To a real estate investor, real estate entails more than just the plot of land or the house erected on it. There are several legal terms used to define real estate, but the concept is fundamentally the same.
Real estate investors and stakeholders must understand the various terminologies used in real estate and the various aspects of real estate that arise from the various utilities derived from it.
Real estate is the land and any improvements made on the land.
There are various uses that land and these improvements are put under. This depends on the utility that the landowner and other stakeholders would like to draw from the land. The various uses that real estate is put under give rise to different types of real estate, all with a unique purpose and utility.
The types of real property that have arisen with time include:
2. Residential Property
3. Industrial Property
4. Commercial Property
5. Agricultural Property
6. Mixed-use Property
7. Special-use Property
Let us get into the details of these types of real estate to understand what they entail and get to know the various investment opportunities available in each category.
Land forms the basis of all real property. It refers to the vacant undeveloped plot that is subject to ownership by an individual, a group of people, or an entity. Property developers usually acquire land and combine it with other factors of production and rezone it to increase its density and enhance its value.
2. Residential Property
Residential property includes property used for housing by individuals, groups of people, or families. This happens to be the most popular type of real estate, and most people are familiar with it because it provided a basic need, shelter.
Properties in this category are used to provide multifamily and single-family housing. They are found in urban areas, suburban areas, and even rural areas.
Types of Residential Property
These are multifamily rental units usually used in areas with a high population to provide housing for this population. They are part of one or several residential buildings. Typically, there is one owner or property management company for all units. They are usually located in urban areas and are rarely found in rural areas.
Many investors opt for this form of investment because its risks are relatively lower, the competition is much lower, and they are easy to manage. They, however, require a large capital outlay.
ii) Single-family Homes
These are homes built on a single parcel of land with no shared walls. They may include attached or detached homes such as townhouses. They are the most popular types of real property used for housing. In some cases, single-family homes have a garage, either attached or detached from the home.
Also known as condos, these are single units within a larger building or community. They are similar to apartment buildings in that they share common facilities such as elevators, swimming pool, etc.
Condos usually share a wall or two with other units and are popular in urban areas or high-density areas where there are several restaurants and shops. The condos usually have Homeowners’ Associations (HOAs) which require each resident to pay annual dues. HOAs are responsible for maintaining the building.
This is a hybrid between a condominium and a single-family home. Townhouses are typically larger than a condo but smaller than a single-family home. They are usually multiple floors with one or two shared walls. Some could have a yard space or rooftop deck.
With cooperatives, an investor buys into real property and then you become a shareholder in a corporation that holds the real property. As opposed to a condo where you own the space within your unit, everyone jointly owns the building in cooperatives.
vi) Converted-Use Properties
Also known as conversion properties, these are buildings that are converted into residential use. They could have previously been used for virtually any other purpose such as warehousing, as churches, or schools, and then their use changes to be that of providing housing.
In cases where the existing building is structurally sound, it makes financial and economic sense to renovate the building as opposed to demolishing it. It can just be partitioned anew, and fitted with equipment and supplied with amenities that support residential use.
3. Industrial Property
The term industrial property is an encompassing term used to refer to manufacturing, research, storage, production, and distribution facilities. It is one of the most overlooked types of real estate, and many investors would not look at it as their first real estate investment option.
Types of Industrial Property
Factories consist of buildings where goods are manufactured systematically. These buildings have machinery and equipment utilized during the manufacturing process.
ii) Warehouses/ Distribution Buildings
Warehouses are industrial facilities used to store goods. Importers, exporters, and wholesalers use warehouses to maintain the flow of goods to their customers.
iii) Power Plants
A power plant is an industrial facility where electricity is generated from primary energy. Most of them use one or more generators that convert mechanical energy into electrical energy.
4. Commercial Property
Commercial property is a property that contains business activity. They provide workspace mostly to tenants who conduct their business in them and hold such property on a leasehold basis. They include retail property, hotels, office space, restaurants, and malls, among others.
