What is Real Estate?
Real estate is defined as the land and any permanent structures, like a home, or improvements attached to the land, whether natural or man-made.
Key Takeaways
- Real estate is considered real property that includes land and anything permanently attached to it or built on it, whether natural or man-made.
- There are five main categories of real estate, which include residential, commercial, industrial, raw land and special use.
- Investing in real estate includes purchasing a home, rental property, or land.
- Indirect investment in real estate can be made via REITs or through pooled real estate investment.
Understanding Real Estate
The terms land, real estate and real property are often used interchangeably, but there are distinctions.
- Land refers to the earth's surface down to the center of the earth and upward to the airspace above, including the trees, minerals and water.
- The physical characteristics of land include its immobility, indestructibility and uniqueness, where each parcel of land differs geographically.
- Real estate encompasses the land, plus any permanent man-made additions, such as houses and other buildings.
- Any additions or changes to the land that affects the property's value are called an improvement.
- Once land is improved, the total capital and labor used to build the improvement represent a sizable fixed investment.
- Though a building can be razed, improvements like drainage, electricity, water and sewer systems tend to be permanent.
- Real property includes the land and additions to the land plus the rights inherent to its ownership and usage.
Real Estate Agent
A real estate agent is a licensed professional who arranges real estate transactions, matching buyers and sellers and acting as their representatives in negotiations.
Types of Real Estate
- Residential real estate: Any property used for residential purposes. Examples include single-family homes, condos, cooperatives, duplexes, townhouses and multifamily residences.
- 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.
- Land: Includes undeveloped property, vacant land and agricultural lands such as farms, orchards, ranches and timberland.
- Special purpose: Property used by the public, such as cemeteries, government buildings, libraries, parks, places of worship and schools.
The Economics of Real Estate
Real estate is a critical driver of economic growth in the U.S., and housing starts, the number of new residential construction projects in any given month, released by the U.S. Census Bureau, is a key economic indicator.
The report includes building permits, housing starts and housing completions data, for single-family homes, homes with 2-4 units and multifamily buildings with five or more units, such as apartment complexes.
How to Invest in Real Estate
Some of the most common ways to invest in real estate include homeownership, investment or rental properties and house flipping.
One type of real estate investor is a real estate wholesaler who contracts a home with a seller, then finds an interested party to buy it.
Real estate wholesalers generally find and contract distressed properties but don't do any renovations or additions.
The earnings from investment in real estate are garnered from revenue from rent or leases and appreciation of the real estate's value.
What Are the Best Ways to Finance a Real Estate Investment?
Real estate is commonly purchased with cash or financed with a mortgage through a private or commercial lender.
What Is Real Estate Development?
Real estate development, or property development, includes activities that range from renovating existing buildings to the purchase of raw land and the sale of developed land or parcels to others.
What Careers are Common in the Real Estate Industry?
Common careers found in the real estate industry include leasing agent, foreclosure specialist, title examiner, home inspector, real estate appraiser, real estate agent and mortgage broker.
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