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.
KEY TAKEAWAYS
- Real estate is a class of “real property” that includes land and anything permanently attached to it, whether natural or man-made.
- There are five main categories of real estate: residential, commercial, industrial, raw land, and special use.
- You can invest in real estate directly by purchasing a home, rental property or other property, or indirectly through a real estate investment trust (REIT).
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!”).