What is Real Estate?
An estate is an area of land which usually has a large house or any other structure. This area of land is owned by a person or a family or an organization. Real estate can be simply defined as an interest in land. This interest can be an ownership interest which is also known by another name – fee-simple interest. Or, it can be a leasehold interest. Leasehold is a property held by lease.
The investor has the full ownership rights of the land in an ownership interest. Renting a space and passing some of the ownership rights on to the tenant means the owner has leasehold interest.
So, real estate is a piece of land consisting of any structure built on it plus underground and above land rights and all other natural resources available on that piece of land.
Characteristics of a Real Estate Property
The owner cannot move a real estate property from one place to another place. You have a vehicle and you want to sell it. In case you are not getting a decent price in your city, you can sell your vehicle in a better market. However, this is not possible with a real estate property.
The Durability of Improved Land
A piece of land cannot be destroyed and structure constructed on that land cannot be durable. The economic value of a real estate property never remains same. A real estate property might become useless. Abandoned mining lands, fertility deprived farms, ghost towns and other similar areas are worthless. These properties once had premium economic values.
Despite the size and physical supply of land being fixed, there is no shortage of total land supply. The supply of land actually depends on economic factors, not physical factors.
Rigidity of Investment
Once all capital and labor related expenditures for a real estate property are covered, the investment in the place becomes fixed. You cannot shift facilities like water, drainage, gas and electricity to some other location.
Indivisibility of Services
The usefulness of a real estate property plays a significant role in determining the value of the property. Buildings, sidewalks, utilities above ground and underground, and landscaping are the factors contributing to the usefulness of a property. All these improvements are attached to the property.
Divisibility of Ownership
You can divide the ownership of a real estate property legally and physically. Let’s consider an example of condominium developments. You will have exclusive ownership rights of the condominium unit you own. However, the ownership of common areas is shared.
Different Types of Real Estate
Every real estate property falls into one of the following categories:
- Residential real estate property
- Commercial real estate property
- Industrial real estate property
Residential Real Estate Property
People invest in a real estate property to use it as a residence. This is a property where individuals and families live. A roof over head is one of the basic needs of all animals including human. This is the reason why investors prefer investing in residential real estate properties. The residential real estate offers a wide range of options such as apartments, single-family homes, townhouses and condominiums.
Residential real estate properties further fall into one of the following two categories:
- Single-family real estate properties
- Multi-family real estate properties
Commercial Real Estate
People invest in commercial real estate properties for corporations and businesses. Individual stores, shopping malls and office buildings are some of the examples of commercial real estate properties. If you do not possess exceptional analytical thinking and you do not have extensive knowledge of the industry, be watchful while investing in a commercial real estate property. It is risky. You will have to make a higher investment. So, if you are a novice, refrain yourself from this type of real estate. Know and understand the commercial real estate from inside out. Learn. Then invest.
Commercial real estate investors work according to an investment strategy. They make an investment with their eyes wide open and keep their brains in high-level thinking mode.
Industrial Real Estate Property
It is not as crowded as other types of real estate properties. Manufacturing, storage and distribution, and flex space are examples of industrial real estate properties.
It is an underdeveloped property. It’s a vacant land. It’s a baseline. Other types of real estate properties cannot even exist without a piece of land. Real estate begins with the land. Location and possible present and future uses of the land are determinants to the value of piece of land.
Kuldeep Singh is a poet, lyricist, performer, a public speaker and a professional content writer from Chandigarh, the city Beautiful. Apart from writing, he also has a keen interest in programming, especially in Java. He uses Twitter & Facebook on very rare occasions.