Investment property definition
/What is Investment Property?
Investment property is property that an entity holds to earn rental income and/or capital appreciation. It generates cash flows mostly independently of other assets held by an entity. It is not property that an entity uses to supply goods or services, nor is it used for administrative purposes.
Types of Investment Properties
There are many types of investment properties, including the following:
Residential rental property. Houses or apartment units leased to tenants to generate monthly rental income.
Commercial office buildings. Properties leased to businesses for office space, often with long-term lease agreements.
Retail properties. Shopping centers, strip malls, or standalone stores rented to retailers and service providers.
Industrial warehouses. Large storage or distribution facilities leased to logistics or manufacturing companies.
Vacation rentals. Homes or condos rented out short-term to travelers, often through platforms like Airbnb.
Mixed-use properties. Buildings combining residential, retail, and/or office spaces, generating multiple income streams.
Land held for appreciation. Vacant land purchased and held with the intent to sell at a higher future value.
Student housing. Residential properties located near universities, rented to college students for consistent occupancy.
Senior living facilities. Properties leased to operators providing housing and care services for the elderly.
Self-storage facilities. Units rented out to individuals or businesses for personal or commercial storage needs.
Accounting for Investment Property
If an investment property contains one portion held for either rental income or capital appreciation, and another portion held for other uses, and if the portions could be sold separately, then account for them separately. If it is not possible to do so, then account for the property as an investment only if the portion held for other uses is an insignificant amount of the total asset value.
If an entity provides services to the occupants of a property, it can account for the property as an investment property only if the services it provides are insignificant.
Property held by a lessee under an operating lease may be investment property if it otherwise meets the definition of investment property and the lessee recognizes it under the fair value model. If a lessee classifies such a property as an investment property, then it must account for all of its investment property using the fair value model.