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Real Estate vs Real Property: What Are the Differences?

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The global real estate market reached a value of $3.69 trillion in 2021.

Many people know that investing in real estate is a great way to generate income. Before investing, however, it’s important to understand what you’re doing. While the terms are sometimes used interchangeably, real estate and real property are two different things.

For a rundown of real estate vs real property, keep reading

What Is Real Estate?

Real estate is any piece of land that someone can own. This includes any natural elements or man-made improvements that are included.

In terms of natural elements, these are things that are found on the land without any intervention. This typically includes things like water, plant life, mineral deposits, oil, etc.

Man-made or artificial improvements are anything that has been added, either by yourself, or someone else. This would typically be buildings, fences, sidewalks, and more.

Types of Real Estate

Real estate can be split into three main categories. These are residential, commercial, and land.

Residential Real Estate

This is what most people think of when they hear the term “real estate”. It includes any property that’s designed for human habitation. People can live in real estate that they own, or they can rent it from someone else.

A single piece of residential real estate can host an individual, a family, or even multiple families, depending on the nature of the property. Real estate most commonly refers to leased property. Buildings like houses, apartments, townhomes, and condos fall into this category.

When people want to get onto the property ladder, residential real estate is often a good place to get started. The value of homes tends to rise with time, making it a great way to invest long-term. Many investors who have enough money will purchase multiple real estate properties, either leasing them out or selling them for a profit.

If you’re looking for a home for yourself and your family, it’s common to lease, but people often purchase when they have the finances to do so. By going through a real estate agent like Dean Miller Real Estate you’ll be able to find a property that’s ideal for you. You can find more information here.

Commercial Real Estate

Commercial real estate includes any buildings that are built and used with business applications in mind. This includes a wide range of properties such as restaurants, retail shops, office buildings, and more. Like residential real estate, commercial real estate is often leased, but it can also be owner-occupied.

Sometimes commercial properties are converted into residential properties, and vice-versa. This is uncommon, however, as it can involve a huge amount of work, and there may be certain legislative issues to contend with. It’s rarely worth the money and effort to do this.

Industrial real estate is a sub-category of commercial real estate. It refers to properties that are used for industrial applications such as warehousing, manufacturing, production, or assembly.

Land Real Estate

Land real estate covers farms, ranches, and other plots of land. All of these can include various attachments and improvements (both natural and man-made). Sometimes this land can have no attachments whatsoever, and this is known as “raw land”.

What Is Real Property?

The term “real property” is a lot less common, making it the less well-understood of the two. It actually encompasses a broader aspect than real estate.

Real property covers an area of land along with any buildings and/or improvements on it. It also includes the rights of use to the land and anything on it. Leaseholders/renters typically hold the right to inhabit buildings or land – this is a real property consideration but doesn’t come under the umbrella of real estate.

The owner of real property owns the real estate, along with the bundle of rights. Put simply – the owner can use the property however they like.

Bundle of Rights

The bundle of rights that a real property owner has includes 5 main rights. These are:

  1. The right to possess – this gives them the right to occupy the property as they own the title.
  2. The right to control – this allows them to use the entirety of the property.
  3. The right of exclusion – with this the owner can deny other people or parties access to, and use of, the property.
  4. The right of enjoyment – the owner can use the property in any way they see fit.
  5. The right of disposition – this gives the owner the right to rent or lease the property or sell it if they so choose.

While real estate carries physical rights, they’re exceeded by these real property rights. It’s worth noting that when exercising these rights, the owner must remain within the bounds of the law. The police can override the right of exclusion, for example, with an appropriate warrant.

Main Difference Between Real Estate vs Real Property

While real estate and real property cover some of the same components, the main difference lies in the bundle of rights that come with real property. While real property includes these rights and the physical objects of the property, real estate only includes the physical objects.

Knowing Your Rights

When looking at real estate vs real property, sometimes the difference isn’t so clear. This is because you could potentially own some real estate with just some of the rights of real property. A typical example of this would be a child inheriting property from someone who isn’t yet deceased.

In such a case, the child would own the real estate and have the right of possession, but may not have the right of control. The best way to understand your rights is to consult your contract and discuss it with a lawyer if need be.

For more real estate articles, check out some of our other blog posts.

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