Investment Property Options You Should Know for the Real Estate License Exam - dummies

Investment Property Options You Should Know for the Real Estate License Exam

By John A. Yoegel

There are bound to be a few questions about investment properties on the Real Estate License Exam. An investment property can be almost any property for which people are willing to pay rent to use. Here’s a pretty complete list of the different categories of investment properties.

  • One- to four-family houses: These are sometimes called duplexes, triplexes, and quadriplexes in some parts of the country. Essentially, they’re small houses with one to four apartments. New investors often purchase them, and sometimes the owner occupies one apartment and rents the others.

  • Apartment buildings: These are distinguished from the one- to four-family house by the number of units, which can be anywhere from five units to hundreds of units in a single building.

  • Large residential complexes: This term is used to describe residential developments of several buildings, each of which contains multiple apartments. These complexes can consist of several high-rise buildings or low-rise, one- to three-story buildings called garden apartments in some parts of the country.

  • Individual retail (store) buildings: These buildings house department stores or smaller stores that usually have products and goods for sale.

  • Strip malls/shopping centers: Open-air complexes of retail stores known by either of these two names often depending on whether they’re a small (strip mall) or large (shopping center) group of stores. This type of retail complex is known for accommodating automobile traffic with sufficient parking areas.

  • Enclosed retail malls: This term refers to large complexes of retail stores, usually all joined together in an indoor, climate-controlled configuration. They’re also characterized by extensive parking.

  • Office buildings: These buildings are used for all kinds of offices, ranging from medical to business offices.

  • Warehouses: Refers to large buildings usually used for storage.

  • Motels and hotels: Buildings that can be configured in low-rise, one- and two-story structures along the highway or high-rise buildings in a city center location are known as motels and hotels, respectively.

  • Industrial properties: This term refers to factory buildings.

  • Vacant land: This term applies to land with no buildings on it, purchased either to build something or for speculative purposes (simply waiting for the price to rise). They can also be leased to adjacent property owners for various purposes.

Land is generally not considered a good investment unless it’s being purchased to build on.

It’s important to know something about how investors think so you can help them achieve their investment goals. Generally, your role is to search out the type of property they want and obtain relevant financial information so the client’s accountants can check out the numbers to see if they’ll get the return they want.

For investors who don’t know that much about investing, you may have to provide some advice on financial returns and management issues.