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Finding the Right Investment Property

By: David C Skul, Wed Dec 7th, 2005 03:06:10 AM

An investment property is a piece of real estate you invest in with the objective of making profit. Thinking about investment properties your mind fixes upon rental homes, apartments, condos, townhouses as well as commercial properties such as business or industrial parks and shopping centers.

While starting a business with investment properties you should be familiar with a few of the specific terms in this area, such as depreciation, appreciation and leverage. These are some of the most important terms that you should know when dealing with investment property. In the following I will try to explain these terms so that the readers of this report will have, if they don't already, some knowledge of what they stand for.

Let us begin with leverage. Leverage actually means borrowing money to finance an investment property. The advantage of leverage is that one can purchase an investment property without paying the full cash amount. You invest $15,000 (15% down payment.) You purchase a duplex for $100,000. And just like that you have leveraged your $15,000 into a $100,000 investment.

Other important terms are appreciation and depreciation. Appreciation is nothing else but the increase in value over time. For example if the market value of your investment property was $100,000 last year and your investment property appreciated 15% this year. The market value of your investment property today is $150,000. The opposite of appreciation is depreciation. As I'm sure you already figured it out depreciation means the decrease in value over time. So as the building ages it depreciates over time and its value on the market decreases. Then why do the prices on buildings grow every year? That's because the value of the land is integrated into the price as well, and traditionally land increases in value. Thus, when looking at investment property, we usually see an increase in value thanks to the apparent continuous appreciation of the land the building was built on.

Keep in mid that investing is hard business but if you gain some knowledge about appreciation, depreciation, leverage and a few more things you should be able to get your money back and have a nice profit in a few years.

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