What Is an Investment Property? (2024 Investor Guide)

31 October 2023

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Investing in property can be an exciting venture, especially when investing overseas. However, before getting into property investment, it’s important to understand exactly what constitutes an investment property and how it differs from a standard residential home. This comprehensive guide explains what an investment property is, the various types, and the factors to consider before purchasing one.

Table of Contents

What Is an Investment Property? (Summary)

How Do Investment Properties Work? (Understanding the Basics)

5 Types of Investment Properties

Financing Investment Properties: Mortgages and Loans

Is Buying an Investment Property Right for You?

What Is an Investment Property? (Summary)

An investment property is a property purchased with the primary goal of generating income through capital gains and rental yields. Investment properties are an important avenue for individuals and businesses to grow their wealth and generate income. Unlike residential properties meant for personal living, the meaning of investment property is a financial asset that can provide a steady stream of revenue.

How Do Investment Properties Work? (Understanding the Basics)

One of the key reasons why investment properties are important is their potential for long-term wealth creation. To achieve this goal, you need to carefully select a property in a promising location. This can lead to significant capital gains when the property is sold in the future. Additionally, rental income from investment properties can provide a reliable source of cash flow, which can be used for various purposes such as reinvesting, paying off debts, or funding retirement.

mortgage for an investment property

Investment properties also offer diversification benefits to investors. By having a diverse portfolio that includes real estate, you can spread your risk as an investor and reduce exposure to volatility in other asset classes. This can help to protect your overall wealth and provide stability during economic downturns.

Furthermore, investment property buyers enjoy a hedge against inflation. As the cost of living increases over time, rental income from investment properties can be adjusted accordingly, allowing you to maintain your purchasing power and preserve your investment value.

However, it’s important to approach investment properties with realistic expectations and understand the associated costs, risks, and responsibilities. Becoming a landlord entails various duties, such as property maintenance, tenant management, and legal obligations. It’s crucial to be aware of local laws and regulations governing rental properties to ensure compliance and avoid potential legal issues — contact your wealth manager for more info before investing in property.

5 Types of Investment Properties

There are several types of investment properties to consider, including:

  • Buy-to-Let Properties: These are the standard definition of what investment real estate is. Buy-to-let property developments are residential properties purchased with the intention of renting them out to tenants. They generate income through rental payments and the potential for capital appreciation over time. Popular options include flats, houses, and student accommodation.
  • Off-Plan Properties: These are properties that are still under construction. Off-plan property developments often come with significant discounts and higher yields. Profits are generated through capital appreciation once construction is complete and the property can be rented or sold.
  • Commercial Properties: These include offices, retail spaces, industrial units, and leisure properties like hotels or gyms. While riskier, commercial properties usually have longer lease terms. However, we don’t offer commercial property services at API Global; we instead specialise in buy-to-let and residential properties.
  • Mixed-Use Properties: These properties incorporate both residential and commercial elements, such as offices, restaurants, and apartments in the same building. While complicated, they can provide diversified income streams and higher overall returns.
  • Property Funds: For investors that seek exposure to the property market without directly buying and managing properties, property/real estate funds—both listed and unlisted—invest in a range of assets. Returns come through distributions and potential capital gains. However, returns on investment are usually lower.

When buying a house as an investment, consider your financial situation, investment goals, risk tolerance, and the responsibilities that come with property ownership. With the right investment property and strategy, real estate can be an excellent way to generate wealth over the long run  — reach out to your wealth manager for more information.

Financing Investment Properties: Mortgages and Loans

You’ll typically require a mortgage for an investment property. A buy-to-let mortgage is specifically designed for those purchasing a property to rent out. Buy-to-let mortgages usually require a down payment, typically 20–40% of the property value; interest rates are often higher as well.

investment property buyers

Buy-to-let mortgages come in two main types:

  • Interest-Only Mortgages: You only pay the interest on the loan, not the capital. Your monthly payments are lower, but you still owe the full loan amount at the end of the term. This option may appeal if you want to maximise cash flow.
  • Repayment Mortgages: You pay off part of the capital and interest each month. At the end of the term, the entire loan amount is repaid. This provides more security but higher monthly payments.

When taking a loan for investment properties, lenders will evaluate your application based on the following criteria:

  • Your Income and Credit Score: To ensure you can afford payments even if tenants default.
  • The Property Value and Expected Rental Income: To determine if rental income will cover payments and if the property value secures the loan.
  • Your Existing Portfolio: Experience managing investment properties demonstrates your ability. New landlords may face more restrictions.
  • Loan-to-Value Ratio: The maximum percentage of the property value the lender will provide as a mortgage. It’s typically 80% for buy-to-let mortgages; investors will then provide the remaining 20% deposit.

