What is Real Property?

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Definition:

Real property is any fixed or immovable property, such as land and buildings, along with a bundle of rights.

🤔 Understanding real property

Although we more commonly use the term “real estate” to describe immovable property, “real property” has an important place in the legal lexicon. When we talk about real estate, we’re generally talking about just the land or building itself. But when we talk about real property, we typically mean the land or building and a specific bundle of property rights. The rights included in this bundle can vary from state to state but usually include the right to live on the property, rent it out, sell it, and modify it.

Example

Let’s imagine a homebuyer named Anna. When Anna purchases her home, she is purchasing a piece of real property. Not only is she buying the house and land itself, but she’s also purchasing a bundle of rights that includes the right to modify the property, rent it out to tenants, occupy it, and sell it.

Takeaway

Real property is kind of like an ice cream sundae with a cherry on top...

You can have ice cream, but is it really a sundae without the cherry? Similarly, if you’re only buying land or a building, you’ve only got real estate, not real property. But once you put the cherry on top, or add the bundle of rights, your boring old ice cream becomes a sundae, and your real estate becomes real property.

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What is real property?

Real property is a legal term that describes physical property. When we think of buildings, apartments, and land, we typically think of the word “real estate,” not “real property.” So, what’s the difference?

Although both terms are similar, “real estate” refers only to the physical property itself (land, houses, buildings, etc.). In contrast, “real property” refers to both the property and a bundle of property rights that come with it.

That bundle of rights is what distinguishes real property from real estate. If you have it, you’ve got real property. If you don’t, you’re looking at real estate.

That said, lots of people still use the two terms interchangeably, so you’ll have to use your judgment to decide whether they’re using the proper legal definition or just speaking casually. Keep in mind, if it’s written in a legal contract, it’s always going to be the proper definition.

What is the bundle of rights? What are the rights of ownership on real property?

What rights are included in this “bundle” that differentiates real property from real estate? The precise rights can vary from state to state, but the bundle typically includes:

  • The right of possession states that whoever holds the title owns the property.
  • The right of control states that the owner can use the property in any way they want as long as it doesn’t break any laws. That said, there can sometimes be additional restrictions from homeowners associations, even though those restrictions aren’t laws.
  • The right of exclusion states that the property owner can decide who can and can’t enter the property. The only limitations to this right come in the form of easements and search warrants. If there’s an easement on the property (a right to use the property that’s granted to a third-party), it will override the right of exclusion. Similarly, a search warrant also overrides this right.
  • The right of enjoyment states that the property owner can take part in and enjoy any activities they want as long as they’re not breaking any laws.
  • The right of disposition states that the property owner can sell, rent, or transfer ownership of the property. If the house is mortgaged, the owner may not have all of the rights afforded by the right of disposition until the property is fully paid off. Similarly, if there’s a lien on the property, there may be some limitations.

In some cases, other rights may be included with this bundle, such as mineral rights and water rights, which give the owner the right to harvest minerals from their property and make use of well water.

However, things can get a bit tricky because there are different levels of ownership interest in real estate that can each come with different real property rights. These are:

  • Fee simple (absolute): This type of estate gives the owner the right to sell the property, make changes to it, and leave it to inheritors even if they haven’t entirely paid off their mortgage. Fee simple is the most common type of freehold (permanent) ownership, and it’s also the highest level of ownership available.
  • Life estate: Owners of life estates, sometimes referred to as “life tenants,” only own a piece of property during their lifetime. They do not have the right to sell or give away the property or leave it to their inheritors.
  • Future interest: Someone who owns a future interest estate has the right to ownership in the future, but can’t use the property at present. Typically, this type of estate is granted to a child or heir and ensures that once the current owner passes away, the inheritor will receive the property.
  • Contingent interest: Contingent properties are only passed down to inheritors if certain conditions set out by the owner are met. For example, an owner may leave a contingent interest to their children, even if they don’t currently have kids. Whether or not they have kids is the contingency: if they become a parent, their children will receive the property. If they never have kids, someone else will get it.
  • Lienholder: If someone is a lienholder, it means they have some stake in a property, despite not owning it outright. Examples include mortgages, deeds of trust, mechanic’s liens, and judgment liens. In a mortgage, for example, the lender has a right to sell the property if the borrower doesn’t pay back their loan on time.
  • Leaseholder: Someone who has a leasehold has the right to use the property for a period of time. Usually, we refer to these people as “renters” or “tenants.” A renter can’t sell the property they’re renting, but they can live in it and use it for the duration of their lease contract.

One common metaphor for the bundle of rights is the “bundle of sticks.” If you have fee simple ownership over a property, you’ve got a big bundle of sticks, each representing a right. If you give someone an easement, the right to enter your property, you’re handing them one of your sticks. Eventually, they can give back that stick, and you’ll be back at a full bundle. This generally holds true for any of the rights that concern real property.

It’s important to note that even if you have fee simple rights, the government can sometimes take away your property thanks to eminent domain — That’s the government’s right to seize property. The government can also take an owner’s property through escheat. That means that if a real property owner dies and has no heirs, the property may revert to the government’s ownership.

What are the types of real property?

There are three types of real property:

  1. Private property: Individual entities own private real property — That could be a single person, a business, etc. The key here is that the government does not own private property.
  2. Public property: Public real property is owned by a state or government entity.
  3. Collective property: Collective real property, aka cooperative real property, is owned by a collective or group of non-government entities. For example, a collective property could be owned by several corporations that work together.

