Real Estate

• Land and everything permanently affixed to or constructed upon it, whether natural or man-made, are referred to as real estate.
• Residential, commercial, industrial, raw land, and special use are the five primary types of real estate.
• Buying a house, a rental property, or land is all considered real estate investing.
  REITs and pooled real estate investment are two ways to make indirect real estate investments.

Understanding Real Estate

• Although the terms land, real estate, and real property are sometimes used synonymously, they have different meanings.
• The earth’s surface, with its trees, minerals, and water, is referred to as land. It extends down to the earth’s center and up to the airspace above.
• Land’s physical attributes are its immobility, indestructibility, and uniqueness, as each piece of land has a distinct geographic location.
• Land and any long-term man-made additions, including homes and other structures, are both considered to be part of real estate.
• Improvements are any alterations or additions to the land that raise or lower the value of the property.
• The entire amount of money and work required to construct the project represents a significant fixed investment once the land has been renovated.
• Improvements like drainage, power, water, and sewer lines are typically permanent, even though a building may be demolished.
• Land and its additions, as well as the rights that come with owning and using them, are all considered real property.

What Are Types of Real Estate?

Residential real estate is any property that is used for residential reasons. Examples include single-family homes, condominiums, townhouses, duplexes, cooperatives, and multifamily residences.

Apartment buildings, petrol stations, supermarkets, hospitals, hotels, offices, parking lots, dining establishments, retail establishments, theaters, and shopping malls are examples of commercial real estate.

Any property utilized for production, distribution, manufacturing, storage, and research and development is considered industrial real estate.

• Land: Consists of agricultural lands including farms, orchards, ranches, and timberlands as well as undeveloped and vacant land.
• Special purpose: Publicly owned property, including parks, government buildings, cemeteries, libraries, houses of worship, and educational institutions.

The Economics of Real Estate

According to the U.S. Census Bureau, housing starts—the number of new residential construction projects in a given month—are an important economic indicator and a key driver of economic growth in the US.

The report includes data on building permits, housing starts, and housing completions for single-family homes, two- to four-unit households, and multifamily buildings with five or more units, including apartment complexes1.

Because the data can give a broad idea of the future of the economy, economists and investors closely monitor home starts. Furthermore, the kinds of new housing developments can provide hints regarding the state of the economy.

There may be an imminent scarcity of single-family homes, which would raise home prices, if housing starts show fewer single-family and more multifamily starts. Twenty years of house starts, from January 1, 2000, to February 1, 2020, are displayed in the following chart.

How to Invest in Real Estate

Homeownership, rental or investment properties, and house flipping are some of the most popular real estate investment strategies.

A real estate wholesaler is one kind of real estate investor who enters into a contract with a seller and then locates a buyer. Wholesalers of real estate typically locate and purchase distressed properties without making any improvements or renovations.

Profits from real estate investments come from rent or lease income as well as the property’s increased value. In the year-end 2021 U.S. house sales report, home sellers countrywide achieved a profit of $94,092, a 45.3% return on investment, up 45% from $64,931 in 2020, and up 71% from $55,000 two years prior, according to ATTOM, which manages the country’s leading property database.

A real estate investment trust (REIT), a business that owns a portfolio of income-producing real estate, is one way to make indirect real estate investments. REITs come in a variety of forms, such as equity, mortgage, and hybrid REITs.

They are also categorized according to the way their shares are purchased and sold, including private REITs, public non-traded REITs, and publicly listed REITs.

Purchasing shares that are listed on an exchange is the most common method of investing in a REIT. REITs are very liquid and transparent since their shares trade on an exchange just like any other security, including equities.

Dividend payments and share appreciation are how REITs generate revenue. Investors have the option to trade in real estate mutual funds and exchange-traded funds (ETFs) in addition to individual REITs.

Mortgage-backed securities (MBS) are an additional way to invest in real estate. One such choice is the Vanguard Mortgage-Backed Securities ETF (VMBS), which is composed of federal agency-backed MBS with minimum pools of $1 billion and a one-year minimum maturity.4.

Or the iShares MBS ETF (MBB), which tracks the Bloomberg U.S. MBS Index and concentrates on fixed-rate mortgage securities. Bonds issued or guaranteed by government-sponsored companies like Freddie Mac and Fannie Mae are among its holdings.