Do you want to know what land, real estate, and real property is?
Do you want to learn the types of real property and the potential investments that you may be overlooking as an investor?
In this article, you’ll discover the six types of real property, the difference between land, real estate, and real property, as well as possible insights on where you can invest in.
For the real estate investor, real estate is much more than a house or a plot of land. Legally it can be defined with different words, however, the concept is universal. Real estate investors must understand the legal terminology associated with real property, real estate, and land. The term real in real estate originates from the term realty, which for centuries, meant land and everything that is permanently attached to it.
In this article we will cover the following topics:
|What is Land?|
|What is Real Estate?|
|What is Real Property?|
|What are the Six Types of Real Property?|
What is Land?
Land may be defined as the earth’s surface downward to the earth’s center and upward infinitely. It includes everything that is attached to it, namely, trees and water. Land also includes air rights, surface rights, and subsurface rights (minerals and natural resources, e.g. metals, iron, ore, oil. Etc.).
What is Real Estate?
Real estate may be defined as the land with all the improvements that human activity created to that land, e.g. homes, buildings, farms, ranches, etc. It also includes natural resources such as minerals, crops, and immovable property. These improvements that involve human activity may be below the ground, e.g. water pipes or sewer pipes and above the ground fence, landscaping, buildings, etc.
Resource – Barron’s Real Estate Exam Flash Cards
What is Real Property?
Real property can also be synonymous with real estate but can also be defined as the rights that are attached to the property, in that, real property has benefits and interests in the ownership of real estate.
In other words, real estate deals with human activity and real property deals with the benefits and interest of that human activity.
Moreover, real property also refers to not only the physical property but the rights to that property. Many of these rights will include;
The Right of possession.
Right of enjoyment and to use the real property within the confinements of the law.
Right of exclusion, that is, to prohibit others from trespassing and entering the property or using it.
Right to control the property within the boundaries of the law.
Right of disposition, that is, to transfer, sell, will, or dispose of the property.
What are the Six Types of Real Property
Real property comes in many different types and can benefit the real estate investor on many unique and different perspectives in their investments. The real estate investor may focus on multi-family homes in the residential category. Or have their niche in office spaces in the commercial category. They can even invest in ranches, factories, stores, office space, etc. The point is, there are many types of real property to build your real estate investing business from.
These six types of real property can be agricultural, residential, commercial, industrial, mixed-use, and special use.
Types of real property include agriculture. Agriculture is using the land to provide crops, raise animals and plants (trees, orchards, etc.). These types of investments may offer a diverse portfolio that includes many of the same benefits of real estate investments. The investor may buy, sell, and lease agriculture property. The investor may also invest in the actual agriculture business itself, for instance, buying a farm or ranch that produces beef cattle all the while having the farmer or rancher manage the operation.
Types of Agricultural Property
A Farm is an area of land that is primarily devoted to agricultural uses, producing food, plants, raising livestock.
A ranch is similar to a farm and can be synonymous. However, the essential difference is that a farm produces food and other crops and a ranch serves the purpose of raising grazing livestock, e.g. cattle, sheep, etc.
Timberland is real property that is covered with forest that is suitable for timber. There are several ways that an investor can invest in timberland, such as, timber Exchange Traded Funds or ETFs, and REITs or Real Estate Investment Trusts that contain timberland related products. And the investor can purchase the land associated with the timber and sell off the timber.
An orchard is real property that contains planted fruit trees, e.g. apples, oranges, grapes, etc.
Another type of real property, obviously, will include homes. These properties in the residential category, specifically address multifamily housing and single-family housing in urban, suburban and also rural areas. People are driven to purchase real property through the residential category, in that, many strive for homeownership.
Homeownership to many bring financial stability and many believe that it is an asset that includes a long-term investment. However, according to Robert Kiyosaki and his Rich Dad Poor Dad series, he advocates that a home is only an asset if it puts money in your pocket and it is a liability when all it does is take money out of your pocket. In other words, your house is not an asset it is a liability, unless, you have adequate cash flow from the real property.
Although, Robert Kiyosaki’s principles are fundamental life-altering in the perspective of financial literacy. It doesn’t prevent the fact that many people desire and long for homeownership even when it is a liability. There are benefits and disadvantages of homeownership, but whatever the choice you make be certain that if any debt is taken out learn how the mortgage industry works and study how you can use a HELOC to pay off the home faster, thus, saving thousands and hundreds of thousands in interest through velocity banking.
Types of Residential Property
Single-family homes may include detached or attached homes, e.g. townhouses. Single-family homes perhaps are the most widely used and most popular housing types for real property.
Apartment buildings or multifamily units allow many crowded areas to obtain housing for people. These buildings are usually located in urban areas and suburban areas. It would be rare to see anything that resembles an apartment building in a rural area. These buildings may also obtain security, clubhouse, laundromat, parking, swimming pool, fitness club, and in some cases a golf course. Many investors love the multifamily units because of its limitations on risk, lack of competition, and ease of management. But a larger level of capital is usually needed for these types of real property investments.
