Real estate is an asset class that can be used to diversify a portfolio. It offers cash
flow, tax benefits and competitive risk-adjusted returns.
Real estate consists of land and the buildings on it, as well as natural resources like
growing crops, minerals or water. It is immovable property that can be owned by
individuals or entities.
Land
Land is a basic real estate asset, and it’s one that can be highly profitable. Investors
in land can earn income by developing their property or simply holding it and
waiting for it to appreciate.
Land includes any property that is permanently attached to the ground, like
buildings and fences. It also includes everything that is on the surface of the ground,
such as trees and minerals. Land is classified as “improved” when it has structures
on it, and it’s “unimproved” if it doesn’t.
Residential real estate consists of homes, including single-family houses, apartments
and condos. Commercial real estate consists of office buildings, shopping malls and
other businesses like hospitals, schools and hotels. Industrial real estate consists of
manufacturing buildings, warehouses and other businesses that distribute goods.
Buildings
Real estate includes not just the land but also the buildings and structures that sit on
- Typical building types include office, industrial, retail and multifamily.
Office buildings are designed for the specific needs of running a business. They can
range from glass and steel high-rises in the central business district of a major city
to single-story suburban offices. Despite declining in-office traffic, the office sector is
still one of the most lucrative real estate asset classes. Read more https://www.sellmyhousecompany.com/we-buy-houses-walla-walla-wa/
Industrial property includes manufacturing buildings and land for research,
production, warehousing and distribution of goods. It’s important for investors to
understand the differences between class A, class B and class C industrial properties
as they evaluate new construction, renovation and redevelopment opportunities.
Structures
Sole-ownership investment real estate provides direct control and responsibility for
the property and typically qualifies for a 1031 exchange. However, the single ownership
structure limits the amount of commercial real estate that can be
invested.
Private equity real estate structures are generally offered in a syndication model.
The management firm takes on the role of General Partner and is in charge of
identifying and analyzing investment opportunities, procuring and closing financing,
and managing the asset after acquisition and disposition. In return, they collect fees
and a portion of the profits from the investment.
Another alternative to ownership is a Delaware Statutory Trust (DST). This
investment structure is typically best suited for clients seeking completely passive
ownership of institutional grade replacement properties managed by third parties.
Improvements
Improvements to real property can be as simple as repairs or as complex as groundup
new construction. Generally, improvements are more extensive than repairs and
substantially raise the value of the property. Improvements must be substantiated
and documented.
Leasehold improvements, on the other hand, are changes or additions that are made
to a rental property in order to configure it for a particular tenant. This can include
things like painting, installing partitions, changing the flooring, or adding customized
light fixtures. These improvements are not considered permanent, so they cannot
qualify for sales tax exemption.
The IRS also allows investment property owners to deduct the cost of leasehold
improvements over their useful economic life. This is often called a depreciation
deduction.
Ownership
Ownership of real estate gives the owner rights to use, improve and sell the
property. However, these rights vary according to how the home is titled and how it
is shared.
Residential real estate consists of homes, condominiums and apartments.
Commercial property includes offices, warehouses and shopping centers. Industrial
property is land used for the production of goods and services, such as mines and
farms.
When a single person owns a piece of property outright, it is called fee simple
absolute ownership. This type of ownership allows the holder to enjoy and transfer
the property to others upon death, with no restrictions. People also have the option
of establishing corporations, trusts and partnerships to manage their property
assets. Each method has advantages and disadvantages.
