What Is Property?
Property is anything that a person or business has legal title over. Property can be either tangible or intangible, and having legal title to it grants the owner certain enforceable rights. Typical examples of tangible property include real estate, also known as real property, vehicles, furniture, and equipment.
A majority of property has some amount of monetary or potential value and is thus an asset. However, a property can also be a liability. For example, injury to a customer on a company’s property makes it possible for the company to be held legally responsible.
Understanding Types of Property
Intangible property is a description of assets that represent either current or potential value, but that does not have any actual value themselves. Some intangible property may have paper documents to represent the property, such as stocks, bonds, or patents. Other types of intangible property, like a brand’s reputation or goodwill, may not require a paper document. Much intangible property is considered intellectual property, which can include ideas, creative work, and design concepts.
Though intangible, this type of property can be significantly valuable. Nike’s “swoosh” logo and the recipe for Coca-Cola are both examples of highly valuable intangible property. Enforcing ownership of intangible property can be difficult. Many people and businesses hire lawyers who can help them create legal rights to their intellectual property and protect it from infringement.
Property is a significant factor to consider when calculating the value of a business. For example, a manufacturer of small parts may only gross $80,000 per year. However, if the company owns the factory building appraised at $1 million, where the manufacturing takes place, the business could be considered worth a great deal more than its yearly gross would indicate.
Likewise, if that same parts business holds a patent for a part that other, more substantial companies choose to license, the company may earn more money licensing the rights to make the part than it does manufacturing those parts in-house. This licensing is one way in which intangible property can prove remarkably lucrative and significantly increase a company’s value.
Establishing Net Worth Through Property
The determination of a person’s net worth is from calculating the total amount of property they own and then subtracting any liabilities or debts. Property calculations for one’s net worth include any real estate, vehicles, jewelry, stocks, bonds, and anything in a savings or retirement account. When calculating net worth, one does not include less valuable items, such as furniture or clothing, unless they have significant value as antiques or collectible items.
For example, if a person owns a home worth $100,000, a car worth $7,000, and has $65,000 saved for retirement in an IRA, the total amount of property they own can be said to be $172,000. If they owe $20,000 in student loans and $3,000 in credit card debt, their total liabilities add up to $23,000. Thus, their net worth would be $172,000 - $23,000, which equals $149,000.