Lesson 1 of 7 · 12 min
What real estate is and why it is different
Real estate splits into residential and commercial property, can be held as debt or equity in public or private form, and is unlike stocks and bonds because every property is unique, markets are local and fragmented, and prices are hard to observe.
In short
- Two sectors: residential (homes, by far the largest by value) and commercial (offices, retail, industrial and warehouses, hotels, rental apartments).
- Owner-occupied homes return enjoyment of use plus price appreciation; commercial property returns rental income plus price appreciation.
- Exposure can be equity (residual cash flows from the property) or debt (mortgages, and securitised mortgages such as MBS), each in private or public form.
- Key features: large ticket size, heterogeneity (no two properties are alike), many investment routes, hard-to-achieve diversification, and private indexes that cannot be bought.
- Price discovery is opaque: past prices go stale, transactions are slow and costly, and deal volume can dry up.
- Local supply and demand set values, so markets are fragmented and managing property takes specialised skills.
Unlock this lesson free for 7 days
Create a free account to get 7 days of full access — every lesson, video, flashcard, mock and the question bank. No card needed.