What is real estate | how real estate Industry works

 Real Estate

What is meant by Real Estate?

Real estate is property, which includes land, house and buildings. The word real estate is derived from two different words i.e., “real” means “relation to land and property” and “estate” means “interest” a person has in its land. Real estate differs from personal property, such as vehicles, jewelry, furniture, electronic gadgets, tools, etc. Some of the real-life examples of real estate are homes, offices, shopping centers, hospitals, farms, etc. Any raw land or buildings is real estate and many people like to work and invest in it, because of its nature, as these are profitable, but a long-term asset.

The characteristics of real estate can be divided into two i.e., Economic and Physical characteristics. Let’s discuss some of the major characteristics:

# Economic Characteristics

Some of the main economic characteristics are as follows:

Ø Scarcity – There is so much of everything in the world, money, water, food and time, but the land is one of those things where scarcity is major economic factor. There is so much land in the world, but very less percent is habitable.

According to a report, the total land surface area of earth, is about 57,308,738 square miles, of which about 33% is desert and about 24% is mountainous. Subtracting this inhabitable 57(32,665,981 square miles) from total land area leaves 24,642,757 square miles or 15.77 billion acers are habitable land.

Ø Location – The next important factor is location. The most of the value of real estate depends upon where it is located and this works hand in hand with scarcity. Most of the demanding places have less available real estate, due to which price increases. If we take an example of Mumbai, you want a sea facing property or house, you will get the property at reasonably very high price, because of its sea facing location and high demand, apart from this some of the other factors that increases the value of real estate in Mumbai are, financial capital of India, its population, etc.

Ø Improvement – Improvement on a small part of land can greatly affect that land value and its use. Improvement includes pipes connection to sewer line or sump, electrical wiring and in modern times mobile phone and internet connection. These connections can be above or below the ground. If the land is meant for agricultural use improvements like barn, shed, grains, chicken coop or processing buildings increase the value.

Ø Non-Liquid – It is non liquid means one cannot easily exchange land for anything else other than cash, the land has to sold for cash to be liquid and this makes a land a permanent investment. Once you buy a land you can own it forever, the value may rise or fall, but at last it is a land and it is yours as long you don’t sell it. Because real estate is not liquid, it is seen as a good and safe investment.

# Physical Characteristics

Ø    Immobile – Land is immobile, you can’t move it. Once the boundaries are established in the deed that is the real estate until the boundaries are changed by adding or subtracting land, this distinguishes land from other personal property.

Ø Indestructible – The structures on the real estate can be destroyed, fixtures, movable property, buildings and other improvements can all be damaged or destroyed, but the land itself, is still the same land, it cannot be destroyed.

Ø Uniqueness – Each part of the land in this world is unlike any other land. There’s of course can be similar tracts of land, but the land in the defined boundaries of indeed is unlike any other. Even the land or houses may have similar designs or layout, no two pieces of land are ever same.

Real estate includes buildings 

Types of Real Estate

There are basically four main types of real estate properties. These properties are as follows:

Ø Residential – Residential real estate includes housings for individuals, families or groups. This is the most common type of real estate, that majority of people are familiar with. Some of the examples of residential real estate includes, homes, condominiums, townhomes, duplex, triplex, etc.

Ø Commercial – Commercial real estate includes real estate used for commercial purposes only. It includes business properties such as, shopping malls, offices, service centers, it also includes large residential buildings that are rented out.

Ø Industrial – Industrial real estate are the ones that includes lands and buildings that are used for industrial purposes, such as factories, mechanical production, research and development, construction, transportation, etc.

Ø Land – This is one of the least expensive and most secure real estate. It basically includes raw vacant land, land used for agricultural purposes like farm or ranches, lands in development stages.

How Does Real Estate Industry Work

Firstly, the industry has raw land, then developers work on it to get approval from municipal corporation. Then, the developer may sell the land, once it becomes a fully developed property. The asset managers help in filling the property with tenants and get the asset cash flowing. Once the property gets stabilized, they can be bought and sold. And, at the last, brokers, appraisers, financiers, and other external parties help in facilitating the buying and selling of the properties.

People think investing in real estate is one of the best and the safest option, the property price will always rise anyway and you will surely make a profit. But, its not exactly like that. There are many hidden points that people aren’t aware of, and this might lead to lose money.

That doesn’t mean you can never make money by investing in real estate. Like everything in this universe have some advantages as well as disadvantages, similarly real estate also has, it’s just that you need to analyze financial situation properly, your future goals and the prospects of growth of property you are looking to invest.  

As "Franklin D. Roosevelt" says “real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, is about the safest investment in the world”.