Before making a real estate investment, it is essential to know the different kind of property types you can invest in. Whether you are buying property in Pakistan or want to invest in real estate elsewhere, you will be much better equipped to make your investment decision if you are aware of the different real estate property types and classes.
Property vs. Real Estate. What is the difference?
In Pakistan, you will frequently encounter the words ‘real estate’ and ‘property.’ They are often used interchangeably. However, they may not always mean the same thing.
Property is a term that describes anything that a person or a business has legal title and rights over. Property can be tangible or intangible. Examples of property include automotive vehicles, furniture, song lyrics, and real estate. Most properties hold current or potential monetary value and can also be assets.
Real estate is often referred to as “real property,” a term that means land and any improvements made upon it that are permanent. These improvements can be natural (water and trees) or man-made (buildings and homes). Real estate can be categorized into property types and property classes.
What are the different real estate property types?
There are four common real estate property types:
Land is the baseline for all types of real property. It typically refers to undeveloped property and vacant land. Developers can acquire land and use it to develop real estate or as farmland.
Residential real estate consists of housing for individuals, families, or groups of people. For example, apartments, condos, houses, or any other types of living arrangement. This is the most well-known real estate property type.
Commercial property refers to land and buildings used by businesses. It is property explicitly designed to be used by companies to carry out their operations and to generate income. Examples include shopping malls, office buildings, medical centers, hotels etc.
Industrial real estate refers to land and buildings used by industrial businesses for activities such as factories, mechanical productions, research, development, and warehousing etc.
What are the different real estate property classes?
Real estate property classes are divided into three classifications: Class A, B, and C. They’re a quick indicator for investors to gauge risk and return on investment. While there is no exact formula, the assignment of classes is based on a combination of different factors such as location, property age, amenities, rental income and more.
Class A properties are properties of the highest quality. They are generally located in the best vicinities, have the best amenities, are professionally managed, and are relatively new.
Class B properties, a step below Class A, may be a bit older and aren’t always professionally managed. Whilst maintenance issues may increase over time, these buildings are considered well-maintained, but with value additions applied, they offer excellent investment opportunities.
Class C properties are usually older than 20 years and are not ideally located. They typically require renovations and have lower rental rates than both Class B and Class A properties.
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