An investment property is a real estate property purchased with the intent of earning a return on the investment either through rental income, the future resale of the property, or both. The property may be held by an individual investor, a group of investors, or a corporation. There are several different types of investment properties including residential rentals, commercial properties, and “flip” properties.
You may wonder how an investment property may differ from a second home. A second home is a residence that you intend to occupy in addition to a primary residence for part of the year. Typically, a second home is used as a vacation home, though it could also be a property that you visit on a regular basis, such as a condo in a city where you frequently conduct business.
Often, to qualify for a second-home loan, the property must be located in a resort or vacation area (like the mountains or near the ocean) or a certain distance from the borrower's primary residence.
Second-home loans typically have a lower interest rate than investment property loans and will usually include a Second Home Rider along with the mortgage. This rider usually states that the borrower will occupy and only use the property as the borrower's second home, that the property will be kept available for the borrower’s exclusive use and enjoyment at all times and the property cannot be subject to any time sharing arrangement or rental pool.