Types of Commercial property
i) Office Spaces
Office space is a room or rooms in a building that provides an enabling environment for business and office operations to take place. Office spaces are mostly used for administrative purposes. Some businesses, especially small businesses, do not rent office spaces on a full-time basis.
They pay for office spaces based on usage and could utilize meeting rooms for a few hours and pay for the services after usage.
This is a commercial establishment that provides meals, lodging, and other guest services. Hotels often have restaurants, stores, and meeting rooms that are available to the general public to use. The users of hotel services pay for those services.
iii) Business Property
Business property is property owned by a business entity. The term can refer to the facilities and activity of a business. For example, a facility used as a grocery is business property.
iv) Shopping Centers
A shopping center is a collection of retail stores, each independent, services, and a parking area. They largely deal with retail and are constructed and managed by a management entity as a unit. When seeking to invest in REITs, investors mostly lookout for shopping mall investments.
Entertainment facilities such as theaters and movie complexes can also be classified as commercial properties since they are also special-use property. They can fall into this category when their potential to generate income is put under consideration. Some investors overlook this investment option but it can help one diversify their portfolio.
5. Agricultural Property
Agricultural property is land used for bona fide agricultural purposes. That is, using the land to plant crops, raise farm animals and plants.
The agricultural property offers diversification to the investor since there are various types of animals and plants that can be raised on the farm. Besides, the landowner may sell or lease agricultural property.
An investor can also invest in the agriculture business by buying an agricultural property that has agricultural activity already going on and have the farmer manage the operations on the farm.
Types of agricultural property.
An orchard is a real property that contains well-maintained trees and shrubs that are used primarily for food production. They could contain fruit-producing trees or nut-producing trees or both which are grown for their commercial benefits.
A ranch is a piece of land that is set aside and developed with various structures to be used for ranching. Ranching is the practice of raising and grazing livestock such as sheep, cattle. They mostly consist of large areas to provide the grazing area, but they can be typical of any size.
This is forested land covered by trees that are suitable for timber. An investor can buy timberland and sell off the timber, or even invest in a REIT that have products related to timberland.
The term ‘farm’ is more of an all-encompassing term used to refer to an area of land that is set aside for agricultural usage, that is, to produce food and to raise plants and animals.
6. Special-Use Property
Also known as special-purpose property, these properties are properties that have specialized uses. They include theatres, religious buildings, libraries, cemeteries, parks, camping grounds, and hospitals.
A special property may be unique due to its layout, physical design, and improvements that may restrict its use to only that which was originally intended during the planning phase.
7. Mixed-use Property
Mixed-use property is a type of urban development that blends more than one user on the same property.
It blends commercial, industrial, institutional, entertainment, residential, or cultural uses into one space. Mixed-use development can integrate two or more of these uses. These functions are physically and functionally integrated.
Mixed-use zoning gives room for the horizontal and vertical combination of land uses. Residential, commercial, and in some rare cases light industrial uses are put together to create environments where people can live, work, and play.
There are various forms of mixed-use development, mainly categorized into three.
Vertical Mixed-Use Development
This type of mixed-use development combines different uses within the same building. It usually provides for more public uses on the lower floors, say the ground and first floors, such as retail shops, commercial business spaces, and restaurants. On the upper floors, more private uses are provided, such as residential units, office spaces, and hotel rooms.
Horizontal Mixed-Use Developments
This type of mixed-use development consists of single-use buildings within a parcel zoned as a mixed-use property. The zoning regulations allow for a range of land uses in a single development project. The development provides for a variety of complementary uses which are well integrated
Mixed-Use Walkable Areas
These developments combine both the vertical and horizontal mix of uses within the same area. They are usually within a ten-minute walking distance to core activities.
There are several types of real estate as we have seen above, namely land, residential property, industrial property, commercial property, agricultural property, and mixed-use property.
This means that the real estate investor has many different options to choose from to grow their investment portfolio.
One of the main goals of a prudent investor is to maximize their income and reduce their risks. Diversifying their investment portfolio is one way of achieving both at a go.
An investor, or an aspiring investor, therefore, must carry out research and be creative enough to include two or more of these types of real estate in their investment portfolio.