Investment Property

Updated 2026-05-17

An investment property is real estate purchased with the primary intention of generating income through rent, future resale, or both, rather than for the borrower's personal occupancy as a primary residence or second home.

Lending Implications and Characteristics

Investment properties are subject to different mortgage lending terms compared to owner-occupied homes due to their higher perceived risk:

• Higher Risk: Lenders view investment properties as having a higher risk of default because borrowers may prioritize their primary residence payments over an investment property if financial difficulties arise.
• Higher Interest Rates: Mortgages for investment properties typically come with higher Adjustable-Rate Mortgage (ARM).
• Larger Down Payments: Lenders usually require larger down payments, often 20% or more, for investment properties.
• Lower Loan-to-Value (LTV) Ratios: The maximum LTV for investment properties is generally lower than for primary residences.
• Stricter Underwriting: Underwriting standards are often more rigorous, requiring stronger credit scores and more substantial reserves from the borrower.

Factors Influencing Attractiveness for Investment

Key factors that make a property attractive for investment include:

• Population Growth: A growing population drives demand for housing and can lead to Economic and Population Growth, and Property Value Appreciation.
• Economic Growth: A robust economy with job creation supports a healthy rental market and increases property values.
• Limited Supply: Scarcity of available land or housing can significantly drive up property values.
• Favorable Tax Environment: Low property tax rates, tax deductions like depreciation, and the absence of certain taxes (e.g., Inheritance Tax) can enhance investment returns.

For example, in Arizona, investment properties are highlighted for their potential due to rapid population growth, a strong economy, and limited private land supply.

Connection to Occupancy Fraud

Misrepresenting an investment property as a primary residence on a loan application is a common form of Mortgage Loan Fraud and Misrepresentation. Borrowers engage in this fraud to secure the more favorable terms associated with owner-occupied loans.