Real Estate that Affects Property Value
Real estate has several unique characteristics that affect its value. There are economic characteristics and physical characteristics. Real estate is a product to be purchased but it is different from anything else due to the characteristics that will be discussed here.
The economic characteristics that influence value are scarcity, improvements, permanence and area preference. Scarcity is simply demonstrates in the savings, “They aren’t making anymore.” The supply of land has a ceiling and cannot be produced more than what exists today. This value of this supply however, is influenced by other characteristics.
Improvements, such as buildings on one parcel of land may have an effect on the value of neighboring parcels or the entire community, If a large company builds in a certain depressed neighborhood, the value of living their will probably increase because of the introduction of jobs. This value would impact on neighboring, communities, thus increasing value in some ways to the real estate in these areas.
Permanence has to do with the infrastructure. As buildings, houses or other structures are demolished, the infrastructure, such as sewers, drainage, electricity, and water remain intact, Permanence effects real estate, or the type of infrastructure. If you buy a piece of land in an area with no utilities, drainage or paved streets, it will most likely be worth less than a parcel of land that has this infrastructure intact and developed.
Area preference refers to the choices of the people in any given area. Most people usually refer this to when they talk about real estate as, “location, location, and location.” The location of a preferred area, for whatever reasons, is what makes values of homes higher. Conversely, the location of a non-preferred area, for whatever reason, is what makes the values of homeless 8,000 square foot brand new homes on the coast of Long Island’s; East Hampton will be worth much more due to their area preference, over an area with 1,200 square foot starter homes in the middle of Long Island, located next to a garbage dumb.
Is Real Estate Worth It?
The physical characteristics of land represent its indestructible nature, immobility and non-homogeneity. Working backwards, we’ll start with non-homogeneity. This simply points out that no two parcels are the same. Two pieces of land may be very similar, but every single parcel different geographically because each parcel is located in a different spot. This includes two lots right next to each other. It is important to remember that parcel are created by subdividing land, so as one large parcel of 20 acres is subdivided, each individual lot becomes its own separate piece of land.
Land cannot be moved therefore it is immobile. Even when soil is torn from the ground, the part of the Earth’s surface will always remain. It is important here to note how this physical characteristic affects real estate law and markets. Immobility of land is the reason why real estate laws and markets are local in nature.
The indestructibility of land simply means that it is durable and cannot be destroyed. It can be damaged by storms and other disasters, but remains and weathers the changing times and will always be there. This is a main reason why land is talked about as being a sound investment.
So the basic characteristics of real estate include scarcity, improvement to the land, permanence, and area preference, non-homogeneity, indestructibility and immobility. Please note these are a big difference between land and real estate. Land is the part of the earth’s surface, subsurface and air above it. Real estate is anything that becomes attached to land. So when you’re looking for investments, it is important to note the infrastructure of the area, the surrounding neighborhood and the preferences of the area or… location, location and location!
People in real estate have been getting smart. They have been turning green, energy efficiency has been becoming more popular the last few years. Other ways folks have been saving big money is buy do-it-yourself projects, by doing-it-yourself or how some people may call it DIY they cut the middle man out.
Investing in Real Estate
As a real estate investor, you will probably be buying ownership interests and then earning a return on that investment by issuing leasehold interests to tenants, who will in return will pay rent every month. There are times where it is uncommon for an investor to amass a long-term leasehold interest in land, which then has a building or house constructed on it. At the end of the land lease, the land and building become property of the original landowner. Real estate could be a complex field but with the right real estate guidance you could achieve great things.