What Exactly is Real Estate?
Real estate encompasses the land and any permanent structures attached to it, whether natural or man-made. These could be homes or other structures built or added to the land.
Real estate is a form of real property, different from personal property like vehicles, jewelry, or furniture, which aren’t fixed permanently to the earth.
Key Points to Remember
- Real estate consists of land and anything built or attached to it.
- There are five main types: residential, commercial, industrial, raw land, and special use.
- Investing in real estate can be through homeownership, rental properties, or land acquisition.
- Indirect real estate investments include REITs and pooled real estate funds.
Delving Deeper Into Real Estate
While the terms land, real estate, and real property might seem synonymous, they have specific differences.
- Land: Refers to the Earth’s surface extending down to the center and up to the airspace above, including its natural resources.
- Real estate: This includes the land along with any permanent human-made additions like buildings and houses.
- Real property: This encompasses land, any attached improvements, and the inherent rights of property ownership.
Roles of a Real Estate Agent
A real estate agent is a trained professional licensed to sell, rent, or manage real estate properties. They help match buyers and sellers, playing a vital role in negotiations and transactions.
Different Types of Real Estate
- Residential: Used for living purposes, such as homes, condos, and townhouses.
- Commercial: Designed for business use, from office buildings to shopping centers.
- Industrial: Utilized for manufacturing, storage, and distribution.
- Land: Includes undeveloped land, farms, and timberland.
- Special Purpose: Properties like cemeteries, parks, and schools which serve public needs.
The Economic Role of Real Estate
Real estate significantly contributes to economic growth. Housing starts - reported monthly by the U.S. Census Bureau - act as key economic indicators.
Analyzing these numbers helps investors gauge economic trends and housing market directions. An increase in multifamily housing starts, for instance, might signal a shortage and eventual price rise in single-family homes.
How to Invest Wisely in Real Estate
Common real estate investments include:
- Homeownership: Purchasing and living in a property.
- Rental Properties: Buying property to rent it out for regular income.
- House Flipping: Buying and renovating homes for resale.
Direct investment generally includes income from rent and property appreciation, influenced largely by location, economic factors, and local amenities. Indirect investment through REITs or pooled funds provides options to earn dividend income and benefit from shares’ appreciation. Options like mortgage-backed securities (MBS) – funds built from mortgage pools, also serve as real estate investment choices.
Financing Your Real Estate Investment
Purchasing real estate often involves cash transactions or mortgage financing through private or institutional lenders.
Behind the Scenes: Real Estate Development
Real estate development involves diverse activities from renovating buildings to purchasing and preparing raw land for sale or use.
Career Opportunities in Real Estate
Some popular roles in real estate include leasing agent, foreclosure specialist, title examiner, home inspector, and mortgage broker.
Related Terms: land, real property, housing starts, REIT, mortgage
References
- U.S. Census Bureau. “Monthly New Residential Construction”.
- Federal Reserve of St. Louis. “Housing Starts: Total: New Privately Owned Housing Units Started”.
- PR Newswire. “U.S. Home Seller Profits Soar Again in 2021”.
- Vanguard. “Vanguard Mortgage-Backed Securities Index Fund”.
- iShares by BlackRock. “2020 Prospectus: iShares MBS ETF”.
- Federal Trade Commission. “Mortgage Discrimination”.
