Real estate is the land along with any permanent improvements attached to the land, whether natural or man-made—including water, trees, minerals, buildings, homes, fences, and bridges. Real estate is a form of real property. It differs from personal property, which are things not permanently attached to the land, such as vehicles, boats, jewelry, furniture, and farm equipment.
Physical Characteristics of Real Estate
Land has three physical characteristics that differentiate it from other assets in the economy:
- Immobility. While some parts of land are removable and the topography can be altered, the geographic location of any parcel of land can never be changed.
- Indestructibility. Land is durable and indestructible (permanent).
- Uniqueness. No two parcels of land can be exactly the same. Even though they may share similarities, every parcel differs geographically.
- Durability Real estate investments can be extremely durable and build multi-generational wealth. Unlike other investments that have fixed maturities, there is no fixed maturity for a real estate investment. You can sell it in a few days if you see a good opportunity, or you can hold it for decades. Many of the most profitable pieces of real estate in American cities have been held for several decades, and some of the profitable real estate in Europe has been held by the same trust or family for centuries.
Economic Characteristics of Real Estate
Land also has some distinct economic characteristics that influence its value as an investment:
- Scarcity: While land isn’t considered rare, the total supply is fixed.
- Improvements: Any additions or changes to the land or a building that affects the property’s value is called an improvement. Improvements of a private nature (such as homes and fences) are referred to as improvements on the land. Improvements of a public nature (e.g., sidewalks and sewer systems) are called improvements to the land.
- Permanence of investment: Once land is improved, the total capital and labor used to build the improvement represent a sizable fixed investment. Even though a building can be razed, improvements like drainage, electricity, water, and sewer systems tend to be permanent because they can’t be removed (or replaced) economically.
- Location or area preference. Location refers to people’s choices and tastes regarding a given area, based on factors like convenience, reputation, and history. Location is one of the most important economic characteristics of land (thus the saying, “location, location, location!”).
