What Is Property?
Property is a term describing anything that a person or a business has legal title over, affording owners certain enforceable rights over said items. Examples of property, which may be tangible or intangible, include automotive vehicles, industrial equipment, furniture, and real estate--the last of which is often referred to as "real property." Most properties hold current or potential monetary value and are therefore considered to be assets. But properties can simultaneously be liabilities in some situations. Case in point: if a customer sustains an injury on a company's property, the business owner may be legally responsible for paying the injured party's medical bills.
- Property is any item that a person or a business has legal title over.
- Property can be tangible items, such as houses, cars, or appliances, or it can refer to intangible items that carry the promise of future worth, such as stock and bond certificates.
- Intellectual property refers to ideas such as logo designs and patents.
- Property owners may also have liabilities, which is the case if a business owner is on the hook for medical expenses resulting from a customer incurring an injury on his company's grounds.
Understanding Types of Property
Intangible property describes assets that represent current or potential value, but that don't carry intrinsic value themselves, such as stock and bond certificates. While these items are merely pieces of paper, they might represent significant amounts of money, once stocks are redeemed, and bonds reach their maturity. Other types of intangible property, such as a brand’s reputation, are more nebulous, and cannot be signified by a paper document.
Intangible properties, like design concepts, song lyrics, books, and screenplays, are categorized as intellectual properties. Even though these entities are not physical in nature, they may nevertheless carry significant value. Examples of intellectual properties include Nike’s “swoosh” logo and the chemical formula for Coca-Cola. To enforce ownership of intangible properties, individuals and businesses typically hire lawyers to legally protect their items from infringement.
Evaluating Property Assets
When auditors, appraisers, and analysts calculate the value of a business, they factor all of its underlying property into the equation. For example, a manufacturer of small machine parts may gross just $80,000 per year, but if it owns the factory in which it operates, and that building is appraised at $1 million, the overall value of the business would be substantially higher than profits alone suggest. Furthermore, if that same company holds a patent for a part, it has the potential to generate substantial income by licensing the rights to manufacture that item to a larger business, rather then producing the part in-house. In this way, licensing deals may create lucrative revenue streams that significantly boost a company’s overall value.
Establishing Net Worth Through Property
An individual's net worth may be determined by calculating the total value of the properties they own, such as real estate, cars, jewelry, stocks, bonds, and retirement savings, and then subtracting any liabilities or debts from that figure. For example, if an individual's assets include a $100,000 home, a $7,000 car, and a $65,000 IRA, the tally of their property comes to $172,000. But if that same individual is saddled with a $20,000 student loan and a $3,000 credit card bill, the total liabilities add up to $23,000. Thus, the total net worth would be $149,000 ($172,000 - $23,000).
When calculating an individual's net worth, less valuable items, such as furniture or articles of clothing are generally not factored into the equation, unless said items hold significant value as antiques or as rare collectibles.