Have you ever wondered what the term real estate means? Typically, real estate comprises fixtures, roads, buildings, and utility systems.
Real estate refers to any tangible property above or beneath the ground. In the business world, real estate can mean creating, purchasing, and selling physical property.
- 1 Why is property called real estate?
- 2 What parts of a property aren’t considered real estate?
- 3 What are the four types of real estate?
- 4 What are the examples of real estate?
- 4.1 Sectors of the real estate industry
- 4.2 What is the best type of real estate?
- 4.3 Types of Real Estate Investments
Real estate is one of the major determinants of economic growth in a country. Anyone can participate in the real estate business, governments, companies, and individuals.
Why is property called real estate?
People invented the term real estate in the 1660s. At this time, real estate referred to a royal grant of estate land. Let’s try to understand this term in detail.
Real estate comprises of two words, real and estate. In our context, real refers to something tangible or something that exists in physical form.
On the flip side, estate is an English word that comes from the old French word, ‘estat,’ which refers to status.
But nowadays, the term estate often refers to land or houses. Therefore, the two terms combined make the perfect definition of physical property located above or underneath the ground.
Below are simple illustrations that will help you understand the term real estate much better.
Suppose person A has a piece of land, and person B has a house on his piece of land; both have invested in real estate. Simply put, the house and the land are both considered as part of real estate.
It would, therefore, be safe to conclude that real estate is property accompanied by its fixed components. Nonetheless, note that movable fixtures on a property are not part of real estate.
What parts of a property aren’t considered real estate?
The fixed components on a property are part of real estate. Some examples of these components include buildings and utility systems.
Conversely, movable property components are not considered part of real estate. You should not consider several temporary fixtures as part of real estate are cars, furniture, and other personal equipment.
If you plan on buying a house or a farm, note that it won’t come with its personal equipment.
What are the four types of real estate?
At present, there are four main types of real estate. They include:
As the name suggests, land refers to the unutilized part of the property. This is often vacant or empty land. The land is the foundation for all other types of real estate. Although land appreciates over time, most people install fixtures to make it more useful. Deserted lands are also part of real estate.
Residential real estate comprises individual or private-owned properties. For instance, houses owned by families or specific groups of people fall under residential real estate. A good percentage of individuals are familiar with this type of real estate. This real estate category comprises apartments, townhouses, condominiums, and single-family houses.
This category of real estate involves properties specially built for business purposes. For example, buildings owned by companies fall under commercial real estate. Health facilities, recreational facilities, city malls, office buildings, and parking lots fall under this category.
Industrial real estate comprises buildings used for scientific research, factories, and warehouses. Typically, any land or building used for industrial business falls under this category.
What are the examples of real estate?
Since you are now aware of the four major types of real estate, let’s look at some real estate examples.
- Single-family dwelling: A single-family dwelling is a property uniquely designed to host not more than one family. According to the Statista Research Department, nearly 44 million individuals in the United States live in single-family dwellings.
- Multi-family dwelling: Another type of real estate is the multi-family dwelling. This type of real property can accommodate several families.
- Attached: A building that is not freestanding is commonly referred to as an attached property. The units of the building are usually connected.
- Apartment: An apartment refers to a unit that stands alone in a multi-unit building. Apartments are often separated from each other by a perimeter of lockable doors.
- Multi-family house: Most people think that apartments are similar to multi-family houses. Nonetheless, a multi-family house has separate units on each building floor.
- Condominium (Condo): A condominium refers to separate units located in the same building, each owned by different people.
- Detached house: A detached house is a stand-alone home. It is not connected to any other building.
- Portable house: The expansion of the real estate industry brought about numerous innovations. Experts came up with portable houses. Portable houses can get transported from one place to another using a flatbed truck.
- Mobile home: Have you ever heard of the term mobile home? A mobile home is typically a vehicle that serves as a house. It has wheels; thus, you can settle with it on any land.
Sectors of the real estate industry
Real estate development
Here, people sell, construct, and buy remodel buildings or land. More often than not, the main purpose of doing this is to increase the property’s value. Real estate developers obtain profit and revenues from installing fixtures on a property.
Sales and marketing
Once buildings get constructed and remodeled, marketing and sales companies will facilitate the selling of the property. In most instances, they work together with developers and earn a commission. They are also responsible for coming up with various marketing materials to facilitate quick sales.
Brokerage companies in the real estate industry hire a professional team to facilitate a sale. They often speak on behalf of the seller to the buyer. Realtors should focus on making a sale under the best possible terms and conditions.
Another area in the real estate industry is property management. Property management firms help property owners manage their buildings.
