What is an Investment Property?

Question

How does it effect my taxes? my resale value of my home? My Home Owners Insurance? Please help me understand this term and what change it will make from a private home ownership.

Thank you!

Answer 1

An investment property is any house you buy--not to live in--but to rent to make money.  All rents you receive will be treated as income, but you can offset the income with any expenses used maintaining the property.  It does not affect the resale value of the home you live in.  You will need insurance on the rental house in case it burns down.

Answer 2

There are basically three "classifications" of home ownership:

1. Principle Residence

2. Second Home

3. Non-owner occupied-commonly know as an investment property.

Your principle residence is what it says it is. This is where you live.

A second home is a home that is owned by you that no one else lives in and is not your principle residence.  It might also be known as a vacation home. You can have as many "second homes" as you want. However, typically, to be classified as a "second home" it can not be in a close proximity to your principle residence or another second home unless there is a specific reason why it is close.  For example, you could have a beach home and a moutain home both within 10 miles of each other.  They are different because they serve different function.  However, if you have two beach homes that are within 10 miles of each other, one of them will probably be classified as a non-owner occupied home.

A non-owner occupied property means that it was purchased so that someone else besides you could live in it. It doesn't matter if you make money on it or not.  For example, you could buy a home for your kids to live in while they are in school.  Even if the kids don't pay you rent, it would still be called a non-owner occupied or investment property.

Taxes can get a little complicated so you should consult an accountant about the specifics.  For example, if you are moving out of your current principal residence and renting it out, the tax situation can change dramatically depending upon how long you lived in and/or owned the property before you moved out. However, rent collected is considered income and you should keep the reciepts on every dime you spend on the property because expenses can typically be deducted from the rent recieved.

The resale value of the home is typically not affected unless you are selling the property with the tenants as occupants.

Home owners insurance isn't really affected although, if you use the same insurance company for more than one property, you might get an overall lower rate than if you use a different compay for each property.