When we talk of real estate or real property, we are referring to land and building on it together with all the natural resources like water, minerals, farmed crops, uncultivated flora and fauna. This is a sector in the economy known as real estate business where there is selling, buying, or renting of land, buildings or housing.
Based on it use, real estate can be broken down into three broad categories; residential, industrial and commercial real estate.
Residential real estate include undeveloped land, houses (usually a single family or multifamily house examples include apartments, duplex, condominium), town homes that are available for occupation for non-business purposes. The size of an apartment or house differs from country to country which makes it important to verify what kind of surface definition has been used. For example, in the United States, the size includes the area of “living space” only excluding garage and other non-living spaces while in Europe this may include the total area of the walls enclosing the home, thus including any attached garage and non-living spaces. Financial investment here is the smallest compare to commercial and industrial real estates.
Commercial real estate includes office buildings, warehouses, hotels, strip malls, restaurant, gas station and retail store buildings. These are properties use mainly for business purposes (as its name applies) rather than residential real estate which solely to provide for living space. While some businesses own the buildings they occupy, the more typical scenario is that an investor owns the building and collects rent (usually quoted in annual rental dollars per square meter) from each business that operates there.
Industrial real estate includes properties mainly use for manufacturing and production like factory, mines and farms. Generally, this type involves larges capital investment to get the land, building (in most cases) and machineries. Therefor investors in this sector often time share the burden by going into partnership and/ by means of mortgage loan from a reputable financial establishment. Risks arising from this sector are usually mitigated by means of insurance contract (transfer of risk to another party).
The financial value of real estate property usually depends on its location (city or village, commercial area, administrative environment), the type of the property (residential, commercial or industrial) and other factors like availability of jobs, property taxes, national or global recession, school quality and crime rates. Investing in real estate just like other businesses may result in gain or losses through revenue from rent (land already developed into residential or commercial real estate) and appreciation of the real estate value (developing raw land or area around the land one own).
Real estate transaction deals with the process of transfer of rights in a unit of designate real estate between two or more parties. Generally, the parties include the buyers, sellers and sometimes the transaction maybe facilitated through an intermediary known as a middle man or real estate agent which maybe a person, bank, insurance company, advertising agency, credit union or cooperative society.
Nowadays, many families seek accommodation (family accommodation) but due to economic meltdown and home prices are generally well above the savings of young people starting a family; they find it difficult to pay the complete financial value at a go. This has pushed many to result into mortgage loans on either a fixed rate or variable rate. This enables them to seek financial help with pledge to pay back in instalments with some interest on it. After a potential home owner have proven eligibility and secured a mortgage loan from a bank, they are required to complete additional set of steps to make sure the property is legally for sale and in good condition.
If the real estate is being purchase by means of mortgage loan, the actual financial value of the real estate shall be paid in percentages over a period of many years. Usually, the borrower pledges to fulfilled payment and render to the lender collateral to back his pledge. If eventually he remain faithful and pay as stated on the contract, he become rightful owner of the real estate but if he default payment, the lender turn back to the collateral to recover his funds.
Real estate transactions has over the years proven beneficial to the society as well as to the government for example, it has open the a huge sector for employment, facilitated many young people to become house owners (via mortgage), many young families now acquired good apartment to rent and live happily which otherwise would not have been possible, government and private companies can possibly transfer its workers from one region to another with the assurance that they will find real estate to accommodate them, many businesses are flourishing on lease office which could have not been possible to establish if the owners were to construct a building to house the office.
That notwithstanding, real estate business has its own down side mostly that of being faithful by either the buyer, seller or the middle man (third party). Trying to make more money on the same property has pushed some sellers to sale the same property to more than one person (double crossing). There are recorded situations of over pricing, corruption and other criminal act that have eaten deep into the real estate sector.
Worth mentioning is the contribution of the intermediaries (middle men). They help to advertise thereby creating awareness of available real property. In Africa where internet communication is still remote, real estate business rely on these middle men. It has therefore employed many young men who can carry such information from sellers to potential buyers by means of mouth to mouth communication. Banks and other financial establishments mostly function as facilitator, providing the needed cash from buyer’s savings or by means of mortgage loan.
Real estate business is sustainable, profitable, assuring and usually long term investment.