time until it has appreciated in value, or he may make some improvements in the property with the expectation of earning a profit on this expense in the final sale price. Once the investor feels there is a sufficient return to be gained, the property will then be sold. These types of property do not always gain value quickly enough to make the investment worthwhile. Therefore, this strategy is best applied to places where significant growth is expected within a short period of time.

Property investments may be a good way to make money, but should also be carefully considered in light of the tax situation. Keep in mind that such properties will receive no homestead exemption in places where that is offered. Further, the properties may be charged at a commercial rate, which is usually higher than a residential property tax rate. This will eat into some of the profits and should be factored into the long-range cost projections.

Some people buy vacant homes to fix up and sell as investment properties.
Some people buy vacant homes to fix up and sell as investment properties.

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