Investment: Understanding Different Investment Strategies with the 5 Asset Classes
Asset Class #4 - Real estate or other tangible assets
Real estate or other tangible assets – Real estate and other physical assets are considered an asset class that offers protection against inflation. The tangible nature of such assets also leads to them being considered as more of a “real” asset. In that respect, they differ from assets that exist only in the form of financial instruments, such as derivatives.
There are several types of real estate, each with a unique purpose and utility. The main categories are:
For anyone looking to understand how the industry works and what each of the major categories represents, the explanations below will be a helpful guide.
Land is the baseline for all types of real property. Land typically refers to undeveloped property and vacant land. Developers acquire land and combine it with other properties (called assembly) and rezone it so they can increase the density and increase the value of the property.
Residential real estate consists of housing for individuals, families, or groups of people. This is the most common type of estate and is the asset class that most people are familiar with. Within residential, there are single-family homes, multi-family homes, apartments, condominiums, townhouses, and other types of living arrangements.
Commercial property refers to land and buildings that are used by businesses to carry out their operations. Examples include shopping malls, individual stores, office buildings, parking lots, medical centres, and hotels.
Industrial real estate refers to land and buildings that are used by industrial businesses for activities such as factories, mechanical productions, research and development, construction, transportation, logistics, and warehousing.
Examples of Residential Real Estate
Now that we’ve outlined the four main categories, let’s explore some specific examples of different types of real property.
Single-family dwelling – Any home designed for only one family
Multi-family dwelling – Any group of homes designed for more than one family
Attached – Any unit that’s connected to another (not freestanding) - e.g. Dual Key Home
Apartment – An individual unit in a multi-unit building. The boundaries of the apartment are generally defined by a perimeter of locked or lockable doors. Often seen in multi-story apartment buildings.
Multi-family house – Often seen in multi-story detached buildings, where each floor is a separate apartment or unit.
Condominium (Condo) – A multi-family building usually an apartment/unit which are owned by individual people and managed by a body corporate scheme.
Detached house – A free-standing building not connecting to anything else (a stereotypical “home”)
Town House - is a multi-family development of attached individual homes where the strata-titled homes are owned by individual people and managed by a body corporate scheme.
Transportable house – Houses that can be moved on a flatbed truck or similar
Mobile home – A vehicle on wheels that has a permanent residence attached to it
Villa – A building with only one room and typically a steep pointy roof
Hut – A dwelling typically made of raw materials such as bamboo, mud, and clay
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