Understanding Real Estate 101: A 2-Minute Primer on Real Estate

What is real estate? By definition, real estate includes land and any permanent improvements to the land. These improvements can be a home, fence, bridge, minerals, trees – anything permanent to the property.

And there are a lot of different types of real estate to consider, too.

5 Types of Real Estate

Real estate can be purchased, sold and/or rented. The types of real estate include:

  1. Commercial
  2. Residential
  3. Industrial
  4. Raw land
  5. Special use

All of these real estate options have the opportunity to make the owner money. With commercial, residential and industrial, it’s possible to rent out these structures or land to others and generate an income.

Raw land can also be rented, or it can be used for raw materials, such as minerals or even logging. Special use land, for example grazing land, can be rented to farmers and generate income, too. Special use land can also include libraries, places of worship, parks and cemeteries, among many others.

As you can see real estate is beneficial because it holds a lot of value.

Multiple Terms That Don’t Mean the Same Thing

When people talk about real estate, they often mention three main terms that they use interchangeably but shouldn’t:

  • Real estate: Land and any additions that have been added including buildings and homes.
  • Real property: Rights inherent to the owners, interests and benefits.
  • Land: The earth all the way to the center including all minerals, trees and water.

These terms, while similar, will come up often and are very different from one another.

Real Estate as an Investment

Real estate is one of the investment options that people from around the world are choosing. Whether you own land and plan to sell it in the future for a profit or you own real estate that you wish to rent out, you can.

The benefit of real estate is that:

  • Immediate income can come from renting out buildings or land
  • Real estate appreciates in value and can be sold in the future
  • Equity can be built and used for lower cost loans

Equity in a property occurs when you begin to pay off your debt on real estate. For example, you may own a $200,000 home and have only $100,000 left on the mortgage. You can take equity out of the home to finance other investments, such as purchasing rental properties or using the equity loan as a lower interest option than a personal or other form of loan.

Supply, Demand and the Real Estate Market

Supply and demand fuel the real estate market. When supply is low and demand is high, homeowners can sell their home at a higher price and closer to their asking prices. If supply is high and demand is low, housing prices tend to fall.

Whether you own a home for yourself or to rent out as an investment, you always want to sell when the market is favorable.

Real estate is one of the best investments a person can make. There’s a growing population that is starting to rent more and that will purchase real estate in the future. Whether you’re holding on to real estate, renting it or plan to use it in some other way, it will always have value.