What Is Real Estate?
Real estate is the land along with any permanent improvements attached to the land, whether natural or man-made—including water, trees, minerals, buildings, homes, fences, and bridges. Real estate is a form of real property. It differs from personal property, which are things not permanently attached to the land, such as vehicles, boats, jewelry, furniture, and farm equipment.
What Is Real property?
Real property is a less commonly used term and as such, is a less commonly understood concept. Real property is a broader term and includes the land itself and any buildings and other improvements attached to the land. It also encompasses the rights of use and enjoyment of certain land, as well as any of its improvements.
Renters and leaseholders may have the right to inhabit land or buildings a real property consideration, but those things are not considered real estate.
Real estate is divided into two main types:
1. Real estate in terms of generating income
These, in turn, fall into two categories:
- Real estate that generates income such as offices, sales units, shops, factories, and rental and rentable housing units. Less common types such as hotels and small rental storage units fall under this category.
- Real estate that does not generate income such as houses, apartments and villas, and real estate that is used for storage without the intention of trading, such as warehouses belonging to homes and apartments
2. Real Estate in terms of use
- Residential real estate
Any property used for residential purposes. Examples include single-family homes, condos, cooperatives, duplexes, townhouses, and multifamily residences with fewer than five individual units.
- Commercial real estate
Any property used exclusively for business purposes, such as apartment complexes, gas stations, grocery stores, hospitals, hotels, offices, parking facilities, restaurants, shopping centers, stores, and theaters.
- Industrial real estate
Any property used for manufacturing, production, distribution, storage, and research and development. Examples include factories, power plants, and warehouses.
- Land
Includes undeveloped property, vacant land, and agricultural land (farms, orchards, ranches, and timberland).
- Special purpose
Property used by the public, such as cemeteries, government buildings, libraries, parks, places of worship, and schools.
Physical Characteristics of Real Estate
Land has three physical characteristics that differentiate it from other assets in the economy:
- Immobility
While some parts of land are removable and the topography can be altered, the geographic location of any parcel of land can never be changed.
- Indestructibility
Land is durable and indestructible (permanent).
- Uniqueness
No two parcels of land can be the same. Even though they may share similarities, every parcel differs geographically.
Economic Characteristics of Real Estate
Land also has some distinct economic characteristics that influence its value as an investment:
- Scarcity
While land isn’t considered rare, the total supply is fixed.
- Improvements
Any additions or changes to the land or a building that affects the property’s value is called an improvement. Improvements of a private nature (such as homes and fences) are referred to as improvements on the land. Improvements of a public nature (e.g., sidewalks and sewer systems) are called improvements to the land.
- Permanence of investment
Once land is improved, the total capital and labor used to build the improvement represent a sizable, fixed investment. Even though a building can be razed, improvements like drainage, electricity, water, and sewer systems tend to be permanent because they can’t be removed (or replaced) economically.
- Location or area preference
Location refers to people’s choices and tastes regarding a given area, based on factors like convenience, reputation, and history. Location is one of the most important economic characteristics of land (thus the saying, “location, location, location!”).
