Investing in Real Estate


Real estate is land and anything permanently attached to it, including buildings and

any natural resources like water or minerals. It’s considered a solid investment

because it provides an income stream that’s fairly consistent.

Real estate can be used for residential or commercial purposes. Residential real

estate includes single-family homes, condominiums and townhouses. Commercial

real estate encompasses office buildings, warehouses and shopping malls.



Land, or real property, is the ground upon which houses and other buildings are

constructed. Investing in this type of real estate often provides steady returns and is

considered to be a safe, hands-off investment option. It also offers the opportunity to

earn income through grazing, farming, mining and other functional uses.


Land includes all physical elements conferred by nature on a specific area or piece

of property, including the environment, fields, forests, minerals, climate, animals and

bodies of water. The scarcity of this type of real estate often makes it valuable, and

investors commonly purchase land with the intent of developing it for commercial or

residential projects subject to zoning orders.


In conventional economics, land is considered a factor of production alongside

capital and labor; therefore, the sale of land results in either a capital gain or loss. It

also grants the titleholder the right to any natural resources within its borders, and

air and space above it may be restricted by municipal, state or federal laws.



Real estate is comprised of land and the buildings — like houses, office buildings,

strip centers and apartment buildings — that are located on it. Generally speaking,

commercial real estate refers to property used for business purposes and residential

real estate refers to properties that serve as living space for people.


Office buildings fall under the commercial category, whether it’s a high-rise in

downtown Manhattan or a low or midrise building in a suburban office park. Other

types of commercial buildings include retail — which includes shopping malls and

individual stores — and industrial buildings, which can be used for research and

development, manufacturing, storage or distribution. Read more


Multifamily buildings, including apartments, condos and co-ops, also fall under the

commercial category. Like office buildings, they can be categorized into classes

based on their quality and age. Read how Dermody Properties grew AUM by 400%

with operational efficiencies on Dealpath. Vacant land and undeveloped land are

also considered to be part of the commercial real estate industry.



Improvements are additions or alterations to real estate that are more extensive

than ordinary repairs and substantially raise the property’s value. The IRS treats

these additions as capital improvements, providing special tax treatment and

exemptions from sales tax in some states. Improvements may also be used as part

of a 1031 exchange of like-kind property.


In real estate, the term “highest and best use” refers to a reasonably probable and

legal use of land or an improved property that is physically possible, adequately

supported, financially feasible and results in the highest value. This may exclude

uses that are not, and will likely not become, legally permitted because of zoning

regulations or other government requirements.


A leasehold improvement is a modification to a rental property that is designed to

meet the needs of a tenant, such as installing partitions or reconfiguring lighting

fixtures. A leasehold improvement is not a permanent alteration, so it does not

qualify as a capital improvement under the IRS standards.



Real estate includes land and any permanent human constructions on it as well as

its underlying ownership and usage rights. It can also include natural resources like

wild flora and fauna, crops, water and minerals.


Ownership in real estate can be held by a single person, joint tenants or trusts. Joint

tenancy with the right of survivorship means that all owners have equal undivided

shares in the property and upon death of one owner, their share passes to the

surviving joint tenant(s). This form of ownership provides both benefits and

disadvantages that should be carefully considered.


Other forms of ownership in real estate include a trust and corporation. These

options should be discussed with a real estate, tax and legal professional to

determine the best ownership structure for a particular situation. One of the benefits

of owning real estate in a trust is that it avoids probate and allows for greater

flexibility with regard to transfer and taxation.

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