As
a property investor, you need to keep up with the real estate lingo. This speeds up the transactions when you’re selling or buying properties. Being up-to-date with the current terminology improves your understanding of the basic concepts. Brushing up on the meanings from time to time also helps you familiarize yourself with the ideas again.
Here are some of the common terms you’re likely to encounter as a real estate investor:
1. Rental Property
This is the property where rental income is generated. Tenants pay a fixed amount to stay in the property. The rental property can be designated as residential or commercial real estate.
2. Short-Term Rental
This type of rental is rent-ready and it’s typically furnished for a shorter stay. It usually houses tourists. This rental can be a condo unit or apartment and is commonly found in Airbnb advertisements. Short-term rentals are often holiday rentals or vacation homes.
3. Long-Term Rental
This type of rental fits long-term tenants and can be left unfurnished. Investors often opt for long-term rentals to accumulate profit over a longer duration. Long-term rentals are usually rented out for a year or more. These are regarded as traditional rental units.
4. Appreciation
Appreciation refers to the increased value of the real estate property that you own. Factors that affect appreciation are heavy demand, inflation, and less availability of properties.
5. Off-Market Property
Sometimes, some properties are unlisted but being sold or had been sold absent of public knowledge. These properties are labeled as
off-market properties since their sale is not advertised.
6. Internal Rate of Return
The internal rate of return is used to measure the profitability of an investment. This informs investors of the average returns they can expect every year from a real estate investment. This is computed as a percentage.
7. Real Estate Agent
Real estate agents are professionals that can represent buyers or sellers during real estate transactions. This is the usual entry point for a career in real estate. Most real estate agents are hired by real estate brokers.
8. Realtor
Realtors perform the work of agents and are licensed to represent the buyers or sellers in the transactions. They’re also members of the National Association of Realtors. Realtors are expected to adhere to the code of ethics and standards of NAR.
9. Real Estate Broker
Real estate brokers can function independently and open a brokerage. As licensed professionals, they can act in the interest of the property buyer or seller. They can engage the services of several real estate agents to work under them. Having finished higher tier training and fulfilled the licensing requirements, they can easily grasp and manage the technical side of real estate transactions.
10. Rental Property Calculator
A tool online, rental property calculators are useful to property investors. It makes it easy to find the rental property’s cash flow, investment return, and cap rate. Simply entering in the property’s purchase price, property expenses and financial costs can reveal its profitability.
11. Net Operating Income
A net operating income is the amount that the investor gains once all the property expenses are deducted from the annual income. An investment property owner has regular expenses such as property tax, utilities, and property management charges.
12. Pre-Approval Letter
Banks or lenders issue
pre-approval letters for a potential mortgage. It will inform the receiver of their qualifying amount for the housing loan. This assures the property sellers that a buyer has a legitimate source of funding. Pre-approval letters are still subject to final approval and will depend on the current circumstances surrounding the borrower.
13. Seller’s Market
In a seller’s market, the pricing power shifts to the sellers. There are fewer available properties so the demand for them is higher. Sellers can enjoy the increase in sales price in this market condition.
14. Buyer’s Market
In a buyer’s market, the pricing power shifts to the buyers. The supply of properties is greater than the demand. This pushes the prices down so buyers get to enjoy the reduced prices in this market condition.
15. Cash Flow
Cash flow can be either positive or negative. It’s the leftover amount that an investor can claim once all the operating costs and mortgage loans are paid. If the expenses are lower than the earnings then this is termed as positive cash flow. If the expenses are higher than the earnings, this is called negative cash flow.
16. Rental Income
The tenant pays the landlord regularly for staying in the rental. This money is known as a rental income.
17. Credit Score
A credit score helps evaluate if a person is creditworthy. A high credit score is rated as positive. It means that the person can be trusted to be financially responsible and pay off liabilities. A low
credit score is risky for lenders and landlords.
18. Single Family Home
A single-family home is a stand-alone property that has its own kitchen and does not share any part of its structure with another dwelling.
19. Multi Family Home
A multi-family home is a building where several families can live separately. This structure can either be an apartment, duplex, or townhome.
20. Closing
Closing is the last step in the home purchasing or selling transaction. Upon closing, the property ownership is legally transferred from the seller to the buyer. All payments are made and cleared. The new owner can now begin moving in or upgrading the property.
21. Fixed-Rate Mortgage
A fixed-rate mortgage entitles the borrower to pay the same interest rate over the duration of the loan. This assures the buyer of stability in the payment charges. Most borrowers opt for this type of loan since it's predictable.
Bottom Line
These real estate investing terms will become more familiar to you as you entrench yourself deeper in the real estate industry. As a
new property investor or an out of state,
long-distance landlord, you’ll communicate better knowing the meaning behind these common terms.
If you would like help
managing your rental properties reach out to the experts at
Advantage Realty Services today!
