If you are a business owner or entrepreneur looking to invest in real estate, you may wonder what the difference between real estate vs. real property is. Both terms refer to land and the things attached to it, but some differences can help you decide which type of investment is right for you. Let’s explore the key distinctions between these terms and how they can affect your decision-making as an investor.
What is Real Estate?
Real estate refers not only to physical structures but also includes the rights associated with them, such as ownership rights, leasehold rights, and other legal interests in real property. These rights allow individuals or businesses to use or possess a given piece of land for a certain period. For example, suppose a company leases a building from another company for 20 years. In that case, that company has a legal interest in that building referred to as a leasehold right – even if the building itself isn’t owned by them outright.
What is Real Property?
Real property refers specifically to the ownership rights associated with a particular piece of land or building. These rights include possession, use, control, exclusion, enjoyment, and disposal of the land or building. While many people use the terms “real estate” and “real property” interchangeably, they refer to two different things; one refers to an item (the real estate), while the other refers to legal rights associated with it (the real property).
Considerations When Choosing Between Real Estate vs. Real Property
- Location: Location is a key factor when selecting between real estate and real property. The location of the land, its proximity to amenities, transportation networks, zoning regulations, etc., need to be taken into account when making your decision.
- Investment Potential: Depending on the size and type of land you are investing in, there are different types of investment potential available through real estate versus the real property. Investing in a large piece of land can be beneficial if you plan to develop it or use it as an income-producing asset, whereas investing in smaller parcels may have a different level of return.
- Taxation: Since the IRS treats real estate and real property differently, it’s important to understand the different types of taxation that apply when investing in each type of asset. Depending on your income level and tax bracket, one option is more appealing.
- Financing: Financing options for real estate vs. real property can vary greatly depending on the type of investment. Lenders are more willing to provide financing for real property than real estate due to the greater security offered by tangible assets like land.
- Risk: Investing in any asset carries a certain level of risk, but with real estate and real property, it’s important to understand how each type of asset carries different kinds of risk. Real estate is often more exposed to changing market conditions and potential vacancies. In contrast, real property investments may be less susceptible but require more upfront capital than real estate investments.
Conclusion
Investing in either real estate vs. real property can be a great way for entrepreneurs looking for long-term returns on their investments; however, entrepreneurs need to research before deciding which type of investment is right for them. By understanding the differences between these two types of investments – including what each entails and what factors should be considered – entrepreneurs can make informed decisions about where they should put their money so they can get the best return on their investment possible.