What Is Real Estate and Why Should I Care?

Although owning land/property may seem quite natural, there was a time not so long ago where no one could hold that right of ownership. Once this process of drawing a line in the dirt began, (this is mine/that is yours) it nearly gave you complete control over a space of land and its personal property... 

Times have changed. Owning real estate has become more complex than drawing a line in the dirt or squatting on a piece of land. Now, there are many types of real estate that create opportunities that positively impact your personal wealth. 

There are four basic types of real estate: Residential, Commercial, Industrial and Land. Here is what defines each type of real estate and what it can mean for you.

RESIDENTIAL REAL ESTATE

Residential real estate is a type of property where its structures and defines the state of ownership. It develops when land is sanctioned for residential use. This type of real estate is purchased by someone and becomes REAL PROPERTY. 

Most commonly called a single-family dwelling, it is the land and buildings on that land and the natural resources found on that  land, such as crops, livestock, water and mineral deposits.

The common types of Residential Real Estate include Single Family Dwelling, Condominiums, Townhomes, Manufactured Housing, Multi-Family Dwellings, Investment Rentals, Co-operative and Land. 

Often, residential real estate is the largest, and most important, investment a person will make in their lives. The value of the real property is subject to changes in the real estate market. Some will purchase it with the hopes of making a profit, aligned with certain market shifts.  They can make this profit by buying low and then selling the residential real estate for a higher price. Profitability can be achieved through improving the residential real estate or buying and renting it to get a stream of income. However, most people simply live on the property.

Most residential real estate owners need  a lender to finance their purchase. This lending arrangement typically involves a  mortgage, which is a loan used to buy a home. As the homeowner pays their mortgage balance down, equity is built and the ownership value rises. 

COMMERCIAL REAL ESTATE

Commercial Real Estate is property used exclusively for conducting business. In many cases, commercial property is  purchased and then leased to tenants to conduct their business operations. 

Commercial real estate can be divided into four types, depending on function. These types include office, industrial, multi-family and retail. Examples of commercial real estate include gas stations, office buildings, medical buildings, shopping centers, retail complexes and hotels. 

Commercial real estate values also rise and fall with various economic cycles. When the economy is strong, businesses often thrive and the demand for commercial real estate remains strong. The opposite is true during recessionary periods. Businesses fail and create large commercial property vacancy, driving the value down.

INDUSTRIAL REAL ESTATE

Unlike residential and commercial, Industrial Real Estate is used solely for Industrial purposes. Examples of these industrial uses include manufacturing, distribution, warehousing, construction, and more. Industrial real estate areas are often set aside by the local government for these types of business. This process is commonly called zoning.

Local zoning regulations prohibit living in these industrial areas. Instead, this type of real estate is designed  for heavy and light industrial uses.

Industrial real estate is often used by large businesses, such as  Amazon, UPS, etc. These companies purchase warehouse space in industrial areas across America and then use it  for distribution and warehousing.

RESIDENTIAL LAND

Simply put, residential land is land set aside for families and their dwellings. Those dwellings can be either single-family or multi-family, (i.e., Apartments and condos).

Residential is a type of zoning, but  its use is different than that of industrial or commercial real estate. Instead, it is for the sole purpose of housing owners or tenants. 

Often, large parcels are purchased with the intent of subdividing the land into smaller parcels to create  “subdivisions or planned communities.” Or, an individual might  purchase residential land because they plan to build a home in the future. In this case, they need  to determine if there is access to common utilities like water, electricity, and sewer and how much that access costs.   

Some land developments specify if it’s possible to  put one dwelling per lot or per acre. For example, where there is R5 zoning, the land owner can place one residential dwelling for every five  acres of land they own. Rezoning is possible but difficult.

Real Estate Expertise

Most Americans will own real estate at some point in their lives. It provides safety and security for your family. Plus, it has the potential to pave the path to wealth. Because real estate is the largest, and most important, purchase you can make, it’s important to seek expert advice from a realtor, financial advisor, or accountant.

Written by Liz Jones, Realtor
Edited by Nina Gass, writer