Rental homes make up a subset of investment properties; in other words, every rental home is an investment property, but not every investment property is a rental home. Investment properties are defined very basically as any property the owner does not live in or on, whereas rental homes are properties that the owners rent to others.
Investment Home Properties
If you buy a vacation home, a second home or a home specifically to sell later at a profit, you own an investment home property. Any home that you own but that is not your primary residence (the residence you spend the most time at) is considered an investment property.
Rental Home Properties
Many people choose to rent out their investment home properties to other, unrelated people. Once you have tenants paying periodic rent, your investment home property becomes a rental home property.
Pros and Cons of Renting
Renting comes with two main advantages: The rent gives you regular cash income in addition to the eventual profit from selling the home, and you can deduct costs of renting (mileage when visiting properties or taking care of tenant issues, home office for interviewing tenants and doing administrative work, and repairs) from your taxes. The drawback lies in dealing with the tenants; even perfect tenants take time to interview, collect rent from and respond to requests and questions, and with tenants you take the risk of unnecessary damage, late rent and other conflicts.
Other Types of Investment Properties
Rental homes are just one subset of investment home properties. Owners can also flip homes, which means to buy a home, fix it up and sell it in a short period of time. Other owners simply hold properties and wait for them to appreciate, occasionally using them as storage, a second home, a vacation home or letting friends or relatives use the property.
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