Understanding Real Estate
Real estate is a property consisting of land, the infrastructure surrounding it, as well as the natural resources that would include crops, water or minerals. When you invest in real estate by purchasing, selling or renting land, buildings or housing with the purpose of making a return, then you are in the real estate business.
Real estate is a growing and profitable line of business. Before venturing into real estate, make sure you understand exactly what line of business you want to pursue and what the expected return is.
Types of real estate.
- Residential real estate
Residential property is for living in and not for commercial or industrial purposes. It includes both new construction and resale homes. The most common category is single family homes, apartments of less than 5 units, condominiums, multi-family houses of not more than 4 units and high value and vacation homes.
The properties are subject to laws and regulations different from commercial real estate, for instance, the types and number of homes that you can build in certain areas, noise regulation, pet regulations, if you can run a business within the property amongst other considerations.
- Commercial real estate
These are non-residential properties used for commercial profit-making purposes. They include malls, stores, and office buildings. Getting into commercial real estate is a bit more complicated than residential because of contract and legal requirements.
You need to consider the potential of the commercial real estate to give returns on investment, the usable space which will bring income as opposed to the non-usable spaces like bathrooms, exits among others. Also, consider the maintenance of common areas, are there rates you will pay monthly in maintenance fees just to name a few factors governing commercial real estate.
- Industrial real estate.
This includes all land utilized for industrial purposes. Production, manufacturing, assembly, and warehousing are some of the activities entailed in industrial real estate. Unlike commercial real estate that normally deals with retailers, industrial real estate is more for wholesalers, suppliers or manufacturers.
The lease periods are generally longer for industrial real estate and tend to generate more stable income thus a higher return on investment. The properties are generally better-taken care of because the tenants will want to protect their goods by properly maintaining the structures.
Land includes vacant land without buildings and equipment. It is a factor of production and includes vacant land, farms, and ranches used for growing crops, planting fodder and grazing animals. Vacant land includes undeveloped land, early development land, subdivision, and site assembly.
Determining land value is dependent upon the use of the land including land in transition which are tracts of land set aside for specific purposes like barracks or military bases or for investors who have pooled their resources to buy the land for a specific purpose.
Whatever line of real estate you want to enter into, do your due diligence to ensure you have a proper understanding of the business. Carefully weigh the pros and cons and have clear projections on how you can get returns on your investments.