For new investors, the terms used in real estate investing can be confusing. However, the more often you encounter these words, the more confident you can become at communicating with the other professionals that you meet.
Taking the time to get familiar with these terms not only increases your confidence in carrying on a conversation with real estate specialists, but it can also help facilitate your transactions faster.
What Common Real Estate Investing Terms Should You Know?
1. Rental Property
There’s no doubt that you’ll come across this word often in the real estate industry. A rental property is a property or house rented out to tenants. Owners or property investors can make a passive income through the rental payment of the tenants staying in the property. Most rental properties are categorized as residential rental property or commercial rental property.
2. Short-Term Rental
Short-term rentals can refer to vacation homes since they’re usually furnished and rented out for a short duration. The rental unit can be a luxury home, a single-family home, or an apartment. Properties advertised on Airbnb or VRBO typically fall under short-term rentals.
3. Long-Term Rental
Long-term rentals are typically singl-family homes or apartments since real estate investors purchased them to earn a consistent income from renting out to long-term tenants. The typical leasing period runs for a year or two. This is a common strategy for real estate investors to gain back their investment returns faster.
4. Equity
Equity is determined by deducting the property’s current market value from the mortgage amount that the property owner owes. As the balance of the mortgage shrinks from the regular payments over time and the property appreciates, the equity value also grows.
5. Cash Flow
Once the month ends, property owners can determine whether they have positive or negative cash flow. If there’s still some money left after paying for all the overhead expenses and loan payments, then this is called positive cash flow. If no money is left due to more expenses then this can be referred to as negative cash flow.
6. Buyer’s Market
When there are more properties available to the buyers then this is labelled as a buyer’s market. It’s an advantageous market condition for the buyers since the demand is low and they can negotiate for a lower property price considering the abundant choices.
7. Seller’s Market
On the opposite side, when real estate investors have fewer properties to choose from and purchase, this is referred to as a seller’s market. The property demand is high allowing the sellers to assign higher prices, which is more favorable for them.
8. Pre-Approval Letter
Banks can issue potential borrowers a pre-approval letter before they process a mortgage loan application or request for real estate financing. If you have this letter, more property sellers trust you since you can access more funding when needed.
A fixed loan amount limit is often indicated in the letter but this is not a guarantee. The bank can still cancel the offer, depending on the current financial health of the borrower.
9. Hard Money Loan
When private investors lend you money but require a real estate property to secure the loan, then this is considered a hard money loan. Compared to conventional financing, this type of loan often carries higher interest rates and can be a last resort option when the funds are needed immediately and a borrower wants faster approval.
10. Real Estate Agent
A real estate agent is a licensed representative of property sellers and buyers. If you want to build a career in the real estate industry, you typically start as an agent who works for a broker.
11. Realtor
Realtors differentiate themselves by being a member of the National Association of Realtors. They can perform the tasks of an agent and are expected to adhere to the code of ethics and standards set by the professional organization.
12. Real Estate Broker
Real estate brokers deal with real estate transactions and can represent both property buyers and sellers. However, what sets them apart from agents and realtors is their ability to do independent work. With mastery and more training and certifications, real estate brokers can navigate more challenging property deals.
13.Off-Market Property
Some properties may be up for sale which the public won’t know about. These are labeled as off-market property. No ads are released for these real estate and they are not visible on any multiple listing sites either.
14. Credit Score
A credit score measures the creditworthiness of a potential borrower or renter based on their credit records. Lenders and landlords rely on a prospective borrower or tenant’s credit score to determine if the candidate applying for a loan or tenancy meets their qualifications. They can also work out the credit amount and interest rate to assign depending on the applicant’s credit score.
15. Appreciation
The longer you hold onto your property, the higher the potential rise in value. This is referred to as appreciation. The property may be valued more due to an increase in demand or lower availability in a certain area.
Bottom Line
The deeper you immerse yourself in the real estate industry, the more terms you’re bound to encounter. Learning them is helpful to make your property transactions easier. Whether you’re a beginner or a pro, it’s essential to remember the meanings behind the terms.
Are you looking for a trusted property manager to handle your rental home? If yes, contact Liberty Real Estate Services today!