The condominium is the same as an apartment building except in terms of ownership. Where an apartment building is owned by one business or owner. Condos may be owned individually. These condominiums will have a homeownership association (HOA) or management that will be responsible for the general maintenance of the building. The condominiums are much like apartment buildings, in that, it shares common elements, e.g. elevators, security system, swimming pool, tennis court, and other amenities.
A cooperative is a unique type of homeownership, in that, when an investor purchases into a property you become a shareholder in a corporation who owns the real property. Each shareholder is entitled to occupy one housing unit per shareholder agreement. It is a pooling of cooperative members that gains its benefits in the buying power by lowering the cost of member’s services and maintenance.
Manufactured homes or factory-built homes are built entirely from the factory, delivered to the site and installed. These homes are built under the supervision and administered by the U.S. Department of Housing and Urban Development (HUD). Prior to June 15, 1976, these types of homes were known as a mobile home. These homes can be relatively low cost due to its assembly-line-type construction from its factories and the newer modern styles with space are making these types of homes more attractive to buyers.
Planned Unit Developments (PUDs)
Resource – Modern Real Estate Practice
A planned unit development (PUDs) also called master-planned community is a type of building development that may consist of entire residence or it may also be compatible in its development with land uses, e.g. recreation, commercial centers, or industrial parks. PUDs are planned using special zoning ordinances. Permits allow developments to maximize the space by reducing lot sizes or street locations. In most PUDs, owners have full ownership of their buildings and homes, therefore, making them sole responsibility for maintenance, however, the streets, sidewalks, pedestrian walkways, parks, etc. would be delegated to the homeowners association. Further, PUD might include a small development or involve an entire planned out city.
Converted-use properties or conversion properties are buildings that are converted into residential use. In other words, the buildings can be warehouses, schools, churches, and other types of buildings that are renovated into residential property. In many situations, it is financially and economically sound to renovate the structure of the building instead of demolishing it. For instance, a warehouse may be renovated into an apartment complex or a warehouse can be renovated into a shopping mall (commercial property).
Commercial property is another type of real property. Commercial property will include property that contains business activity, e.g. office spaces, shopping centers, malls, stores, and entertainment facilities. Also, hotels, motels, and even parking facilities are other types of commercial property.
Types of Commercial Property
Business property may include any real property that is owned by a business entity. More importantly, business property can refer to the dwellings and activity of an actual business. For instance, a mechanic shop that has a garage is considered business property.
Office space is a property that has an area that allows the business activity to take place. Regus, a company that rents out office space to small businesses or to people who don’t need to rent out office space on a full-time commitment. Regus offers rent based on usage and offers several areas of office space, for instance, meeting rooms.
Shopping centers are real property that largely deals with retail. Many investors seek out REITs that are shopping malls/centers investments.
The retail market is another investment area that can expand an investors portfolio.
Entertainment, such as theaters and movie complexes. This is another alternative investment that investors overlook.
Hotels are great real property and many real estate investors, once they expand their real estate portfolio eventually invest in the hotel business.
Another alternative and overlooked type of real property are parking lots. With artificial intelligence (AI) and newer technologies (e.g. apps), these parking lots and facilities can quickly turn to autopilot, that is, very little management.
Industrial is another type of real property that obtains buildings such as warehouses, power plants, and factories. For many investors, the industrial sector is the least talked about and focused real property to invest in. However, for the investor, investing in industrial real estate should not be overlooked.
Types of Industrial Property
A warehouse is a facility that is used to store goods and resources. Yet, these warehouses don’t simply store the goods and leave them there for a long period of time. Many warehouses are active, in that, wholesalers, importers, exporters, etc. all use warehouses to keep product and goods flowing to their customers. An investor should take note of the potential possibilities of warehouse investments.
Factories can also be known as a manufacturing plant and consist of buildings, machinery, and equipment where goods are manufactured in a complex systematic operation. On a side note, factories started during the industrial revolution when many goods could not keep up with the supply and demand from small workshops. However, factories are another overlooked investment. Sometimes, the greatest investments are those the fly under the radar because people are not looking for it.
Power plants or power stations generate our electricity and create our electric power. With the growing and the push for greener and greener energy. Innovation has allowed us to create some fascinating and potentially groundbreaking investments.
Mixed-use property is a type of real property that has multiple uses for that property. That is, for instance, commercial and residential within the same property.
Special purpose property is a type of real property that are usually publicly held property, e.g. places of religion, schools, libraries, government buildings, cemeteries, and parks.
Investors, specifically, in the real estate field have multiple sectors to choose how to grow their investment portfolio. This article demonstrated the six types of real property, namely, agriculture, residential, commercial, industrial, mixed-use, and special purpose. With creativity and research, there is an investment niche for just about anyone to their liking.