Real Estate consists of both ECONOMIC AND PHYSICAL CHARACTERISTICS. The Economic Characteristics are those, which affect the investment value of a property. There are four economic characteristics, which can be remembered by the acronym PISA.
The first characteristic is PERMANENCE OF INVESTMENT. Real Estate is a long-term investment or relatively permanent. Also, once a property is developed, a permanent infrastructure is left behind, even if later on the building is taken down.
The second economic characteristic is IMPROVEMENTS. Improvements are ANYTHING man-made built onto a property. It does not matter whether it makes the property better looking, or in anyone’s opinion “improves” the property. Improvements include any building, old or new, run-down or in mint condition. They also include fences, sidewalks, parking lots, telephone poles and sewer lines. The nature of the improvements will affect the value of a property. A property with an office building built onto it will probably be worth more than a property with a house on it.
The third characteristic is SCARCITY. Real Estate is a limited, finite or “scarce” resource. There is only a set amount of property out there and only a set amount in each area. The more scarce property is in an area, the more valuable it will be.
The last economic characteristic is AREA PREFERENCE (also called SITUS). This is the most important characteristic of Real Estate. Just remember the three most important things about Real Estate (location, location, location). Area Preference will do more than anything else to determine the value of a property. The more popular an area is, the more valuable the property in that area will be.
Again the economic characteristics can be remembered by the acronym PISA.
Permanence of Investment
Area Preference (Situs)
There are also three physical characteristics of real estate. The first is IMMOBILITY. This means that real estate cannot be moved. It is where it is. If the perfect lot or the perfect house is in the wrong neighborhood, there’s nothing you can do about it.
The second is INDESTRUCTIBILITY. Property cannot be destroyed. If you tear down a house, the property is still there.
The last physical characteristic is NON-HOMOGENEITY, which can also be called HETEROGENEITY. Both of these mean that property is unique, so you may also see UNIQUENESS, but why use a simple term when complicated terms are available? This means that no two properties are exactly alike. There is something different about every one.
The three physical characteristics can be remembered by the acronym IIN (Inn spelled incorrectly).
AGAIN with the questions:
A tenant bolts a pizza oven to the floor of a building for his carryout business. When the lease expires, he leaves the pizza oven behind. The landlord could acquire the oven as real property by: