What is Real Estate?
- Real Estate is the shelter for family
- Real Estate is the shelter for rainy days - an instrument to build real assets
- Real Estate is future
Type of Real Estate
Land
Land is the baseline for all types of real property. Land typically refers to undeveloped property and vacant land. Developers acquire land and combine it with other properties (called assembly) and rezone it so they can increase the density and increase the value of the property.
Residential Real Estate
Residential real estate property purchased for individual use, most often to provide housing for families. This is the most common type of estate and is theasset classthat most people are familiar with.
Within residential, there are single-family homes, apartments, condominiums, townhouses, and other types of living arrangements.
Multifamily
Multifamily Residential is where multiple separate housing units for residential inhabitants are contained within one building or several buildings within one complex. The multifamily sector covers all types of residential real estate outside of single-family, including apartments, condos, co-ops, and townhomes.
Like office buildings, multifamily properties are often classified into Class A, Class B and Class C.
Apartment rental buildings, in particular, are split into multiple property types. Freddie Mac has separated them intosix different buckets:
- High-rise: A building with nine or more floors and at least one elevator.
- Mid-rise: A multistory building with an elevator, typically in an urban area.
- Garden-style: A one-, two-, or three-story apartment development built in a garden-like setting in a suburban, rural, or urban location; buildings may or may not have elevators
- Walk-up: A four-to six-story building without an elevator.
- Manufactured housing community: A community in which the operator leases ground sites to owners of manufactured homes.
- Special-purpose housing: A multifamily property of any style that targets a particular population segment, including student housing, seniors housing, and subsidized (either low income or special need) housing.
Office
Office buildings are generally categorized into two types: urban or suburban. Urban office buildings are found in cities and include skyscrapers and high-rise properties—some may even total as much as a few million square feet in size. Suburban office buildings are usually smaller in stature and sometimes grouped in office parks.
Office buildings can be multi-tenanted or single-tenanted, and many are build-to-suit. They’re also ranked inthree tiers:Class A,Class B, andClass C. The Building Owners and Managers Association International (BOMA)explains-
- Class A: Most prestigious buildings competing for premier office users with rents above average for the area. Buildings have high-quality standard finishes, state-of-the-art systems, exceptional accessibility and a definite market presence.
- Class B: Buildings competing for a wide range of users with rents in the average range for the area. Building finishes are fair to good for the area. Building finishes are fair to good for the area and systems are adequate, but the building does not compete with Class A at the same price.
- Class C: Buildings competing for tenants requiring functional space at rents below the average for the area.
- Medical office buildingsare a specialty sub-sector in this space.
Retails
Retail comprises the properties that house the retailers and restaurants we frequent. They can be multi-tenanted (often with an anchor, or lead tenant, that serves to drive traffic to the property) or single-use, standalone buildings.
The retail sector is complicated, asthe type of shopping center—for instance, a regional mall, community center, strip center, or power center—is dictated by many metrics, including the size, concept, types and number of tenants, and trade area.
Single-tenanted buildings you may come across include big box centers (usually with a national chain like Target, Walmart, Best Buy, or Dick’s Sporting Goods) or pad sites (single-tenanted buildings within a shopping center, often a bank, restaurant, or drug store).
Hotel
- Limited-service:Does not have room service, on-site restaurant, or concierge.
- Full-service: Includes room service and has on-site restaurant.
- Boutique: Located in an urban or resort location, has full-service amenities, is not part of a national chain, and has fewer rooms.
- Casino: Has a gaming component, such as video poker or slot machines.
- Extended-stay: Limited-service with fully equipped kitchens in guest rooms and larger rooms for long stays.
- Resort: Full-service, large amount of land, in a typical resort location (such as Hawaii or Orlando), and has an attached golf course, water park, or amusement facility.
The hotel sector covers establishments providing accommodations, meals, and other services for travelers and tourists. The hotels may be independent (boutique) or flagged - the latter means it’s part of amajor hotel chain, such as a Marriott or Sheraton. Real Capital Analytics splits them intosix separate categories:
Commercial Real Estate
Commercial property refers to land and buildings that are used by businesses to carry out their operations.
property that is sold, leased, or used to achieve a predetermined business objective. It’s used as an investment to achieve an anticipated rate of return on the funds invested.
Examples include shopping malls, individual stores, office buildings, parking lots, medical centers, and hotels.
Industrial
Industrial real estate refers to land and buildings that are used by industrial businesses for activities such as factories, mechanical productions, research and development, construction, transportation, logistics, and warehousing.
Industrial buildings house industrial operations for a variety of tenants, and are mostly located outside of urban areas, especially along major transportation routes. The low-rise buildings can also be grouped into industrial parks. The properties are categorized into four types:
- Heavy manufacturing:These buildings are heavily customized and house machinery manufacturers need to operate and produce goods and services.
- Light assembly: These aren’t as customized and may be used for product assembly or storage.
- Bulk warehouse: These properties are usually large and are used as distribution centers.
- Flex industrial: These properties contain a mix of both industrial and office space.
- Research and development(R&D) facilities are a specialized type of industrial.
Special Purpose
Special purpose real estate may be owned by commercial real estate investors, but don’t fall into any of the sectors mentioned above. For instance, amusement parks, churches, self-storage, and bowling alleys are special-purpose facilities.
Why Real Estate?
Benefits of Real Estate
Stability
Real estate is less volatile and has historically outperformed the S&P 500.
CashFlow
Tentants Pay Monthly rent which covers all expenses and provides profits to the owners
Amortization
Tenants pay down the debt which increases your equity, creating long-term wealth
Tax Benefits
Depreciation is a free tax write-off that allows you to keep more profits in your pocket
Leverage
You can leverage real estate, allowing for the purchase of $10M with only $2.5M
Appreciation
Real estate appreciates in value
