What Is Real Estate? A Guide to the 5 Types of Real Estate￼
There are many different kinds of real estate used for a number of different purposes.
What Is Real Estate?
The definition of real estate is the transactional sale or acquisition of real property, which not only includes the land itself but everything permanently attached to the land. This includes natural resources and improvements on the land like houses. Furthermore, improvements on the property can include new or old structures, as long as the property is based on a piece of land.
Real estate can be used for a number of purposes, from providing people with a place to live, to using raw land to farm, to renting a commercial property for a business. Real estate industry professionals like real estate agents, brokers, or developers make money by building or facilitating the exchange of property.
How Does Real Estate Work?
There are many different branches and facets of real estate contributing to the purchase, sale, and ownership of property. Here is an overview of how a few of the various elements of real estate work together.
- New property construction: Although existing real estate is plentiful, there is always a demand for new property. Real estate development companies will often manage the construction of new builds like homes and commercial properties. Contractors will build the properties and once they’ve been completed, they are ready for valuation and for sale or leasing. The developer or builder will be paid for their services.
- Buying and selling residential property: The housing market accounts for a large chunk of the real estate market. Many people choose to work with residential real estate agents, real estate brokers, or realtors who facilitate the purchase and sale of a home because the intricacies of the process are difficult to navigate. Residential real estate works off of supply and demand for particular houses in certain areas. Each house has a different valuation depending on its square footage, added amenities, location, and comparable properties. During a residential real estate transaction, the buyer and seller and their respective agents will collaborate on the financial and legal work involved in transferring ownership of a property from one party to another. This process involves making an offer, mortgage lender approvals, home appraisals, inspections, closing on the home, and transferring the title of the property from one pair of hands to another with the signing of a deed.
- Property investment: Investment properties can include house flipping projects or rental units where the building owner collects income and hires a property manager to manage the building. Real estate investment trusts (or REITs) are companies that own and operate real estate, and if they are publicly traded civilians can invest in them for passive income. Different types of real estate investments will yield different profits depending on your location, property type, and purpose. Real estate developers are property investors, but they are also involved in building new property rather than investing in existing builds.
5 Types of Real Estate
Here is an overview of five of the most common types of real estate.
- Residential: Residential real estate refers to a piece of real property that is used exclusively for private, residential living. Residential property includes structures like single-family homes, condominiums, townhouses, and multifamily rental properties with four or fewer housing units.
- Commercial: Commercial real estate (or CRE) is any property that is used exclusively for business or workplace purposes or to generate cash flow in some way for the owner or lessee. Commercial properties include retail spaces, office buildings, strip malls, gas stations, shopping centers, and apartment buildings containing five or more units.
- Industrial: Industrial real estate deals with property that is used for manufacturing, production, and storage like power plants or factories. The main difference between industrial and commercial real estate is that industrial real estate involves land transactions for the production of goods, while CRE involves transactions for the distribution or sale of those goods.
- Special purpose: Special use real estate involves real estate transactions for public areas like parks, libraries, schools, and cemeteries. These areas have specific, limited use, but may also fall under the umbrella of commercial property.