Real estate is one of the world's oldest and most diverse forms of investment. There are several entry points into real estate. Thus, making room for people at different financial levels to get into real estate investment.
Real estate can be defined as land and any permanent natural or man-made improvements on the land. These improvements could include buildings, water-based components, plants, etc. It is essential to note that real estate does not include personal property not permanently attached to the land. Usually, several people are unsure about how to get started with real estate investment. Our ABCs of real estate investment will show you all you need to start investing in real estate.
The Difference Between Land, Real Estate and Real Property
The terms "land," "real estate," and "real property" are often used interchangeably. Though similar, these terms have their distinct meanings.
Land refers to the earth's surface down to the earth's crust and everything in the airspace of the said land. This includes the land's minerals, water, trees, and natural structures. On the other hand, real estate is land and any permanent man-made additions to the land. These additions include structures like houses and buildings.
In real estate, additions or improvements to land are known as an improvement. When land is improved, the capital and labor employed in building the improvement represent a sizable fixed investment. Even if the building on the land is razed, structures like electricity, water, and sewer systems tend to be permanent.
Real property refers to land, improvements to the land, and a bundle of rights. This bundle of rights is a broad term often used to organize property rights. It gives the property owner the right to use the land as they deem appropriate.
The bundle of rights encompasses five rights of the real property owner. These rights include:
1. The Right to Possess: The right to possess refers to the right of the property owner to occupy and legally use the land.
2. The Right to Control: In lay man language, the right to control refers to the owner’s right to set the boundary for property usage by others. The owner is to determine the interests and uses of the property by others.
3. The Right to Enjoy: The right to enjoy refers to the owner's right to use the property without external interference from other people.
4. The Right to Exclude: This refers to the owner's right to turn down the interest of others in using the property.
5. The Right to Dispose: The owner of real property can determine how the property is given or sold to another party.
These rights are often subject to government policies and laws. Consequently, it is best for you to be updated with Government policies before exercising these rights.
Unique Features of Real Estate
Several distinct features of real estate make them stand out from other types of investment. We would be running through these unique features in this segment. After reading through, we advise you to check out the best real estate investment strategies. They would give you an idea of the best strategy for your investment needs. Without taking much of your time, let us get started with the unique features of real estate:
1. Real Estate is Unique
No two real estate properties are the same. No matter how similar they look, there will be some differences. These differences could range from landscape to structures and buildings. There would always be a distinct feature.
2. Scarcity
The land is a fixed asset. You can't add more to it, and you can't reduce the quantity of land in existence. Unfortunately, you can construct a limited number of structures on the land. Due to this, once all the lands in an area are occupied, you can't own land in that area anymore.
3. Land Can be Improved on
You can improve a parcel of land by adding new structures and buildings. Such improvements increase the value of the land and can increase the income you get from such land. Additionally, improving land could equip the land for better and more beneficial purposes.
4. Real Estate is Immobile
Real estate is a fixed asset in a permanent location. It cannot be moved from place to place. Hence, making it more secure than several other investment types.
5. Real Estate is Indestructible
The land is permanent and cannot be destroyed. The only destruction that can happen to land is erosion. When you put appropriate precautionary methods in place, you can reduce the effect of erosion to the barest minimum.
Types of Real Estate
There are several types of buildings and real estate. However, they could be categorized under 5 major categories. Amidst this categorization, you do not have to invest in these properties as a sole individual. Several types of real estate strategies enable you to invest in real estate without breaking the bank. You can get the full details on how to invest in real estate with little or no money by visiting our blog.
Raw Land
Raw land is the cheapest and most flexible form of real estate. It is a vacant space with no structures on it. Unlike other forms of real estate, raw land requires minimal maintenance and is often purchased for the possibility of future development. Examples of raw land include farms, orchards, and recreational parcels.
When acquiring land in a certain area, you should conduct thorough research. Confirm the originality of land ownership and the kind of structures permitted in the area. Such thorough research will eliminate the possibility of getting on the wrong side of the law.
Residential Properties
Residential properties are the most common type of real estate. Residential property is a real estate property that is strictly for residential properties. It consists of condominiums, townhouses, multi-family houses, and villas.
When purchasing lands marked as residential properties, preparing to abide by the rules is essential. Constructing commercial or religious structures in residential areas could cause you to lose your land. In some communities, you may be charged to court.
You need to be alert when acquiring residential properties in areas like Lagos. Before making any payment, confirm the validity of ownership of the seller. Some sellers might show you the receipt of the land. However, that is not enough proof that the seller owns the land.
To prove ownership, such sellers need to show you three or more land documents. Some documents they ought to have include: Certificate of occupancy, a land purchase receipt, and the survey plan. In some cases, they might show you the deed of assignment/ deed of conveyance.
In some cases, it might be difficult to ascertain ownership's validity despite such documents' presence. Hence, getting a professional lawyer or real estate agent to probe the validity is best, so you don't get scammed.
Commercial Properties
Commercial properties are exclusively for commercial and business purposes. They refer to lands and buildings businesses use to carryout their activities. Sometimes, commercial properties may not yet have structures on them. However, such lands are marked by the government for commercial purposes.
Before investing in commercial properties, it is best to do your due diligence. Conduct thorough research and market survey. As a newbie in real estate investment, starting out your investment plan using commercial properties is not advisable. Commercial properties are capital-intensive. Consequently, it gives little room for mistakes.
Industrial
Industrial properties are properties used for industrial businesses and activities. These activities include factories, mechanical production, construction, and research purposes. Due to the peculiarity of industrial activities, most industrial properties are located on the outskirts. Siting industrial properties on the outskirts is a precautionary measure to ensure that people are not affected by emitted pollutants and chemicals.
Special Use Real Estate
This type of real estate property is not usually regarded as a full-fledged real estate branch. While some investors acknowledge it as real estate, others choose to stay silent about it. Special use real estate is often regarded as "purpose-built" real estate. As the name implies, special-use real estate is a type of real estate that has been separated for a limited, specific purpose.
Some of their uses could include parks, museums, schools, cemeteries, government reserved areas, etc. Special-use real estate could fall under the category of commercial properties.
Conclusion
In real estate, three terms are usually used interchangeably. However, that doesn’t mean they are the same. "land," "real estate," and "real property" are usually tagged as the same, but they are different. This write-up highlights the differences between these terms.
Additionally, we examined the different types of real estate you need to be familiar with. These real estate types include raw land, residential, and commercial properties. We also examined Industrial and "special use" real estate. If you are just getting started with real estate investment, our beginners' guide to real estate investment will be useful in showing you your way.
