Investment Property Law
Understanding Investment Property In New York
Typically, an investment property is not a single-family home – it is a multi-family property that you are capable of getting income from. This can be extended to duplexes or two-family homes.
Investors may choose to follow the owner-occupant system, where they live in one of the units and rent the other units to cover the mortgage and generate income. However, this is an exception to the norm. A “multi-family property” is usually a commercial unit that includes a public downstairs with separate apartments upstairs.
Investment properties can also be commercial-only, with no living accommodations at all. This includes any situation where a business occupies the property as a tenant – such as with hotels, and throughout the service industry.
Benefits of Investment Property
The primary goal in real estate is to have a greatly diverse portfolio – because real estate is here forever. When we talk about real estate, most people think about the building: the multi-family unit, the commercial unit, the mixed unit, or the hotel. But investment property isn’t really about the buildings – it’s about the land.
Real estate refers to only the land; everything else on the land is an improvement that can be changed. These improvements can generate steady income on a monthly or yearly basis, becoming a solid vehicle to financially support the investors.
Investment Property FAQs
The term “second home” is used more for mortgagors, who want to know how the property will be treated as it affects interest rates. The IRS sets the tone as to what criteria will make it a second home, and whether it is more “on the mortgage side.”
In other words, the IRS distinguishes a second home from a vacation home by looking at how it will be treated in the process of mortgaging that piece of property.
This depends on the duration of your occupancy, and that threshold is determined by the IRS. As long as you are not renting the property or using it for transient purposes, the IRS will consider it your second home and give you benefits as such.
The difference between these types of properties is the income potential. You would usually not be renting out your home just to generate income. Investment property is a true source of income and a way to grow funds over time.
Homestead properties are given a greater number of exemptions and more respect for the fact that it is an individual’s living space. Governments, municipalities, and villages respect homes with a particular weight of taxing – because it is occupied by a resident and not simply owned by an investor who is making income on the property.
Special exemptions are made to homeowners because homesteading is a draw. When there is a stable neighborhood of homeowners, municipalities can attract more people to come and invest in the community. Investors often come in to create or help subsidize these neighborhoods with rental units and other amenities, because not everyone is not a homeowner, and not everyone wants to own a home.
Still, investors do not meet the criteria for exemptions that would be given to homesteaders.
The only way a homestead exemption can be applied to investment property is if the owner lives in a unit within the property. For example, if an owner occupies one unit in a duplex, the owner gets the benefit of the homestead occupation. This situation applies to buildings of up to 3 units. In the WNY area, any owner-occupied investment property over 4 units will lose the benefit of any homestead exemptions.
What To Do Next?
For more information on investment property and real estate law in New York, schedule an initial consultation with our firm. After we’ve reviewed your situation, Daria L. Pratcher will go to work for you and ensure that everything is taken care of. Get started today!