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Within most developed countries, home ownership correlates with having a higher average net worth. Within the U.S., those who own a home have an average net worth that is more than 10 times greater than those who don’t own a home ($1,099,070 vs. $95,560, respectively).
Homes, and all types of real estate for that matter, are real property, because they are connected to the earth.
If you’ve ever wondered about real property vs personal property, you’re not alone. It is essential to understand the difference, so you can better understand how the economy works.
So, what is the difference between real property vs personal property? Let’s dive in.
What Is Real Property?
Real property is defined as assets that are attached to the ground and the ground itself. It is called “real” because it is physical and we can see it.
An example of real property would be a plot of land with a house built on top of it. If you’re in the country, the fields you own and any outbuildings, barns, or stables are also considered real property.
Specifically, real property includes all physical items that can be integrated into or affixed to land, such as buildings, but also plants and crops, wells, dams, windmills, solar panels, ponds, mines, or roads, for example.
In most countries, property taxes are assessed on real property. So if you own land with or without buildings on it, it will most likely be taxed on an annual basis.
What Is Personal Property?
In contrast, personal property is anything you own that is not attached or affixed to the ground or a building. It is called “personal” because it be removed and taken with you anywhere that you go.
Clothing, jewelry, and vehicles are all considered personal property. If you were to leave your home tomorrow, anything you could take with you is personal property.
For most people, personal property represents only a fraction of their net worth. The reason for this is that it takes a lot of vehicles or appliances to add up to the financial valuation of a single home.
The amount of personal property that a person has is often dependent upon their disposable income, because you need to have cash flow to be able to acquire personal property.
Real Property vs Personal Property
As mentioned, the key difference between real property vs personal property is whether or not an item is removable.
More often than not, new wealth is often generated through real property—frequently through real estate.
This is because real estate tends to appreciate in value over long periods of time, and in some cases, it can produce cash flow (think rental real estate). Plus, real property is often used as collateral in order to acquire more real property or personal property over time.
If you are interested to learn more about how to buy real property , such as land or properties within your local market, then you’ll need to learn which way prices are trending.
In contrast, many types of personal property go down in value over time. Examples of this would be how clothing, cars, and furniture tend to go down in value each year that they are owned.
Of course, an exception to this generalization would be art. In many cases, art can go up in value year over year.
Wealth Generation
As described above, real property includes land and items attached or integrated into it, while personal property is anything that you own which you could detach and take with you if you moved.
Real property vs. personal property is a fundamental aspect of how economies generate wealth. This is because real property is usually more valuable than personal property and it has a strong tendency to go up in value over time.
If you enjoyed this article, then explore other articles within the Finance section of this site.