Property is a general word to use since there are multiple classifications of real estate: houses, apartments, land, offices, factories, warehouses, and others. A few factors are involved in describing types of property and classes of real estate. Having a working knowledge of these descriptions becomes vital to various careers in real estate. To understand the different types of real estate, we will look at the areas where these differences influence business and delve into the types and classifications of property.
Who Needs to Know About Real Estate Classes and Property Types?
In what areas of business would this information become helpful? New homeowners, landlords, licensed real estate agents, and investors will benefit similarly from learning about the different types of property. Some people who need to know about real estate and property types include:
- Investors.
- Property Developers.
- Sales Agents.
- Real Estate Brokers.
- Appraisers.
- Mortgage Brokers.
- Property Managers.
Knowing about the types of properties allows people in these areas of expertise to decide on sales and investments based on a property’s quality and overall value. For example, a real estate agent looking for a property that will allow two families to live in individual units on the same property might suggest a residential duplex property instead of an industrial storage unit. Similarly, a real estate investor will account for the class or quality of a property before investing. By considering the current value and calculating its prospective return on investment (ROI), buyers, sellers, and advisors can reduce risk in their dealings.
Types of Real Estate
We can divide real estate into five primary types: residential, commercial, industrial, land, and special use. The factors that differentiate one type from another are the number of units, intended use, location, and structure.
Residential
Residential real estate is any property designed to have between one and four individual dwelling units. This type includes single-family homes, duplexes, and dwellings with fewer than five separate units. Residential properties can be used for a primary residence, rental income if one or more attached units are rented, or for renovation and sold at a profit. Some examples of residential properties are townhouses, triplexes, single-family homes, and cooperatives.
Commercial
The barbershop, coffee shop, and grocery market you see lined up along a brick-faced building in a business district all qualify as commercial real estate. This type of property usually refers to the types of real estate owned or rented by small businesses in a high-traffic area. Commercial real estate represents a large portion of the businesses we regularly encounter, including gas stations, strip malls, most restaurants, offices, hotels, and hospitals. The purpose of these types of real estate is not housing or production, but for the carrying out of business.
Industrial
An indispensable part of every economy and community, industrial real estate properties serve as production, storage, and distribution centers. These include factories, warehouses, offices, distribution centers, and packaging centers. As commercial real estate grows in an area, industrial real estate will soon follow as businesses will need places to store their products and distribute from.
Land
Land is a versatile type of real estate. Most people buying land intend to build on it, turning it into a different type of real estate, such as residential or commercial. Depending on the location, an investment of land can hold much potential for development.
Special Use
The last type of real estate is special use properties. These include religious buildings, schools, campgrounds, theaters, museums, and other properties with specialized purposes. This property type is limited in its purpose and only serves a limited, particular function.
Occasionally, these types of properties overlap, such as with mixed-use properties. In these cases, one property will serve the function of more than one type of real estate. For example, a cafe is a commercial property, but the upper floor of the same building might serve as a private apartment, making it a residential property.
What are Property Classes?
In addition to categorizing real estate by type, we also define properties by classes: Class A, Class B, and Class C. This is essentially a system by which we rank properties by their value and quality from highest to lowest. By listing a property and potential investment into one of these classes, buyers, sellers, and advisors can evaluate the proportional risk and reward.
Class A
Class A properties are typically newer constructions at the highest real estate classification, built within fifteen years, with high-demand features, quality maintenance, and convenient location. These types of properties usually allow for higher rental income for owners and greater convenience for tenants. Class A properties encompass those opportunities offering higher risk for higher reward.
Class B
Class B represents slightly older properties with lower rental income potential, fewer amenities than Class A constructions, and somewhat less convenient access to businesses and transportation. Only slightly secondary in value to Class A, these properties still offer the potential for quality return on investment. In addition, one can increase profit from a Class B property through simple upgrades and renovations.
Class C
Class C generally classifies properties older than twenty years old in less convenient locations. Most properties in this category offer the lowest rental income potential and have higher vacancy rates than Class A and Class B properties. Often needing renovation or repairs, these stand in lower quality than the other classes. The return on investment in this category depends mainly on the maintenance and amenities available and tenant retention.
There are many factors to consider when buying or selling any property. The different types of real estate offer varied opportunities for those who wish to invest in this uncertain long-term game. Researching property records and getting trustworthy advisement are essential when considering investing in real estate. Developing a working knowledge of these differences can help you significantly improve profits and reduce risk.
