Redirected from Real Estate
Because such property is essential for industry or other activity requiring a lot of fixed physical capital, economics is very concerned with real property and rules regarding its valuation and disposition, and obligations accuring to its owners. In economic terms, real property consists of some natural capital (or land, one of the factors of production especially in agriculture), and infrastructural capital (the buildings, water and power lines, and other improvements necessary to make real property useful for some human purpose). Other fixed physical assets, indistinguishable economically from infrastructure, such as machines, may be stored on real property and may require natural or infrastructural attributes (such as running water for a turbine or an isolated location to allow loud noise emissions) hard to duplicate even nearby.
Accordingly, real estate tends to be difficult to evaluate in terms of commodity markets - each piece is unique and has unique advantages and drawbacks. What is more, zoning laws and severability requirements vary so much that the law regarding real estate is among the most complex law there is. Specialists are usually required to valuate, broker or sell real estate. Real estate businesses divide into several broadly stated types:
Brokers attempt to match available properties with buyers. They usually retain a monopoly access to a multiple listing service in order to share information with other brokers. Agents work for brokers. The basic profits are a 6% fee on the purchase price. 3% of the fee goes to the broker listing the property, and 3% to the broker locating a buyer.
Commercial Real Estate businesses rent buildings and parking lots to other businesses. Businesses usually make excellent tenants. They pay on time, and generally fulfill contractual obligations. The difficulty is that it can be difficult to find commercial tenants. Some commercial real-estate owners specialize in small retail properties, and place their own businesses, usually franchises, in their own real estate. Basic profits come from the fact that a building that sold for $100 a square foot may rent for $1 per square foot per month. To increase ROI, commercial landlords place a mortgage with a lender. A major source of cash is that they borrow the cost of the building, but must depreciate it. Most landlords reinvest the cash allocated for depreciation, growing their assets.
Apartment Buildings are usually owned by businesses. The management and upkeep costs are much larger than commercial real-estate, but the business has far less difficulty finding tenants. To increase ROI, commercial landlords place a mortgage with a lender. Basic profits come from the fact that a building that sold for $100 a square foot may rent for $1 per square foot per month. A major source of cash is that they borrow the cost of the building, and invest the cash allocated for depreciation. The standard way of coping with the management problems is to retain professional managers certified for residential real estate.
Developers build on land, thereby increasing its value. Developers are extremely concerned with providing useful buildings and structures. Useless buildings have no value, which means they can't be sold or rented. The basic profits come from the fact that rural land sells for about $1200/acre in the U.S., and converts to 43,560 square feet of building that can be sold for $100/sq. foot, or rented for about $1/sq.foot. However, the building can only sell if it's in the right location, has utilities, construction costs can be managed, and the project completes on time. The standard solution to the construction problems is to retain a registered professional engineer who specializes in supervision of construction, and involve this person before purchasing the land. The standard solution to the salability problems is to retain an architect to design an attractive development. Many developers retain ownership of profitable rental properties.
See also: condominium.