What Is Real Property?
Real property includes land and the permanent structures on it, but it differs from real estate in that it includes ownership rights that don’t necessarily exist with real estate. Understanding what real property includes is important when buying a home or a business, especially if the rights that come with real property are important to your purchase.
Key Takeaways
- Real property includes everything natural and artificial at, above, and below the earth’s surface.
- Moveable possessions like vehicles, clothes, furniture, and other personal property aren’t considered real property.
- Real property is essentially real estate, plus the necessary ownership rights.
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How Real Property Works
To understand real property, it helps to first understand real estate, which is defined as tangible property like land, buildings on the land, and geographical features like trees, creeks, and boulders. Real estate also includes fixed assets like permanent improvements you may have made to the land. For example, if you installed fences or utilities, these are considered fixed assets since they’re immovable.
Real property includes the real estate but adds intangible property—specifically, ownership rights. These intangible rights include the interests and opportunities the owner has to sell, lease, or profit from the property, including, for example, mineral rights or water rights.
Important
Some rights, such as mineral rights, associated with real property can be sold. So, when you’re buying land, it’s important to be sure the seller still holds all rights.
Real Property vs. Personal Property
Real property and personal property aren’t interchangeable, though they sound similar. Real property cannot be moved, while personal property includes the possessions that you can move. For example, the land you own is real property, but your car, clothes, and RV are personal property.
Important
State laws vary in determining what real property is and how it’s sold. Generally, federal laws don’t apply to real property since it’s solely within the jurisdiction of a state.
Real Property vs. Real Estate
Real property includes real estate—the land above and below, along with the permanent structures of a location. However, real property distinguishes itself because it includes ownership rights. If you don’t have the property rights, you technically don’t have decision-making power when it comes to leasing or selling the land.
Examples of Real Property vs. Real Estate
Real Property
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Land with a pond that includes fishing rights
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A home with land and ownership rights
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Rental units on land that you own and have ownership rights over
Real Estate
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Land that contains a creek but doesn’t come with water rights
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Commercial property on land that you lease
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Rental units on industrial real estate that you lease
Types of Real Property
Property rights can vary based on the type of real property they refer to. If you own real property, your interest in the property is referred to as “estate in land.” There are a few classifications that you should be aware of: freehold estates, nonfreehold estates, and concurrent estates.
Freehold Estates
Ownership rights that last a lifetime or indefinitely are called freehold estates. A holder of a freehold estate might have property rights for their lifetime or for the lifetime of a designated person. Or they may have indefinite rights, which are passed down to their heirs. This is called a fee simple absolute estate.
Fast Fact
Holders of a life estate generally can’t pass the ownership rights to another person.
Nonfreehold Estates
If you have a nonfreehold estate, you technically don’t have ownership rights that you can pass to an heir. For this reason, they’re also called a leasehold estate because you’re essentially leasing the property.
There are four types of nonfreehold estates:
- Estate for years: This is basically a lease agreement between a landowner and tenant, the terms of which have a definite beginning and end.
- Estate from year to year: This arrangement is an agreement that begins with specific terms, such as a year-long lease, but continues indefinitely until terminated by the owner or tenant. For example, if someone rents a house for one year, they might sign the least for another year when the period of time is up. They can continue doing this until they decide not to renew the lease or the landlord gives them notice to vacate.
- Tenancy at will: Although similar to estate from year to year, this type of arrangement can be ended without prior notice by either the owner or the tenant.
- Tenancy at sufferance: This isn’t an arrangement that parties agree to in advance. Instead, this type of tenancy results from someone remaining on a property without the consent and legal right to stay. Originally, the person may have had a legal right to be there but never left when the terms of the arrangement ended.
Concurrent Estates
If a person has a concurrent estate, it simply means they share ownership with at least one or more people. This is also called tenancy in common, joint tenancy, and tenancy by the entirety.
Real Property Rights
With real property rights, you’re entitled to specific privileges, including:
- Right to own and use your property
- Right to control your property
- Right to license and lease your property
- Right to privacy and to exclude others
- Right to sell, gift, or leave your property to others as an inheritance
- Right to leverage the property as collateral through a mortgage
The Bottom Line
Real property includes not only real estate, such as land, a home, and the geographical features on the property, but also the rights of ownership. Real property can come with different types of rights, so if you’re looking to buy a home or property, it’s important to do your research so you know how you can use and pass on the property. If you’re unsure about potential rights, don’t hesitate to ask a financial advisor to read over the terms before purchasing property.