A lot of different images come to mind when thinking of real estate: suburban homes, city skyscrapers, vast farmland. While many of us have an idea of what constitutes real estate, putting words to ideas may be a bit harder.
It’s worth brushing up how exactly to define real estate, going through its important characteristics both physical and economic in nature. Knowing what exactly real estate is and isn’t plays an important part in successfully adding this asset class to your investment portfolio.
Real estate physically
At its most basic, real estate is physical property you can see, feel and touch. These physical characteristics are what make it a unique asset class. Unlike stocks or cryptocurrency, which are mostly dealt with electronically, real estate is a material, substantial entity that exists in the real world.
When we talk in general terms about real estate, it’s important to have a definition in mind beyond simply a home. Real estate constitutes a physical piece of land and some amount of space above and below that land.
The first characteristic is stability, or immobility, which basically means that the land exists in one spot and can’t really be moved. You buy a piece of land and while you can dig down or build up, that land is something finite and extant. You can alter the topography, but you still own the space and that space isn’t going anywhere.
Similarly, while a building on the land may be torn down or built up, that land is still permanent. What changes within it don’t matter to its indestructibility. Real estate endures, and its durability over time is an important characteristic to keep in mind.
Lastly, real estate is unique. Each piece of land has its own distinct aspects, however similar it may seem to its neighbour. The location of a piece of real estate, accessibility to the site as well as the quality of the soil, air and nearby water all play a factor into determining the viability of its unique physical aspects.
Real estate economically
While physical characters are worth keeping in mind, it’s also important to note the economic characteristics of real estate. This is where investing comes into play.
Because land is a finite resource on the planet, the supply is fixed. That means real estate is essentially scarce or rare. As demand increases, the supply decreases, and that generally drives up the value of the property. There is only so much land available!
As many commercial and residential property owners know, real estate can also be improved. These changes and alterations can increase the value of the property. There are two types of improvements: those that are private in nature are improvements made on the land, such as building a house itself, or adding to your home with a deck or a fence. Improvements of a public nature, meanwhile, are those done to the land, and are often led by local or provincial governments. This includes building sidewalks, enhancing a sewer system or creating a better way to make electricity available.
Many improvements provide a permanent investment to a property, particularly those done to the land. Permanent investments are those that cannot be removed or replaced economically, and thus provide value to the property owners.
The last economic characteristic of real estate worth noting, and perhaps the one that is most popular, is location. Here though, we’re not so much talking about the physical location but instead, how that location is perceived by the public at large. Its proximity to institutions like universities, hospitals and schools, as well as connection to retail, restaurants, art and culture, make real estate economically attractive. Convenience to transit, whether its a public subway system or highways, contribute to its economic location, as does reputation. Perception of location influences value.
When people say, “Location is everything,” it’s not just the physical aspects, but what is personally important to someone when they are looking for property.
Crowdfunding real estate
addy focuses on commercial real estate investment opportunities, considering both the physical aspects of a property as well as the economic viability. Unlike a REIT, addy investments are properties you know ahead of time and are given the opportunity to invest in with plenty of resources available in order to make the best decisions.
These properties are located across Canada and are a diverse collection of opportunities, from a smart hotel in Montreal to a Starbucks in Chilliwack. As a member, you can take part in fractional ownership of these exciting properties.