There are wrong and right ways to do it. And the difference could cost you a lot.
Real estate is land plus any property or resources on it. Bankrate explains.
What is real estate?
Real estate is private property in the form of buildings and land. Real estate can be used for residential, commercial, or industrial purposes, and includes any resources on the land such as water or minerals. Real estate is often the most valuable investment a person owns, and the value of real estate is a key indicator of an economy’s health.
Real estate is a legal term designating the rights someone has to land and buildings. In most cases, real estate comprises land plus real property, as defined by the local ordinances in which the real estate exists. Land or real property that is not owned by anyone is not considered real estate.
Real estate is a common form of financial investment. The land and property someone owns can not only increase in value, providing the owner with steady profits, but also provide a steady income and even financial stability.
Real estate falls into the following three categories:
- Residential: Residential real estate is land that is used for the purpose of occupation. It comprises everything from temporary tents to mansions, and can even include portable dwellings like houseboats. Many people own the home they live in outright, but still more lease their homes from the owner of the real estate. While residential real estate isn’t meant to provide an income, it can develop equity over time. It is often the most valuable asset a person owns.
- Commercial: Used to conduct business, commercial real estate is bought with the intent to generate income. Frequently, this means the real estate owner allows other businesses lease property on her land, which provides revenue, but she may also own a business on the property herself.
- Industrial: Industrial real estate is similar to commercial real estate in that it’s also intended to turn a profit. Farms, mines, and land containing factories are also considered industrial real estate.
Because purchasing real estate is often a considerable expense, many people take out a loan that allows them to cover their costs and then pay it off incrementally over a period of years. When buying a home, this loan is called a mortgage; for commercial and industrial real estate, a personal or business loan is needed.
Although it’s possible to buy and sell real estate on one’s own, a realtor could help simplify the process. Realtors typically take around a 5 percent cut, but have much more firsthand knowledge of buying and selling real estate that could make the fee worthwhile.
Looking to purchase some real estate? Bankrate can help you pick out a mortgage that’ll pay for your new home.
Real estate example
Gordon owns a plot of residential real estate in Los Angeles. On his land, he has built a large apartment building. The building has 10 apartments, which he rents out to people, and after two years he has already made up for the cost of building and renovating the structure. One of his tenants asks if she can use her apartment as a store from which she’ll sell jewelry, but Gordon has to turn her down, as the land is not legally permitted to be used for commercial purposes.
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