Before you make a down payment for an investment property, make sure you understand the responsibilities of a landlord and have finances in order. An investment property can be an excellent way to generate wealth over the long run, but only if done responsibly — reach out to your wealth manager for more information.

Is Buying an Investment Property Right for You?

Before investing in property, you must determine if you’re ready to become a landlord and properly manage an investment property.

Four key factors to consider include:

  • Financial stability
  • Time commitment
  • Risk tolerance
  • Location knowledge

1. Financial Stability

Do you have enough savings and income to cover the initial down payment and ongoing costs like mortgage payments, property taxes, insurance, and maintenance? Investment properties typically require a down payment of 20% of the purchase price. You must ensure you can afford the property and be able to cover mortgage costs despite occasional void periods.

2. Time Commitment

Are you willing and able to commit the necessary time to managing an investment property? This includes tasks like finding and properly screening tenants, handling lease paperwork, conducting inspections, addressing maintenance and repair issues, and managing tenant relations. Successful landlords make the time to properly oversee all aspects of their investment property or use a letting and management agency.

3. Risk Tolerance

There are inherent risks to any investment, and real estate is no exception. Property values may decline, you may experience periods of vacancy, and tenants may damage the property or fail to pay rent. You must go into property investment with realistic expectations and understand the level of risk you can tolerate. Speaking to a financial advisor can help determine if property investment aligns with your financial goals and risk profile.

4. Location Knowledge

Do you understand the local property market, including up-and-coming property areas primed for growth and locations likely to attract long-term tenants? Working with property investment experts can help guide you to promising opportunities in suitable locations. They can also advise you on a fair asking price and help evaluate properties for potential returns.

how do investment properties work

If, after considering these factors, you feel ready to become a landlord, an investment property could be a great way to generate income and build wealth over time. However, go in with realistic expectations, understand your responsibilities, and don’t hesitate to work alongside your wealth manager to ensure this venture is right for your situation. With adequate planning and preparation, investment property ownership can be highly rewarding.

Frequently Asked Questions

What is an investment property?

An investment property is a property purchased specifically to generate rental income or capital gains rather than as an owner-occupied home. Investment properties differ from residential properties in that the owner doesn’t live in the property. Instead, they rent it to generate cash flow while aiming for the property value to increase over time.

What is an example of an investment property?

The most common examples of investment properties are:

  1. Buy-to-Let Properties: These are purchased with the intention of renting the property to tenants. Owners receive rental income and benefit from potential property price appreciation over time. Popular buy-to-let property investment areas often provide strong rental demand and the possibility of strong growth. Here you will find a useful list of the best buy to let areas in Liverpool.
  2. Commercial Properties: These are office buildings, retail spaces, warehouses, etc. These properties are leased to businesses and aim to provide rental income and capital gains for the investor.
  3. Student Housing: Purpose-built housing for university students provides income during the school year with the potential to charge premium rents. Locations close to universities tend to experience solid demand.
  4. Holiday Rentals: Short-term rentals, e.g. apartments, cottages, villas rented out to holidaymakers and tourists. Income is often higher than long-term rentals but more variable and seasonal. They require active management and marketing to maximise bookings.

How do you become a property investor?

Do the following to become a property investor:

  • Educate yourself about real estate
  • Set financial goals
  • Create a budget
  • Research the market
  • Build a network
  • Secure financing
  • Select and manage your property
  • Monitor and adjust your investments
  • Seek professional advice and continue learning throughout the process.

With the right mindset and preparation, investment property can be an excellent way for investors to achieve their financial goals and build a diversified portfolio. Nonetheless, as with any investment, it’s important to go in with realistic expectations and knowledge of both the benefits and responsibilities.


Buying a house as an investment is an excellent means of generating passive income over the long term through capital appreciation and rent. If you go in with realistic expectations, do your due diligence, and choose properties with strong fundamentals in up-and-coming areas, investment properties can potentially deliver solid returns. Contact your wealth manager now to get started.

Disclaimer: Any information API Global provides does not constitute financial advice and is for educational purposes only.

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Lewis Finn

Experienced Sales Manager with a demonstrated history of working in the financial services industry. Specialising in offshore investments & UK investment property.

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