Real estate is one of the most popular sectors of modern business that involves the purchase and resale of houses or other types of property. Very large amounts of money are involved per sale and many people have tried this sector and made millions. Property is bought and sold by agents on behalf of clients or their agencies and the dollars involved in transactions make such ventures attractive.
Characteristics of the real estate business
- Assets that lack a maturity date
- Tangible products to buy and sell
- Products require maintenance
- It is an inefficient market
The assets don’t have a set maturity date
Assets in real estate ventures do not have a maturity date like a stock or a bond. Clients can buy the assets and hold them for hundreds of years while the asset value appreciates. As such, clients buy houses and hold them until they have gained enough value to resale for a profit. In some cases, the clients add value to the property by renovating it or remodeling .
The assets involved in the real estate business are tangible
Unlike the stock market, the real estate assets are tangible.
The assets need maintenance and management
Since the assets in this business are physical ones, they can get damaged or worn out by conditions such as harsh weather or vandals so they need maintenance from time to time. Maintenance involves activities such as landscaping, renovation etc. In some cases, agencies such as marin.com, build or buy houses and hold them as inventory for sale to interested clients.
An inefficient market is not necessarily a bad thing. It just means that information asymmetry exists among participants in, allowing greater profits to be made by those with special information, expertise or resources. In contrast, public stock markets are much more efficient; information is efficiently disseminated among market participants, and those with material non-public information are not permitted to trade upon the information. In the real estate markets, information is king, and can equip an investor to see profit opportunities that might otherwise not have presented themselves.
It is a business enterprise in an inefficient market
Efficient markets have strict controls over business activities conducted therein. Inefficient ones are more lax. If you are an agent or an individual seeking to buy or sell a house, information is your best tool. Knowing about the market conditions, state of the asset and nature of your target market is essential in the sale of the house. Unlike the stock market where you cannot buy or sell stocks based on privately acquired information, in the world of real estate any kind of information can conduct business.
The above characteristics make real estate a very attractive sector of business. It should be noted, though, just like any venture, it goes through the ups and downs. This contributes to the exciting nature of real estate.
Klint Hoffman is a professional real estate agent. He has bought and sold houses for clients for over ten years. He has written many articles regarding real estate management and posted in his blog. His work can be observed at marin.com.