Since real property almost always contains real estate, it’s also useful to know the different types of real estate. These are:

  • Agricultural real estate: Farms, orchards, timberlands, etc.
  • Residential real estate: Single-family houses, apartment units, condos, etc.
  • Commercial real estate: Storefronts, office buildings, apartment buildings, multi-family houses, malls, etc.
  • Industrial real estate: Warehouses, manufacturing plants, power facilities, etc.
  • Special use: Hospitals, schools, religious buildings, etc.
  • Mixed-use: Properties that don’t fit cleanly into any one designation, such as an apartment building attached to a mall or a shopping center with a medical center inside.

Sometimes, these types of real estate are broken up differently. For example, industrial real estate is sometimes lumped in with commercial real estate.

What is the difference between real property and personal property?

Real property refers to fixed or immovable property like houses, apartment buildings, and land, plus a bundle of rights. Personal property is anything that can be moved, like a guitar, a car, a book, or a chair.

Usually, it’s pretty easy to tell the difference between real and personal property, but there are times when there’s some overlap. Mobile homes, for example, can be considered either real or personal property depending on what state they’re in and how they’re affixed to the land. For the most part, mobile homes are considered personal property, but most states provide a way for mobile homes to be converted into real property.

What is the difference between real property and real estate?

Real property and real estate are closely related, but there are a few small differences between them. Both terms refer to immovable property like land and buildings, but only real property takes property ownership rights into consideration as well. You can think of real property as real estate plus a bundle of rights.

In other words, all real estate is real property, and all real property has some type of real estate in it. But any individual piece of real estate is not necessarily real property — To become real property, it would need to have a bundle of rights included.

What is not considered real property?

Think of it like this: if something is movable, it’s not real property. That means that cars, trucks, chairs, pizzas, glitter, apples, and everything else that isn’t affixed to the ground is not real property — It’s personal property. According to the law, if it’s land or attached to land, it’s “real.” If it’s not, it’s just personal. Sometimes, personal property is referred to as chattels.

Intellectual property, like music, patents, and movie scripts, is also not considered real property. This type of property might not move, but it’s definitely not attached to the ground.

Real estate (i.e., land, buildings) is only considered real property if it comes with a bundle of rights. If someone wanted to transfer a house into your name, while they retain all rights to use and modify the house, then you wouldn’t be getting real property, only real estate.

What is real property tax?

Real property tax, more commonly known as plain old property tax, is a tax that’s paid on a piece of private or collective real property. Property tax refers specifically to the annual tax on a property’s value.

For the most part, property taxes are based on the assessed value of a piece of property, not the property’s market value. A property’s market value is the price that a buyer and seller agree on; the assessed value is the value that a trained home assessor determines after inspecting a property.

The tax rate varies based on the local laws, so two people who own homes that are valued the same can end up paying vastly different amounts in property taxes each year, based on where their houses are located.

For example, the average real property tax rate in Bibb County, Alabama, is about 0.277% of the property’s value. On a home valued at $250,000, that’s $693 per year. But in Westchester County, New York, that same home is taxed at 1.973% on average, which would run you a bill of $4,933 per year.

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This information is educational, and is not an offer to sell or a solicitation of an offer to buy any security. This information is not a recommendation to buy, hold, or sell an investment or financial product, or take any action. This information is neither individualized nor a research report, and must not serve as the basis for any investment decision. All investments involve risk, including the possible loss of capital. Past performance does not guarantee future results or returns. Before making decisions with legal, tax, or accounting effects, you should consult appropriate professionals. Information is from sources deemed reliable on the date of publication, but Robinhood does not guarantee its accuracy.

Options trading entails significant risk and is not appropriate for all customers. Customers must read and understand the Characteristics and Risks of Standardized Options before engaging in any options trading strategies. Options transactions are often complex and may involve the potential of losing the entire investment in a relatively short period of time. Certain complex options strategies carry additional risk, including the potential for losses that may exceed the original investment amount.

Commission-free trading of stocks, ETFs and their options refers to $0 commissions for Robinhood Financial self-directed brokerage accounts that trade U.S. listed securities and certain OTC securities electronically. Index options are subject to a per contract fee. Keep in mind, other fees such as trading (regulatory/exchange) fees, wire transfer fees, and paper statement fees may apply to your brokerage account. Please see Robinhood Financial’s Fee Schedule to learn more regarding brokerage transactions. Please see Robinhood Derivative’s Fee Schedule to learn more about commissions on futures transactions.

Brokerage services are offered through Robinhood Financial LLC, (RHF) a registered broker dealer (member SIPC) and clearing services through Robinhood Securities, LLC, (RHS) a registered broker dealer (member SIPC). Cryptocurrency services are offered through Robinhood Crypto, LLC (RHC) (NMLS ID: 1702840). Robinhood Crypto is licensed to engage in virtual currency business activity by the New York State Department of Financial Services. The Robinhood spending account is offered through Robinhood Money, LLC (RHY) (NMLS ID: 1990968), a licensed money transmitter. A list of our licenses has more information. The Robinhood Cash Card is a prepaid card issued by Sutton Bank, Member FDIC, pursuant to a license from Mastercard®. Mastercard and the circles design are registered trademarks of Mastercard International Incorporated. RHF, RHY, RHC and RHS are affiliated entities and wholly owned subsidiaries of Robinhood Markets, Inc. RHF, RHY, RHC and RHS are not banks. Products offered by RHF are not FDIC insured and involve risk, including possible loss of principal. RHC is not a member of FINRA and accounts are not FDIC insured or protected by SIPC. RHY is not a member of FINRA, and products are not subject to SIPC protection, but funds held in the Robinhood spending account and Robinhood Cash Card account may be eligible for FDIC pass-through insurance (review the Robinhood Cash Card Agreement and the Robinhood Spending Account Agreement).

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