Investing in real estate can be a powerful way to maintain and grow wealth, and there are a lot of ways to do it. Owning an income property is just one way to make cash in the real estate market. For someone outside the industry, it can be confusing to know the difference between the different avenues. Let’s take a look at the various forms that real estate investing can take.
The most common way that most people “invest” in real estate is simply by owning their own home. Buying a property is most often a better financial move than renting: while rent payments are swapped for a month of living space, mortgage payments get homeowners the same thing while also helping them secure ownership of a valuable asset (the home, of course) that they could later sell or otherwise make use of.
Real estate is said to be an investment because the value of a property–like the home in the example above–can increase, and because there are ways to make money off of real estate while you own it (such as by renting the space).
Holding on to property
You don’t have to live in a property to invest in it, of course. Some business owners own their business space, and some investors buy empty lots or homes that they don’t occupy, hoping to hold those properties until they have a chance to make a profit by selling them. These “non-owner occupied” properties are sometimes referred to generally as income properties, though there is a more specific definition of the term that we’ll reach in a moment.
(While we won’t discuss is at length here, it is also possible to invest in real estate less directly. Stocks in real estate companies, as well as other investment vehicles that measure and react to the real estate market, can be used to make investments that are more diverse or smaller in value than is possible with direct real estate purchasing.)
And then there are the people who buy properties and rent them to tenants. We’ve finally arrived at the answer to your question: an income property is a property that generates income, most often through renting or leasing.
Income properties are not just for big-city landlords. Even people of comparatively modest means can invest in a property and rent it out, using services to advertise rental property for free and perform affordable background checks. For these people, owning an income property might just be a way to make money on the side. For others, of course, income properties are a way of life: entire companies are built around owning and renting large numbers of homes or huge multi-family apartment buildings.
And there you have it! A real estate investment strategy always aims to generate a profit in the long-term, but an “income property” is called that because, ideally, it generates a regular income for the owner even before it is sold–and it does that by having tenants who pay rent.