What Is Real Property? A Guide for Real Estate Investors and Brokers

Whether you’re buying your first home, completing an immovable property return, investing in a commercial building, or considering tax deferral through a 1031 exchange, the concept of “real property” plays a critical role. So, what is real property?

You’ll hear this term a lot when discussing personal wealth. Because of its complexity, real property demands more than a surface-level understanding. In this guide, we’ll explain what real property is and why it matters when planning 1031 exchanges.

What Is Real Property? A Technical Definition

Real property refers to land and anything permanently attached to it. Think of this not only as the physical surface of the land but also any structures, improvements, or fixtures built on it, such as houses, buildings, fences, or driveways.

It’s not only about physical assets, however. It also encompasses the legal rights that come with ownership. These rights, often referred to as the “bundle of rights,” allow the owner to use, lease, sell, or transfer the property within the bounds of local and federal law.

Now, what is real property when it comes to ownership? Well, it can be full or partial, and may include surface rights, subsurface rights (such as mineral rights), and air rights above the land.

Is Real Property the Same as Real Estate?

Although often used interchangeably, the terms “real property” and “real estate” have distinct meanings, especially in legal and professional contexts.

What real property represents is land, any permanent structures on it, and the rights associated with ownership. While this definition includes physical elements, it also encompasses the legal interests tied to the property.

Real estate, by contrast, is a more limited term. It refers only to the physical land and any attached improvements, such as buildings, fences, or driveways. It does not include the legal rights that come with ownership, such as the ability to lease, sell, or transfer the property. 

So, where an apartment building, for example, is the real estate, an investor’s rights to lease the units to tenants is where real property comes into play.

What Is the Difference Between Real Property and Personal Property?

Personal property is another term you’ll likely hear about when discussing what real property is. Personal property includes movable items that are not permanently attached to land. This can range from furniture and electronics to vehicles and clothing, and can be owned, transferred, or sold independently.

Mobility becomes the biggest difference when considering personal property vs. real property. Real property is immovable and permanently affixed, while personal property can be relocated. Recognizing this distinction is important for legal matters, including taxation, immovable property return, and property transactions.

What Are the Types of Real Property?

Real property can refer to both how a property is used, including for residential or commercial purposes, and also the form of ownership or tenancy it represents. In legal terms, the different types of real property interests are categorized as “estates in land.”

There are three types of real property: freehold estates, nonfreehold estates, and concurrent estates. Understanding these estate types is essential for navigating ownership rights, lease agreements, and co-ownership arrangements, since each comes with unique legal implications.

1. Freehold Estates

The first type of real property is a freehold estate. They represent ownership interests in real property for an indefinite duration. The two most common types of freehold estates are:

• Free simple absolute: This is the most complete form of ownership, giving the holder full rights to possess, use, and transfer the property indefinitely. It's inheritable and not subject to any specific conditions.

• Life estate: In a life estate, ownership lasts only for the duration of a person's life. Once that person passes away, the property either reverts to the original owner or passes to another designated party (called a remainderman).

When discussing what real property is, the freehold estates grant long-term control and responsibility over the land and are typically documented through deeds.

2. Nonfreehold Estates

Next are nonfreehold estates. Also referred to as leasehold estates, these involve the right to possess and use real property without owning it. Nonfreehold estates are usually created through rental or lease agreements and are for a defined period. Common types include:

• Estate for years: This is a lease with a fixed start and end date. It doesn’t renew automatically and terminates at the agreed-upon time.

• Estate from year to year: This type renews automatically at set intervals (e.g., month-to-month) unless terminated by notice from either party.

• Tenancy at will: This is an informal arrangement with no fixed duration, which can be ended at any time by either the landlord or tenant.

• Tenancy at sufferance: This arrangement occurs when a tenant stays in the property after the lease has expired, without the landlord’s consent.

Nonfreehold estates are based on contractual agreements and typically involve fewer rights than ownership but more flexibility in terms of duration.

3. Concurrent Estates

The final type to consider when discussing what real property is: concurrent estates. These arise when two or more people share ownership or possessory rights in the same property at the same time. Each co-owner has a legal interest in the property, though the nature of that interest can vary depending on the type of ownership. The main forms include:

• Tenancy in common: Each owner holds an individual, undivided interest in the property. Shares may be unequal, and each party can transfer their share independently.

• Joint tenancy: This form involves equal ownership shares with the right of survivorship. This means if one owner dies, their interest automatically passes to the remaining co-owners.

• Tenancy by the entirety: This is a special form of joint ownership available only to married couples. It includes the right of survivorship and typically offers additional legal protection against creditors.

If you’re estate planning or arranging investments, concurrent estates are especially important, as they determine how property is shared, transferred, or inherited among multiple parties.

What Are the Rights of Real Property?

Because real property is more than just the physical land or structure, it’s also critical to understand the collection of legal rights that accompany ownership. They are:

1. Right of Possession

This gives the owner the legal authority to occupy and control the property. As long as the ownership is lawful, no one else can possess the property without the owner's consent.

2. Right of Control

This right allows the owner to use the property in any legal way they choose. They can develop, modify, rent out, or leave the property vacant, provided they comply with zoning laws, homeowners' association rules, and other regulations.

3. Right of Exclusion

The right of exclusion gives the property owner the ability to deny others access to their land. This is one of the strongest property rights, allowing owners to maintain privacy and security. However, certain exceptions exist, such as lawful search warrants or utility easements.

4. Right of Enjoyment

This right permits the owner to peacefully enjoy the property without interference, assuming they are using it within the bounds of the law. It protects the owner's ability to live or operate on the land without nuisance or unlawful disruption.

5. Right of Disposition

The right of disposition allows the owner to transfer ownership or interest in the property. This could include selling it, gifting it, leasing it to someone else, or bequeathing it through a will. Some forms of ownership may restrict this right, such as certain life estates or properties with liens.

Considering a 1031 Exchange?

Now that you know what real property is, it’s time to use it as a wealth-building tool. One strategic advantage available in the U.S. is the 1031 exchange. To learn if this strategy is right for your portfolio, contact First American Exchange Company today.