Is an apartment really real estate?

Question

I was discussing with my friend about storing value in money vs something with inherent utility like land. He managed to convince me that something like food or land is a good store of value since these intrinsically have value, unlike the dollar, which is only held up by a (increasingly weak) promise (ignoring that food will perish).

But I was thinking, do apartments really provide this intrinsic value as much as a house? A functional apartment does provides utility in being somewhere to live. But imagine if a house and an apartment were exploded/on fire, and are now both flat rubble.

The house retains a significant amount of value, because even though the building is gone, the land is still there, and the land has value. The same argument could be made for an apartment, but the apartment would have to divide the same land as the house amongst the 40 unit holders. The actual "land" you (indirectly) own would be really small.

This means as an investor that wants to maximise the amount of assets with intrinsic value, you are far safer with a house right?

Answer 1

Is an apartment really real estate?

Absolutely, real estate includes the buildings (improvements) on land.

But I was thinking, do apartments really provide this intrinsic value as much as a house?

On average, no. Condos (owned apartments) tend to appreciate more slowly than single-family homes and have less relative intrinsic value.

Edit: As nanoman points out, this is commonly stated but I'm not finding data that supports it, so not sure if it's just realtors saying it to get people to spend more or if it is supported by data.

But imagine if a house and an apartment were exploded/on fire, and are now both flat rubble.

Insurance should be in place in both instances, so barring inadequate insurance or failure of insurance system this should not be a large factor.

The same argument could be made for an apartment, but the apartment would have to divide the same land as the house amongst the 40 unit holders. The actual "land" you (indirectly) own would be really small.

Yes, but not all land is equally valued, apartment building sized plots of land in a large city are far more valuable than equal sized plot in the nearest suburb.

This means as an investor that wants to maximise the amount of assets with intrinsic value, you are far safer with a house right?

On average, yes, but there's no guarantee.

Answer 2

united-states

A condominium or co-op is indeed real estate. It's just usually a smaller amount than a house on private land. But the price is inherently lower -- you usually have less square footage, and you generally have more encumbrances due to rules for common areas. You have a beneficial ownership of the common areas, but this isn't typically fungible on its own.

On the other hand, you also have fewer responsibilities than if you own your own land and house. There's a board of directors that makes decisions that apply to the buildings and common areas, and there's a management company that handles the day-to-day concerns (e.g. cleaning the hallways) -- you're only responsible for your unit. This isn't free, of course -- you pay a monthly fee for these benefits.

So a condo/co-op is appropriate if you don't want to spend as much on the real estate, don't need lots of space, and don't want to be bothered as much with upkeep. That makes it a good starter home before you have a family, or after the nest empties (many retirement communities are condominium ownership).

Answer 3

An apartment is real estate for its owner. If you are buying a condo, that is arguably real estate, though with a lot of burdens. If you are renting, the landlord owns the apartment and it is real estate for them.

Note, however, that real estate you live in should generally not be treated as an investment. When you sell it, the money will have to go right into paying for your next housing situation, and any gain in value is likely to be offset by the fact that everything else will have increased in cost over the same time period. And it is relatively hard to sell, generally taking an extended time if you want to really get a fair price for it.

(My house is now worth about 2.5x what I paid for it. But every other house I would want to live in has gone up proportionately. Equivalent-dollars gain essentially zero; it has just kept up with housing inflation. Meanwhile, there have been maintenance costs, and things which I consider improvements but which do not increase value at sale anywhere near as much as they cost to implement.)