Every industry has its own unique terms and phrases and the real estate industry is no exception.
As a new investor, it’s to be expected that you’ll encounter various real estate investing terminology that you don’t understand. Newbies often feel intimidated, but the best approach is to get equipped with knowledge.
In this post you’ll learn some of the key terms that all real estate investors should know!
19 Important Real Estate Terms
Equity
The difference between the current market value and the outstanding balance on the property's mortgage is referred to as equity. Equity of a property tends to grow as you keep up with your mortgage payments, consequently decreasing the total amount of the mortgage and increasing the property's market value.
Rental Income
A tenant must pay a regular fee either monthly, quarterly, or as agreed upon in the lease agreement for using the landlord's property. This amount is known as rental income. As a real estate investor, this is one of the most popular real estate investing terms you'll come across during your journey.
Cash Flow
The end goal of investing in real estate is to earn profits. Profits in the real estate sector are calculated using the total money an investor retains after footing all operating expenditures. It’s referred to as cash flow and is defined as either a positive or negative cash flow.
Rental Property
Rental property is one occupied by users referred to as tenants and where they are charged a periodical fee, usually monthly referred to as rent. It’s paid to the property owner or landlord. Rental properties are categorized into two major categories, residential and commercial properties.
Short-Term or Vacation Rental
A furnished or self-contained residence leased for a short period is referred to as a short-term rental. A widely known form of short-term rentals is in the thriving Airbnb industry. Condominiums and apartments make up most of types of short-term or vacation rentals.
Long-Term Rental
The most prevalent real estate investing approach is to invest in long-term rentals. A long-term rental is a property purchased as an investment that is leased for an extended time. It's also known as the standard or traditional rental.
Pre-Approval Letter
This document is written and sent to you by a financial institution before you begin shopping around for property or when applying for a loan.
The purpose of the letter is to advise you on how much you can afford to spend. Having this letter is a plus as it proves to a seller that you can get a loan and close the deal, should the need arise.
Seller’s Market
The seller’s market is a scenario in the property market in which the demand for property outnumbers the supply of available property. During these periods, properties record high values and are more fruitful to those selling their properties.
Buyer’s Market
This is the opposite of a seller’s market. The supply for available properties exceeds the demand. Here, properties are characterized by modest costs, making it an excellent market for investors.
Appreciation
An uptrend of the value of property within a given period is known as appreciation. Various factors contribute to an upward trajectory of a property's value. They include inflation, growing demand, or a deteriorating supply. If a property’s value decreases, it’s said to be depreciating.
Predictive Analytics
The term refers to the use of previous data to forecast future patterns and market trends. Investors and landlords can use predictive analytics to get accurate estimates of the ROI they expect to accrue from their investment.
Hard Money Loan
A hard money loan refers to a loan made by an individual or business. They are usually preferred as they are quick to fund, although their interest rates are higher than traditional loans.
Net Operating Income (NOI)
NOI is the difference realized when you take the annual rental income and deduct property expenses. Property tax and utility costs are examples of costs incurred on rental property.
Debt-to-Income Ratio
The debt-to-income ratio is a metric that compares an individual's monthly mortgage repayment to their monthly gross income. Lending institutions use this indicator to assess a person's ability to manage monthly debt repayments.
Credit Score
A credit score is a number that assesses an individual's creditworthiness. Lenders typically use it to evaluate whether or not a person is eligible for a loan. They also apply the criteria when setting your credit limits and interest rate. An individual with a high credit score qualifies easily for a loan with favorable terms.
Single-Family Home
Also referred to as standalone residences, these type of dwellings are not connected to other structures that house people.
Multi-Family Home
This residential building is built to accommodate multiple families or individuals in distinct living units. Multi-family dwellings include apartments, condominiums, townhomes, and duplexes.
Real Estate Agent
This is a licensed professional who acts as a representative in property transactions. A licensed broker ranks a level higher than a real estate agent and acts as their supervisor.
Real Estate Broker
They are trained and registered professionals who can act independently and whose main job is to advise an interested party, whether they’re a buyer or seller, in property transactions.
Closing Thoughts
If you want to enjoy the full benefits of real estate investing, you should learn standard terms because they provide you with an advantage.
To help you on your journey to real estate success, contact the experts at Gifford Properties & Management. We offer customized property management solutions to property owners in Fleming Island & Jacksonville, Florida.
