Understanding Real Estate – The best Investment!
The word real estate is related to the land along with any permanent improvements attached to the land. In simple words, the term real estate refers to any kind of real property. It is different from personal property, where things are not permanently attached to the land, such as vehicles, boats, jewelry, furniture, and any equipment.
Understanding Real Estate
Never confuse yourself with the terms land, real estate, and real property. Sometimes people indeed use these terms interchangeably, but these terms are different.
The land is the earth’s surface down to the center of the earth and upward to the airspace above, including the trees, minerals, and water. On the other hand real estate is the land, with any permanent man-made additions. These additions can be like houses, offices, and other buildings.
If we speak broadly, real estate is simply a physical surface of the land that lies above and below it and is permanently attached to it. It further comes with all the rights of ownership which includes the right to possess, sell, lease, and enjoy the land.
You should not confuse the Real property with personal property. Now you must be wondering what personal property is. Well, personal property is movable, vehicles, furniture, clothing, and phones are the best examples of that.
What are the physical characteristics of Real Estate?
It has three physical characteristics that differentiate it from other assets in the economy:
- Immobility:
Some parts of the land are indeed removable and the topography can be altered but the geographic location of any land can never be altered at all.
- Indestructibility:
The next good thing about the land is that it is durable and indestructible.
- Uniqueness:
You might not have paid attention to this fact but every land is unique. No two pieces of land can be the same. However, they might indeed share similarities, every after having different geographic locations.
What are the Economic Characteristics of Real Estate?
Real-estate also has some significant economic characteristics. These characteristics influence its value as an investment.
- Scarcity
Land or real estate isn’t considered rare but their total supply is fixed.
- Improvements:
Any alterations or changes to the real-estate/land or a building that affects the property’s value are considered as improvements. Improvements with a private nature like homes and fences are referred to as improvements on the land; however the improvements of a public nature like sidewalks and sewer systems) are called improvements to the land.
- Location of the property or area preference
Location or locality simply means people’s choices and tastes regarding a given area. It is based on factors like convenience, reputation, and history. Location is a major economic characteristic of the land.
What are two different types of Real Estate?
Real-estate is basically of five different types:
- Residential real estate:
Any property that is used for residential purposes is known as residential real estate. It includes single-family homes, condos, cooperatives, duplexes, townhouses, and multifamily residences.
- Commercial real estate:
Any property which is used exclusively for business purposes, like apartment complexes, gas stations, grocery stores, hospitals, hotels, offices, parking facilities, restaurants, shopping centers, stores, and theaters comes under this category.
- Industrial real estate:
Any property that is being used to serve a purpose like manufacturing, production, distribution, storage, and research and development is an example of industrial real-estate. It includes factories, power plants, and warehouses.
- Land:
Next is the land. It includes the undeveloped property, vacant land, and agricultural land.
- Special purpose:
Now, the last type of property is the property used to serve some special purposes. Property used by the public, like cemeteries, government buildings, libraries, parks, places of worship, and schools is an example of this.
How the Real Estate Industry Works?
Most people think that the real estate industry is restricted merely up to the brokers and salespeople. On the other hand, several people earn their livings through real estate. It is not only because of the sales only but it also considers the property management, financing, construction, development, counseling, education, and several other fields.
From accountants to architects, banks to title insurance companies, surveyors, and lawyers many professionals and businesses depend on the real estate industry.
Different ways to invest in real estate:
- Homeownership
- Rental properties
- House flipping
Pros of investing in Real-estate:
- Offers steady income
- Offers capital appreciation
- Diversifies portfolio
- Can be bought with leverage
Cons of investing in Real-estate:
- Is usually illiquid
- Influenced by highly local factors
- Requires big initial capital outlay
How to Invest in Real-Estate indirectly?
You can also invest in real estate indirectly. Real estate investment trust (REIT) is one of the most popular ways to do so. REIT is a company that holds a portfolio of income-producing real estate. There are different types of REITs. It includes equity, mortgage, and hybrid REITs. REITs are further categorized based on their shares are bought and sold:
- Publicly traded REITs
- Public non-traded REITs
- Private REITs
KEY TAKEAWAYS:
- Real estate is a kind of “real property” that can be a land or anything permanently attached to it. It can be natural or man-made.
- Real estate is categorized into five main categories. It is residential, commercial, industrial, raw land, and special use.
- You can invest in real estate either by purchasing a home, rental property, or other property or indirectly through a real estate investment trust (REIT).
