A Real estate is a property made up of land and the buildings on it, as well as the natural resources of the land including uncultivated flora and fauna, farmed crops and livestock, water, and any additional mineral deposits. It is a tangible asset and a type of real property. Vacant land and residential lots, plus the houses, outbuildings, decks, trees sewers and fixtures within the boundaries of the property are examples of real estate. The real estate sector is one of the most globally recognized sectors. The real estate market can be grouped into three broad categories based on its use: Residential real estate, Commercial real estate and Industrial real estate.
Residential real estate includes undeveloped land, houses, condominiums, and townhouses. The structures may be single-family or multi-family dwellings and may be owner-occupied or rental properties. Commercial real estate includes non-residential structures such as office buildings, warehouses, and retail buildings. These buildings may be free-standing or in shopping malls. Industrial real estate includes factories, business parks, mines, and farms. These properties are usually larger in size and locations may include access to transportation hubs such as rail lines and harbours.
Real estate investing involves the purchase, ownership, management, rental and/or sale of real estate for profit. Improvement of realty property as part of a real estate investment strategy is generally considered to be a sub-specialty of real estate investing called real estate development. Real estate is an asset form with limited liquidity relative to other investments, it is also capital intensive (although capital may be gained through mortgage leverage) and is highly cash flow dependent. If these factors are not well understood and managed by the investor, real estate becomes a risky investment.
One can invest in real estate directly by buying actual properties or parcels of land; or indirectly, by buying shares in publicly traded real estate investment trusts (REITs) or mortgage-backed securities (MBS). Investing directly in real estate results in profits—or losses—through two avenues, which haven’t changed in centuries: Revenue from rent or leases, and appreciation of the real estate’s value
Unlike other investments, real estate is dramatically affected by its surroundings and immediate geographic area. Hence the well-known real-estate maxim “location, location, location.” Except for a severe national recession or depression, residential real estate values, in particular, are affected primarily by local factors. Such factors include the area’s employment rate, the local economy, crime rates, and transportation facilities, quality of schools, municipal services, and property taxes.
There are key differences in residential and commercial real estate investments. On the one hand, residential real estate is usually less expensive and smaller than commercial real estate, and so it is more affordable for the small investor.
On the other hand, commercial real estate is often more valuable per square foot, and its leases are longer, which theoretically ensures a more predictable income stream. With greater revenue comes greater responsibility.Commercial rental real estate is more heavily regulated than residential real estate, and these regulations can differ not only from country to country and state by state but also by county and city. Even within cities, zoning regulations add a layer of unwanted complexity to commercial real estate investments.
There is also an increased risk of tenant turnover in commercial rental agreements. If the business model is bad, their product is unattractive, or they are poor managers, they might declare bankruptcy. The business failure can abruptly stop expensive real estate from generating revenue. Moreover, just as property can appreciate, it can also depreciate. Once-hot retail locations have been known to decay into rotten shopping centres and dead malls.
While industry experts say real estate prices have increased, they note that investing in properties is “recession resistant” and safer than investing in the equity markets. In fact, they say it’s the best time to invest in real estate.
Unlike stocks and bonds, investors have more control over their real estate investments because they can improve the property to boost its value. Investors look for “special situations” where they can find, create, unlock or manufacture a property’s value. For property owners, rental income is also less volatile than the ups and downs of the stock market, said experts. Leases, which can often be up to 15 years on commercial properties, can bring the same monthly rent regardless of economic conditions.
According to Jeffrey Fine, managing director at Goldman Sachs & Co“If you look at the families and the companies that have made money in real estate through asset appreciation and value appreciation over time, they are reinvesting in their assets, buying high quality assets in good locations”. Even though real estate evaluation is expected to experience a slight drop this year, experts still believe that investing in real estate can have a positive impact on your finances.