Every industry has its axioms and real estate is not an exception to this rule. If you choose a career in real estate, you will certainly run across the following three expressions.
“Location, location, location”
“It’s a people business”
“Gut-feeling”
Although the repetition can be a little annoying, axioms survive the tests of time and reiteration because they contain important nuggets of wisdom. For this reason, we will examine each one. In this post we will consider the old "location, location, location" adage. The other two will be explored in subsequent posts.
This adage is usually expressed as a ‘joke.’
“What are the three most important real estate characteristics?”
Of course, the answer is “location, location, location.” It is certainly true that location attributes, or situs (technically, the correct answer above should be “situs, situs, situs”), are critical property features. As we will learn later, the spatial dimension of real estate is what makes every property different and real estate as an asset class truly unique. We can assure you that this aspect of real estate will be addressed throughout the text.
Economics and finance
Real estate and basically all other business disciplines can be thought of as branches or subsets of general economics. Economics falls with in the realm of the social sciences as opposed to the physical sciences (physics, chemistry, materials science, etc.). Can you recall a basic definition of 'economics' from you first economics class? Well a very brief but concise definition of economics might go something like this; economics is the study of the allocation of scarce resources. If everything were free and abundant, there would be no need for the study of economics! We study economics because resources are scarce and humans need to make important and sometime difficult resource allocation decisions.
Finance is a specialization developed from economics. Do you remember a definition of 'finance' from your first finance class? Another concise definition might be; finance is the allocation of scarce resources (i.e., usually money is the scarce resource) over time. Time is the important dimension in finance and what differentiates finance from economics. Core to the finance discipline is the delay of consumption (investing money) in the pursuit of earning a future return. This is the reason why time-value-of-money concepts are so important and the emphasis of your introductory finance course. This also leads to another axiom, ‘time is money’ which we will leave for another post.
Real estate space-time definition
We can define real estate as a discipline as; real estate (space-time definition) is the allocation of scarce resources (i.e., land or real property now!) over time and space. The space-time dimension differentiates real estate from the economics discipline and the space dimension differentiates real estate from finance. In real estate, we are concerned with the ownership or use of space over a specified or unspecified time period. Ultimately, we use or occupy space on this planet for a relatively brief slice in time. Finally, the uniqueness of the space dimension to real estate is precisely the reason that everyone makes such a big deal about “location, location, location.”
Some view real estate as an academic specialization within finance. In fact, almost all United States (US) business-based academic real estate programs, including UTA's, can be found within finance departments (a notable exception is Georgia State University’s Robinson College of Business with the largest stand alone Department of Real Estate in the US).
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