Real estate is the land along with any permanent enhancements attached to the land, whether natural or man-made - including water, trees, minerals, buildings, homes, fences, and bridges.
When you think about real estate investing, the first thing that probably comes to mind is buying your dream home. But, buying real estate is no more regarded as simply finding a nice place to spend the rest of your life in. The business has become progressively fashionable over the last fifty years and has become a distinctive investment vehicle.
Understanding Real Estate
People often use the terms land, real estate, and real property interchangeably, but there is more to this than meets the eye.
- 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.
- Real estate is the land, plus any permanent man-made additions, such as houses and other buildings.
- Real property is the interests, benefits, and rights integral to the ownership of real estate.
Thus, real estate essentially includes the physical surface of the land, what lies above and below it, anything that is permanently attached to it, plus all the rights of ownership - to own, sell, rent, or enjoy the asset.
Kinds of Real Estate
There are five main types to categorize any piece of real estate into.
- Residential real estate: Any property used for residential purposes. For example, simply the house that you live in.
- Commercial real estate: Any property used exclusively for business purposes, such as hotels or other forms of paid accommodations, grocery stores, offices, restaurants, shopping malls, etc.
- Industrial real estate: Any property used for manufacturing, production, distribution, storage, or 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.
Economics of Real Estate
Any piece of real estate has some distinct economic characteristics that differentiates its value among all possible avenues of investment.
- Scarcity: While there are different purposes attached to it, the total supply of land present on the planet is fixed.
- Enhancements: It refers to any additions or changes to the land or a building that affects the property's value.
- Perpetuity of investment: Once a sizable fixed investment has gone into developing a piece of land or a property, it is very less likely to lose its entire value over the course of time.
- Location: Even though a provisional but the single most important determinant of the value of any property. Factors like land use, convenience, reputation, and history can single handedly drive the value of an investment.
How the Real Estate Industry Works
Despite the scale and complexity of the real estate market, many people believe that the industry consists merely of builders, and brokers. However, millions of people in fact earn a living through real estate within several fields like property management, financing, construction, development, counselling, education, interior designing, and a lot more.
Fundamentally, just like any other product, the real estate market functions on the basic principles of demand and supply. However, the factors that impact the demand and supply in this case are much more complicated than any consumer product that you pick off the shelf at a supermarket.
In the long run, with increasing population and the need for space, the value of real estate tends to rise. As a result, people make a profit on their investment by buying now at a lower price and selling later when the prices go up due to the increased demand. Agents and brokers capture a portion of this profit by selling a service to those engaged in a real estate transaction.
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