What Is Property? Definition, Types, Valuation, and Taxation

What Is Property?

Property is a term describing anything that a person or a business has legal title over, affording owners certain enforceable rights over said items. Examples of property, which may be tangible or intangible, include automotive vehicles, industrial equipment, furniture, and real estate—the last of which is often referred to as "real property."

Most properties hold current or potential monetary value and are therefore considered to be assets. But properties can simultaneously be liabilities in some situations. Case in point: if a customer sustains an injury on a company's property, the business owner may be legally responsible for paying the injured party's medical bills.

Understanding Property

Intangible property describes assets, such as stock and bond certificates, that represent current or potential value but don't carry intrinsic value. While these items are merely pieces of paper, they might represent significant amounts of money. Other types of intangible property, such as a brand’s reputation, are more nebulous and cannot be signified by a paper document.

Intangible properties, like design concepts, song lyrics, books, and screenplays, are categorized as intellectual properties. Even though these are not physical in nature, they may carry significant value. Examples of intellectual properties include Nike’s “swoosh” logo and the chemical formula for Coca-Cola.

To enforce ownership of intangible properties, individuals and businesses typically hire lawyers to legally protect their items from infringement.

Types of Property

Property, in the broad sense, describes anything that a person, group of people, or entity owns. It includes real property, personal property, private property, government-owned property, and more.

Real Property

Real property is one of the most familiar types of property. It includes land, buildings occupying the land, and the rights to use and enjoy the land. Real property is the focal point of real estate, which deals with transactions (e.g., buying, selling, renting, and managing) involving land and buildings used for residential, commercial, and agricultural use.

Just as there are various types of property, there are different types of interests in property. Interests in real property include freehold estates and non-freehold estates. Freehold estates are ownership interests that have no expiration and can be inherited. Non-freehold estates, or leasehold estates, are not transferrable and have expirations; such estates include leases and other rental agreements.

Personal Property

Personal property is as well known as real property but differs in that it does not include real estate (e.g., land and buildings attached to the land). Personal property is property that can be physically transferred and is not permanently attached to the land. It includes clothing, automobiles, furniture, tools, and more.

Personal property also includes intangible assets, such as bank accounts, patents, and investments. Although they are not physically moveable, rights remain with the person or entity listed as the legal owner, making them personal property.

Private Property

Private property is any property owned by a natural person or private entity. It includes personal, real, tangible, and intangible assets, including intellectual property. Private property is often categorized as real or personal; however, not all real or personal property is private property.

Private property is not open to the public nor is owned by a government. Governments can, however, assume ownership of private property under certain circumstances, such as eminent domain.

Government-Owned Property

Government-owned property includes all property—including real property, resources, and other tangible and intangible assets—owned by a government body. In contrast to private property, most government-owned properties are public. For example, libraries, public schools, and city parks are government-owned property available to the public.

However, all government-owned property is not accessible to the public, and some publicly-accessed property is not always available to the public. For instance, a city park may have a curfew, after which the public cannot access it. A government-owned property, such as a military research facility or lab, may not be accessible at all to the public.

Sometimes private property can be escheated to a local government body, rendering it temporarily or permanently government-owned. Also, in some cases, the private property owner forfeits or sells their property rights to the government.

Evaluating Property Assets

When auditors, appraisers, and analysts calculate the value of a business, they factor all of its underlying property into the equation. For example, a manufacturer of small machine parts may gross just $80,000 per year, but if it owns the factory in which it operates, and that building is appraised at $1 million, the overall value of the business would be substantially higher than profits alone suggest.

Furthermore, if that same company holds a patent for a part, it has the potential to generate substantial income by licensing the rights to manufacture that item to a larger business, rather than producing the part in-house. In this way, licensing deals may create lucrative revenue streams that significantly boost a company’s overall value.

Establishing Net Worth Through Property

An individual's net worth may be determined by calculating the total value of the properties they own, such as real estate, cars, jewelry, stocks, bonds, and retirement savings, and then subtracting any liabilities or debts from that figure.

For example, if an individual's assets include a $100,000 home, a $7,000 car, and a $65,000 IRA, the tally of their property comes to $172,000. But if that same individual is saddled with a $20,000 student loan and a $3,000 credit card bill, the total liabilities add up to $23,000. Thus, the total net worth would be $149,000 ($172,000 - $23,000).

The Bottom Line

Property includes the tangible and intangible assets a person or entity has title to and rights to use. There are various forms of property, each carrying its own set of rules for classification and use. Often, some assets may be classified as more than one type of property. A house is both real property and private property in some instances. A computer can be personal property and government-owned. It is important to understand the different types and the rights associated with them.