Wednesday, May 24, 2017

The 4 Different Types of Real Estate

Real estate — also real property or realty — refers to the land in question as well as any immovable fixtures on the surface such as roads, buildings, trees and shrubs, and walls. It also refers to the air space of the property as well as underground additions like the sewers and utilities. The owner of the real property, along with the title, will usually hold the air rights, mineral rights, and surface rights as well.

Now, when you think of real estate, you’re likely thinking in terms of homeownership or buying a property, but if you break it down further, there are four different subsets of “real estate” that break down the broad definition into more specific purposes and structures. Let’s take a look at the four different types of real estate: residential, commercial, industrial, and land.

Residential Real Estate:
  • Residential real estate is property that has been designated for living spaces. When we think of residential real estate, houses are the first thing that come to mind, but there are actually 5 different types of residential real estate:
    • Condominiums
      • AKA condos, this type of real estate typically denotes single units that together form a large building. There are many positive benefits of living in a condo: maintenance costs are shared among everyone, condos often have pools or gyms available for residents, and the ground floors of condos will house businesses or restaurants. However, since you’re living in such close quarters with other people, you’re usually very restricted with what you’re allowed to do with your unit: Homeowners’ Associations (HOAs) — which come with monthly or yearly dues — regularly monitor changes throughout the community, and since they generally like cohesion with appearance, so you won’t be able to personalize this space as much as you may like. Also, since units are conjoined, you also won’t have as much privacy.
    • Townhouses
      • Think of townhouses as a mix between a condominium and a single-family home. Residents each have their own space, typically larger than what you might find in a condo, but like a condo, the units generally have a shared wall or two. However, since you aren’t living in such close quarters, townhouses offer more privacy than a condo might. You’re also more likely to have access to amenities like a deck or a grill here than you would at a condo.
    • Cooperatives
      • Cooperatives, or co-ops, are a lot like condos but without the hefty price tag. In a condo, every unit is owned by an individual, but in a co-op, the residents all own the building together. This can be a good and a bad thing: since everything is run as a group instead of by individuals, any HOA dues tend to be cheaper, but since everything is run together, any one person dropping the ball on their payments means the whole thing can come crumbling down.
    • Single-Family Homes (SFH)
      • Although these properties require a lot of upkeep and maintenance for the homeowner, owning a single family home comes with a lot of perks. Since you own the property, you can have a lot more liberties with how everything is run and how you can express yourself.
    • Multi-Family Homes (MFH)
      • Multi-family homes, for the most part, exist as rental properties. They’re one home that has been split into two units and, unlike a condo, there’s generally one owner for the whole building instead of each unit being owned by a different individual. These properties can offer some unique living situations that many others may not: owners can live in one unit and rent out the other, rent out both units and use it as a rental property, or simply choose to keep the property to themselves. If you’re renting a MFH, the burden of maintenance costs often falls entirely on the owner, which is a pro; however, if you own the building, like a SFH all of the maintenance comes down on you.

Commercial Real Estate:
  • Commercial real estate covers any property that is nonresidential (see above) and is used for the purpose of generating profits. In the category of “commercial real estate” there are 4 different classifications: leisure/retail, office, healthcare, and multifamily.
    • Leisure / Retail
      • Leisure real estate encompasses all of the entertainment aspects, more or less, of real estate. Leisure is where you’ll find businesses like restaurants, movie theatres, cafes, hotels, and other establishments that provide you with leisure. Retail real estate includes the shops, stores, and malls in which you shop. When it comes to commercial real estate, the value of a property/business is measured by profitability per square foot. The best retail spaces are ones that are highly visible and easily accessible.
    • Offices
      • Another form of commercial real estate, office buildings fall into their own category. Office buildings can generate a lot of long-term business for the owner as the tenants tend to sign much longer leases than is typical for other renters. On the plus side, this means that owners will have a steady stream of revenue while the space is being leased; on the down side, these spaces take longer to fill meaning that the owner could be covering the cost of the building while it’s not in use.
    • Healthcare
      • Another form of real estate that only truly fits in the ‘commercial’ category is healthcare. This includes hospitals, clinics, outpatient offices, and general practitioner offices, dentist offices, orthodontists, etc. — basically places where you go when you’re in need of medical care.
    • Apartments/Multi-Family Housing
      • MFHs can sometimes fall in both the residential and the commercial aspects of real estate. Apartment buildings, for example, fall under commercial real estate as owners do not usually reside within their own buildings, meaning they’re purely for profit.

Industrial Real Estate:
  • Industrial real estate encompasses the “other” forms of real estate that do not technically fall under either commercial or residential estate and is usually the largest form of real estate. There are a vast number of divisions within the industrial real estate classification, many highly specialised, but here are a few examples of what’s covered under the umbrella of ‘industrial’: R&D buildings, cold storage buildings, manufacturing plants, warehouses, and more.

Vacant Land:

  • Selling and managing vacant land is very different from buying or selling a commercial, residential, or industrial real estate property. Essentially, you’re dealing with raw, undeveloped land, which can include farms and ranches as well. Vacant land can be broken down further based on the stage of development: undeveloped land, reuse land or early stages of development, subdivision (when larger plots of land are broken down into smaller ones for resale), and site assembly.