The Basics: Understanding Real Estate Properties and the Realtors Role 101
Real Estate has become synonymous with terms like homeownership, property flipping, wealth building, investment opportunities and so on. You have likely caught wind of a term or idea and maybe caught the bug on popular television shows where people are earning millions of dollars by property flipping. The thing is that while all these are associated with real estate, they are all different, there are multiple legal as well as tax implications to consider (varying by your province of residence) and they require a different set of professionals and expertise to successfully navigate the potential of all areas of the real estate market. We will cover the broader scope.
If you’re looking at home ownership, long term wealth building through investment real estate, or just needing accurate information about the plethora of industry terminology, read on.
What is the difference between Investment Real Estate (IR) and Residential Real Estate?
Assumed to be both one and the same, and often marketed this way in the residential realty business, this isn’t the case. First, let’s start with the basics.
Real estate property is made up of land and the buildings on it as well as the natural resources of the land. Media often refers to the “real estate market,” from the perspective of residential living or home ownership. For this article, we will use it similarly.
Types of Real Estate
Real estate can be grouped into three broad categories based on its use: residential, commercial and industrial. Residential real estate includes, houses, condominiums, town houses and undeveloped land. Examples of commercial real estate include office buildings, warehouses, large apartment or housing complexes and retail store buildings while factories, mines, and farms are industrial real estate.
Commercial and Industrial Real Estate
While generally not for most buyers in the traditional real estate market, commercial real estate is used for commerce and includes anything from strip malls and free-standing restaurants to office buildings, apartment complexes (larger than 4 units) and skyscrapers. It is often distinguished from industrial real estate, which is practical space used in the manufacturing of products. There are brokerages who specialize in commercial real estate, not to be confused with investment real estate.
Residential Real Estate
Residential real estate is what is often referred to in the media and is used to describe home ownership that will be owner occupied. These residences can later be rented to tenants, usually on a longer-term lease. Traditionally, residential real estate or homeownership is associated with a mortgage to finance (or purchase), based on buyer income and the property is bought and sold according to the homeowner needs.
Investment Real Estate
While the term investment real estate most often falls under the umbrella of residential real estate, property investors purchase one or multiple properties as part of an income or wealth building strategy. Investment real estate owners will most likely have a leasing or rental strategy and eventual exit plan in place as part of their overall investment and wealth building strategy.
Although real estate investment is not as complex as commercial property investments, it is without a doubt not as straight forward as buying a home. The investment real estate industry is highly underserviced and requires the expertise, knowledge and experience which only a few companies can truly offer.
As commercial and industrial realtors differ, so do Investment Realtors and Residential Realtors. You would never want your general physician to perform a complex surgery without the expertise or proper tools, the same analogy can be applied to understanding how residential realtors are not equipped with the resources and tools to actively and successfully guide their clients in investment real estate.
The Residential Realtor
Residential realtors- we all have one- and a good one will know their local residential market well. As experts in buying and selling homes they specialize in understanding what home owners are looking for, now and in the long term. They know your neighbourhood and what could affect your quality of living such as: crime rates, amenities, schools, municipal taxes, strata by laws etc. You need a great residential realtor when you’re buying a home and their expertise can be invaluable in your decision making as you relocate your family.
While a residential realtor may understand the general rental potential of a property, they do not have access to information in the investment realty space. Information such current rental trends, options and actual property rental pricing, to name a few. This information is privy only to investment realtors who work with actual rental data on a daily basis and apply technology to capture real data for the purpose of making investment decisions.
The Investment Realtor (IR Realtor)
As mentioned above, an Investment Realtor has expertise and information specific to and for Investment Real Estate. An Investment Realtor is specifically knowledgeable and experienced in the purchase and sale of investment property. Investment real estate is property that is meant to create wealth and a return on investment.
Rather than searching for a specific view or a backyard pool like a Residential Realtor, the criteria that Investment Realtors work with is based on locating and securing the right investment vehicle that will provide an optimal return on investment. The Investment Realtor’s purpose is to meet their clients investing goals- thus building secure wealth through investment real estate.
Successfully providing this level of expertise requires resources and data only accessible to companies with significant exposure to this market. Additionally, Investment Realtors need technology capable of monitoring the trends within the investment real estate market to draw accurate and up to date data from including data to calculate a realistic renal rate and things like return on investment (ROI).
IR Realtors work exclusively with investors and will also have access to other buyers who are in turn looking for investment property to purchase where minimal change to the property or tenancy is required (turn-key) this results in efficient transactions between investors, saving both parties involved valuable time, energy and money.
Understanding what type of real estate you are looking to purchase, and what you want this property to accomplish for you will help you determine what type of realtor and real estate firm should be working with you.
Not all real estate transactions should be facilitated by one realtor, distinguishing who the right expert is will go a long way to achieving your investment or homeownership objectives.
The majority of buyers and sellers will have a trusted residential realtor to buy or sell their primary residence and hopefully over time build wealth through the appreciation of the family home. Those buying rental property for investment purposes or looking to strategically build wealth with real estate, should consider adding an Investment Realtor to their team.
Whether it’s home buying or investing, a qualified professional has more than just a great sales track record, they can help you navigate the relevant market and support you with accurate resources, knowledge, and specific expertise. You can have both a residential realtor for buying and selling your home, as well as an investment realtor to assist you with your wealth building strategy, and the buying and selling of your investment properties.
Interested in Real Estate Investing? Talk to one of our Investment Realtors who are always happy to connect and answer any of your real estate investment questions. We believe investment real estate should be simple to understand, easy to manage and a safe way to build wealth for the savvy investor.