Real Estate vs. Real Property: An Overview
Real estate and real property certainly sound very similar, and the two concepts have a lot to do with each other, but there are subtle differences between them. Understanding those differences can help you understand the nuances of the land you own and how you own it. While real estate often refers to land, the term real property takes things a little further and examines the rights related to that land.
- Real estate is a term that refers to the physical land, structures, and resources attached to it.
- Real property includes the physical property of the real estate, but it expands its definition to include a bundle of ownership and usage rights.
- The distinction is most useful in the real estate world, where different ideas might apply to owners versus renters or leasers.
- To most of the general public, the idea of real estate encompasses real property, but from a legal perspective, the distinction is important.
- The real property consists of both physical objects and common law rights; real estate only consists of physical objects.
Real estate is simply a piece of land plus any natural or artificial—man-made—improvements that are attached or have been added. Natural attachments are part of the land and include trees, water, valuable mineral deposits, and oil. Artificial improvements include buildings, sidewalks, and fences. Real estate can be split into two broad categories—residential and commercial.
Residential real estate is property intended for human habitation by a single-family or multiple families. Real estate may be leased or owner-occupied, but the term residential real estate most often refers to property that is leased.
Commercial real estate has a business use and focus. This property type includes office buildings, malls, restaurants, and other such activities. Commercial real estate may be owner-occupied or leased.
Industrial real estate is a subdivision of commercial real estate and includes property where manufacturing, warehousing, production, and assembly take place.
Real property is a less commonly used term and as such, is a less commonly understood concept. Real property is a broader term and includes the land itself and any buildings and other improvements attached to the land. It also encompasses the rights of use and enjoyment of certain land, as well as any of its improvements.
Renters and leaseholders may have the right to inhabit land or buildings—a real property consideration—but those things are not considered real estate.
Real property includes real estate, and it adds a bundle of rights. This bundle of rights is a broad term used to organize property rights—as they relate to real estate. In a nutshell, it grants property owners the ability to use their property as they see fit.
A bundle of rights encompasses five different rights of the property owner:
- The right to possess is the right to occupy the property.
- The right to control is the right to determine interests and uses for others.
- The right to enjoy is the right to use the property without outside interference.
- The right to exclude is the right to refuse others' interests or uses for the property.
- The right to dispose of is the right to determine how and if the property is sold or given to another party.
There are some other complex exceptions and restrictions to these rights and legal treatments.
In general, the difference between real estate and real property boils down to the inclusion of the bundle of rights. The real property consists of both physical objects and common law rights whereas real estate consists only of physical objects.