Real estate or real property? While both real estate investing terms have much in common, a key difference sets them apart. Let’s consider real estate versus real property and get some clarity on these two concepts.
What is real estate?
Real estate refers to a plot of land along with any attachments or improvements, whether natural or man-made, that may be present on that land. Natural attachments may include water, trees, minerals, and oil. Man-made or artificial attachments include houses, buildings, sidewalks, and other features built to enhance the land for residential or commercial use.
Residential real estate includes properties intended to be sold to a buyer or rented to a tenant; these include houses, townhouses, and apartment buildings. Commercial real estate also deals with land and buildings, but it has a distinct focus on business tenancy, which includes offices, restaurants, and retail establishments. There’s also a subcategory of commercial real estate known as industrial real estate, which includes investment properties like warehouses that are used in large-scale manufacturing and production.
What is real property?
Real property is not exactly the same as real estate. It’s similar in that the term refers to the land and any additions or improvements made to it. But behind the physical nature of the real estate, real property also includes the owner’s rights of use and enjoyment of that property.
What is the bundle of rights?
There are five property rights — known collectively as the bundle of rights — granted to those who have ownership interest in a real property:
- The right to possess: This means an owner or investor has the title and is therefore allowed to occupy the property.
- The right to control: This means a property owner, landlord, or real estate investor is allowed full usage of the property — as long as they don’t break any laws doing so.
- The right of exclusion: This means the title owner is allowed to prevent other parties from entering the property. This right, however, is superseded by a property search warrant by law enforcement. Another scenario would involve a utility company needing access to the property, in which case an easement might be used to waive this right.
- The right of enjoyment: Just as with the right to control, the title holder is allowed to use the property at their own discretion, as long as they are not breaking the law.
- The right of disposition: This right allows the current owner to transfer property ownership (fee simple) to another party, whether temporarily or permanently. This right is enjoyed only when the property is free of a mortgage, lien, or other encumbrance.
A word about semantics
You might be thinking, “Well, of course a property transaction includes the land and the buildings on it.” Or, “Real property? Does that mean there’s fake property?”
Even when the details of the property in question seem obvious, making assumptions in real estate isn’t wise. Contracts are vital, and getting their language right is everything, so it’s important to know when we’re talking about the land and building alone or the ownership rights that go along with it.
The Millionacres bottom line
It’s easy for the terms “real estate” and “real property” to be used interchangeably when referring to the real estate market. However, real property refers to the entire experience of being a property owner, not just the land and structures on it.