Real Estate – The Four Basic Economic Characteristics



Real estate is real property consisting of the actual buildings and land on it, and its accompanying natural resources like water, plants or minerals; immovable real estate; a particular interest in it, buildings or residential real estate in general; and personal real estate, i.e., a mortgage to the real estate. Real estate is mainly represented by land or by a building, but it may also comprise private lands with fences or walls, which are not used for any practical purpose. Usually the most significant element of real estate is the land, because it can be used for several purposes such as housing, business, industrial, recreational or for agricultural purposes. But real estate also encompasses other valuable real or personal assets.

real estate

The economic characteristics of real estate must be analyzed to ascertain its value. One of the economic characteristics of real estate is the profit to the owner after the expenses necessary for its maintenance are deducted. This profit can be positive or negative, but it basically refers to the increase or decrease in the value of the property over the period of time. This economic characteristic of real estate is actually a very important determinant of the price of a certain property used as a shelter. In order to determine the value of a certain property used as a shelter, the land used as aestead must be inspected by a good lawyer, and it is advisable that the owner should get help from a lawyer specializing in real estate in order to have an objective opinion regarding the value of the property.

The other four types of economic characteristics of real estate include the operation cost, the income generated from rents, capital employed in operating the real estate and replacement cost. The operation cost refers to the total expense required to run and maintain the real estate and its related facilities, such as air conditioning system, heating system, electrical system etc. The income generated from rents refers to the income expected from the tenants of the real estate. Capital employed in operating the real estate must include the mortgage and interests paid by the owner during the term of his real estate contract.

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