Residential real estate is an area developed for people to live on. As defined by local zoning ordinances, residential real estate cannot be used for commercial or industrial purposes. Such laws vary from location to location and can restrict how many buildings are allowed on a single block and what kinds of municipal services reach those buildings.
Real estate is the land plus any buildings and resources on that land. Real estate may be used for commercial purposes, like operating a store or an office, or for industrial purposes, like operating a mine or a factory. The most common type of real estate, however, is residential real estate, which is used for housing.
Residential areas encompass a large variety of potential dwellings, from houses to houseboats, and from neighborhoods types ranging from the poorest slum to the wealthiest suburban subdivision. Many of these are not specifically real estate, which is a legal definition describing a state of ownership: residential real estate emerges when land sanctioned for residential use is purchased by someone, which becomes real property.
Residential real estate is often the most important financial investment a person owns, and the value of real property on the estate is subject to shifts in the real estate market. Some people purchase real estate in the hope of making money, either by selling it at a profit or leasing it to others and charging them rent. But most people simply live on their property.
First-time buyers of residential real estate frequently finance their purchase with a mortgage, a loan issued by a bank for the sole purpose of buying a home. The more the home is paid off, the more equity it gains.
In some areas, it’s possible for real property to be used commercially, especially if the business operates on an appointment-only schedule, has very few employees, and generates little to no automobile traffic.
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Residential real estate example
Dr. Lee runs a small dental practice in an apartment building in New York City. She owns the office outright and is allowed to operate a business in a residential area because of the dental practice’s relatively small size. This is different from where she lives, which is in another building across town that she rents from a landlord who owns the building. The landlord earns his income on the residential real estate that he leases out.