The Types of Real Estate

Real estate is real property consisting of the structures and land on it, and its accompanying natural resources like water, plants or minerals; immovable land of this kind; an interest in it, buildings or houses in general. Properties may be freehold or leased. Real estate agents work by looking for houses that may be for sale, or may be to be leased. Real estate brokers can assist buyers in buying a house or a building for rent or lease.

The term ‘immovable land’ is generally used in relation to permanently attached properties. Permanent attachments to real estate include businesses, schools, hospitals, shopping malls, tax assessors’ offices, police stations and even individual family homes. These kinds of real properties are usually ‘attached’ to the land and cannot be removed without undertaking major construction. For instance, a shopping mall attached to a building that houses a school cannot be torn down, but rather, the mall can be relocated to a new location, as and when necessary.

There are four main categories of real estate, each having its own characteristics of ownership. They are: owner-occupied residential real property; owner-rented residential real property; tenancy residential real property; and leasehold real estate. Within these main categories of real estate, there exist two main subsets: owner-occupied residential and owner-rented. Here we discuss these four types separately.

Owner-occupied residential real estate involves land that was used as a family home, or as an occupant’s residence before being replaced by another type of structure. This type of real estate commonly includes a farm or ranch land, or other large-scale property. It also typically has all the economic characteristics of fixed income. One major advantage of owning such land is that sewer systems and electricity are usually already in place.

Owner-rented real estate, also known as retail real estate, takes the form of multiple-unit buildings leased by the property owners to tenants. The units are normally leased for a period of years, and the renters may occupy the units freely during the duration of the lease term. Most owners are aware of the legal implications of letting out units to tenants. This type of real estate is often the cheapest option, with several advantages over purchasing single-family homes or buildings. However, it usually comes with higher vacancy rates, and thus, lower prices.

The fourth type of real estate which is commonly referred to as leasehold real estate is available to the lessee (landowner), but not to the renters. This is different from the other types of real estate mentioned above in that it does not come with any economic characteristics to make it economically viable as a rental property. In this case, the owner rents the land to its lessee, who becomes the tenant. The advantages of this arrangement include lower rent payments compared to those of monthly mortgages, and no capital investment needed. The disadvantages include higher vacancies which reduce the rental income, and frequent repairs needed by the tenants. It is a popular choice amongst home owners who want to rent out their properties to tourists, but do not wish to make modifications to suit the tenants’ needs.