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.
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!”).