Real Estate: Definition, Types & Investment
What Is Real Estate?
Real estate is defined as the land and any permanent structures, like a home, or improvements attached to the land, whether natural or man-made.
- Real estate is considered real property that includes land and anything permanently attached to it or built on it, whether natural or man-made.
- There are five main categories of real estate which include residential, commercial, industrial, raw land, and special use.
- Investing in real estate includes purchasing a home, rental property, or land.
- Indirect investment in real estate can be made via REITs or through pooled real estate investment.
What Are Types?
Residential real estate: Any property used for residential purposes. Examples include single-family homes, condos, cooperatives, duplexes, townhouses, and multifamily residences.
Commercial real estate: Any property used exclusively for business purposes, such as apartment complexes, gas stations, grocery stores, hospitals, hotels, offices, parking facilities, restaurants, shopping centers, stores, and theaters.
Industrial real estate: Any property used for manufacturing, production, distribution, storage, and research and development.
Land: Includes undeveloped property, vacant land, and agricultural lands such as farms, orchards, ranches, and timberland.
Special purpose: Property used by the public, such as cemeteries, government buildings, libraries, parks, places of worship, and schools.
How to Invest in
Some of the most common ways to invest in real estate include homeownership, investment or rental properties, and house flipping. One type of real estate investor is a real estate wholesaler who contracts a home with a seller, then finds an interested party to buy it. Real estate wholesalers generally find and contract distressed properties but don’t do any renovations or additions.
The earnings from investment in real estate are garnered from revenue from rent or leases, and appreciation of the real estate’s value.
Real estate is dramatically affected by its location and factors such as employment rates, the local economy, crime rates, transportation facilities, school quality, municipal services, and property taxes can affect the value of the real estate.
- Offers steady income
- Offers capital appreciation
- Diversifies portfolio
- Can be bought with leverage
- Is usually illiquid
- Influenced by highly local factors
- Requires big initial capital outlay
- May require active management and expertise
What We Like
- Steady dividends
- Risk-adjusted returns
What We Don’t Like
- Low growth/low capital appreciation
- Not tax-advantaged
- Subject to market risk
- High fees
What Are the Best Ways to Finance a real estate Investment?
Real estate is commonly purchased with cash or financed with a mortgage through a private or commercial lender.