Investment Property

What It Means

An investment property is a property that the owner does not occupy as a Primary Residence and that is purchased primarily for income generation (through rental), capital appreciation, or both. Lenders classify properties into three categories — primary residence, second home, and investment property — and each classification carries different underwriting requirements and loan terms.

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In co-ownership, the investment property classification applies when none of the co-borrowers intend to occupy the property. If at least one Co-borrower will live in the home as their primary residence, the property may qualify for primary residence financing, subject to lender guidelines — even if other co-owners are Non-occupants.

How Classification Affects Financing

Investment property loans carry stricter terms than primary residence loans. Lenders typically require higher Down Payment minimums (often 15%–25%), charge higher interest rates, and apply more conservative debt-to-income thresholds. FHA and VA loan programs are generally not available for investment properties.

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For co-buyer groups where at least one member will occupy the property, primary residence classification may apply — which is a significant financing advantage. However, misrepresenting occupancy intent to obtain better loan terms is mortgage fraud. Co-buyers must accurately represent each party's occupancy plans on the loan application.

Why It Matters for Co-owners

When co-owners purchase a property as an investment, the group's objectives and governance needs differ from a primary residence arrangement. Investment co-owners must align on rental strategy, property management responsibilities, income distribution, expense allocation, and tax treatment. The Co-ownership Agreement should address all of these — as well as Exit Strategy mechanics, since investment property exits often involve sale timing decisions driven by market conditions or tax optimization rather than personal life changes.

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Co-buyers should also understand that property classification can change over time. If an occupant co-owner moves out and the property converts to a rental, the lender's original terms remain in effect — but the group's internal governance needs may shift significantly.

Key Points

• A property purchased for income or appreciation rather than as a primary residence
• Investment property loans carry higher down payment requirements, interest rates, and underwriting thresholds
• If at least one co-borrower occupies the property, primary residence classification may apply, subject to lender guidelines
• Misrepresenting occupancy intent to obtain better terms is mortgage fraud
• Investment co-ownership requires alignment on rental strategy, income distribution, and management
• The Co-ownership Agreement should address classification changes if an occupant moves out