what is an income property 
an income property refers to a piece of real estate that is purchased or developed primarily in order to earn income by renting or leasing it out to others with a secondary goal of price appreciation income properties which are a subset of investment properties may be either residential or commercial investors must take several factors into consideration such as interest rates and the housing market environment before purchasing an income property as there can be unique risks associated with this kind of investment understanding income propertiesincome properties can be a good investment for a variety of reasons it offers an alternative to standard market investments in stocks and bonds it also offers the investor the security of real property with many investment diversification benefits investing in real estate for income requires a broad range of considerations including interest rates and the state of the housing market among others a real estate property can be an excellent long term investment that may even provide a source of income in retirement but income properties require a great deal of analysis to ensure that steady cash flow is available throughout the life of the loan and beyond determining a base rate of income to rentals is often important in order to determine the desired rate of return ror one way to do this is by analyzing the current rental rate on similar properties in the area while factoring in the monthly payments required for the mortgage because the costs to maintain an income property may be high property owners should consider having a financial cushion on which to fall back in cases of emergency this includes being able to pay for repairs regular maintenance or other costs they are liable for on the building like property taxes and utilities managing the cash flow and ensuring that it exceeds the cost of borrowing and expenses helps to increase the return on the owner s investment as mentioned above income properties can be both commercial and residential income producing commercial real estate is mainly used for business purposes such as office buildings retail spaces hotels or mixed use properties residential properties on the other hand are used primarily for personal use by people other than the owner residential income properties may be single or multifamily homes condominiums townhomes apartments or seasonal homes such as cottages special considerationsincome properties may be part of primary residences or additional properties owned by an investor in some cases the homeowner rents out a portion of their own home say their basement or the upper level of the property in order to produce income while maintaining a residence there this is called an owner occupied income property meaning both the owner landlord and the tenant live in the same property a non owner occupied property is one that isn t occupied by the owner and is purely retained for income producing purposes this means the property is only used by the tenants or lessees residential income properties are commonly referred to as non owner occupied an investor typically needs to be approved for a mortgage loan to purchase a property used to generate income investors interested in income producing real estate generally need to have high credit scores and steady incomes to prove they can make monthly installment payments for many investors the most common type of loan for a real estate property will be a conventional bank loan in order to qualify the investor needs to make a formal credit application the bank analyzes information about the borrower through its underwriting process an underwriter provides a loan offer with a specified interest rate principal value and duration based on the underwriting analysis most lenders want investors to have high credit scores and steady income before they approve an income property mortgage income property mortgages are often harder to qualify for than mortgages geared toward owner occupied and single family residences flipping is now a very common investment strategy for many real estate investors with a fix and flip property the income property owner believes the resale value after renovations will cover the cost of interest on the loan and renovation expenses generating an immediate positive return when sold this type of income property investing includes higher risks than conventional income property ownership but it provides for a lump sum payout at the time of resale rather than over a prolonged period of time several resources for fix and flip investors are available in the real estate market such as a fix and flip loan these loans are really popular with online debt crowdfunding platforms willing to take on some of the higher risks of fix and flip investments these loans are generally offered for shorter time periods with higher interest rates than conventional loans with a fix and flip loan the income property is used as collateral and the owner must be prepared to buy and renovate a property to resell it within a short period of time advantages and disadvantages of income propertiesjust like any other investment there are distinct benefits and pitfalls to owning income properties as mentioned above they are great investment opportunities that can provide diversity to someone s portfolio this helps spread the risk across different investment vehicles investors are also able to generate income providing security and savings for their retirement but owning an income property requires a lot of time effort money and patience for instance dealing with tenants can be difficult at times this can lead to additional repairs trips to the home and court costs if the owner needs to pursue an eviction furthermore if the owner isn t able to manage the property themselves they may have to spend additional money to hire a property management company to do the work for them 