For example, if an individual owns multiple apartments, buildings, and stand-alone houses, it can be hard to manage them all.
The staff of property management companies helps the owners conduct repairs, collect rent, and keep the property in good shape.
Real estate lending
Investing in real estate undoubtedly consumes a lot of money. Real estate lenders help individuals/ companies make their dreams come true by providing the necessary funds.
Some real estate lenders include credit unions, banks, government institutions, and banks.
Many professionals play a major role in the real estate industry. Some include interior designers, contractors, lawyers, and accountants. All these people will help you when you want to sell, buy or revamp a property.
What is the best type of real estate?
All investors are always looking forward to investing in the best type of real estate. Remember, real estate investments are often costly. Thus, you cannot afford to lose your money. You have to determine your best investment option.
First, note that each type of real estate investment offers unique advantages and disadvantages. In most instances, your needs will determine the best type of real estate.
Your preferences, taste, budget, investment strategy, and life goals often determine the best type of real estate investment. Before settling for any real estate, you have to evaluate the advantages and disadvantages.
Then, compare them with your requirements. From there, you can identify the best type of real estate that caters to all your requirements.
However, there are certain factors you have to consider before investing in real estate. For example, location is a big factor you have to consider.
The location of the land or property should work in your favor. In particular, if you plan to install fixtures on the land, it has to be accessible.
Your contractors should not find it challenging to access your land. If possible, settle for a land/property that is close to social amenities. Also, the location of the property should be safe.
Additionally, before investing in any type of real estate, it is essential to know your preferences.
Evaluate your profitability and risk tolerance. Individuals who want minimal involvement with their properties should go for commercial properties and hire a reliable property manager.
This way, they will worry less about handling the property. On the other hand, individuals who desire more involvement with their properties are better off when they invest in vacant land or properties that need remodeling.
Even so, note that certain types of real estate that offer higher returns than others. But if you are a beginner, it would be best to start dealing with residential properties.
Afterward, you can start investing in commercial properties. At the end of the day, it’s all about what works for you.
Types of Real Estate Investments
If you want to invest in real estate, you need to know the various types of real estate investments. It would be much easier to settle for your best pick from there. Some of them include:
Residential Real Estate
Residential real estate investments are ideal for beginners. Residential properties are easier to manage. For example, if you invest in a single-family house, you won’t spend much time and effort taking care of it.
Any investor can invest in residential real estate. It all depends on their requirements.
Contrary to popular belief, residential properties can help you gain a significant return on investment. All you have to do is make the most out of them and manage them well.
Commercial Real Estate
Most people who invest in commercial real estate are business owners. They are often looking for suitable working space or a warehouse. Also, commercial real estate is ideal for investors who focus on improving the community’s well-being.
Industry experts report that commercial real estate is the best since it generates the highest return on investments. Nonetheless, it depends on how you use the property.
Commercial real estate also has more durable leases compared to residential properties.
This type of real investment is usually cheaper due to low demand. Remember, only a small percentage of individuals can afford to invest in commercial real estate.
Raw land investing and new Construction
Another type of real estate investment is raw land investing. This investment type is more involving and time-consuming. As the name suggests, it involves building or installing fixtures on new land.
A good percentage of investors love this real estate investment since they can customize it to fit their requirements. Nevertheless, when dealing with raw land, investors should do their best to maximize the value of the land.
This way, they’ll be able to gain a substantial return on investment when selling the land.
Real Estate Investment Trusts
Another type of investment that is not time-consuming is the real estate investment trust. This type of investment is popular among company owners with a wide range of commercial properties like shops, restaurants, and malls.
When investing in a real estate investment trust, you’ll have to purchase shares of these companies. You can find such investments on the stock exchange market. They are less involving and provide returns.
With this type of investment, you rest assured of receiving annual dividends. Some REITs are also flexible enough to offer liquidation before maturity. So, anytime you need cash urgently, you can sell your shares.
Investors who invest in crowdfunding platforms receive access to assets that provide the highest returns. Crowdfunding platforms are mainly known for the wealthy. However, they carry the highest risk.
So, they are ideal for wealthy investors who have a high net worth. Crowdfunding platforms may not be for everyone since they are pricey. However, investing in them can help you gain massive returns.
Each real estate investment type offers both advantages and disadvantages. At the end of the day, the best type of real estate investment depends on your needs.
Now you know what real estate is
Real estate refers to any physical property and all fixed components that come with it, both man-made and natural.
The real estate industry is one of the main drivers of financial success in an economy. Therefore, if you can, invest in real estate.
Luckily, there is a broad spectrum of real estate investment types that cater to different requirements. Ultimately, always choose what works best for you.