Are you planning to become a real estate investor? If you are, then we recommend familiarizing yourself with the common real estate terms and investing factors often used while speaking to experts or negotiating with property buyers and sellers.
Understanding the technical jargon ensures you follow along with the conversations and won’t feel lost or confused during real estate discussions.
You also save a lot of time since you won’t need to check the definition of terms and can confidently interact with other real estate professionals. If you’re selling property to a potential buyer, you can explain things in the proper terms.
Here are some common real estate terms for investors to start with:
Common Real Estate Investing Terms To Learn
1. Rental Property
Rental property is one of the most common terms and refers to a property where the owner is receiving a regular payment from the person occupying the unit. It can be categorized either as a residential or commercial real estate.
2. Short-Term Rental
Short-term rentals are marketed to people staying in a unit for a short period. A typical example would be a vacation rental home that tourists book.
This type of rental is often furnished to serve the immediate needs of the occupant. There are many advantages to furnishing your rental.
3. Long-Term Rental
Long-term rentals are known as traditional rentals and are designed for tenants planning to stay for a long time in the property. Real estate investors opt for a long-term rental as a strategy to earn a steady income and save on marketing costs.
Long-term rentals are also a great way to retain tenants of quality.
4. Rental Income
Rental income means the money that tenants hand out to the landlord each month for renting the property.
5. Cash Flow
After all the operating costs are paid, the remaining amount is referred to as the cash flow. It can either be a positive or negative cash flow. If there’s money left over after expenses then this is a positive cash flow. If nothing is left, then this is a negative cash flow.
It is important to be mindful of costs landlords don’t know they’re accruing in order to protect your cash flow.
6. Seller’s Market
The condition when the real estate demand outdoes the number of properties available for sale is called a seller’s market. This is more beneficial for sellers since they can price their properties higher.
7. Buyer’s Market
The condition when the real estate demand is outpaced by the number of available properties for sale is known as a buyer’s market. This benefits the buyers since they can negotiate for lower property prices.
8. Appreciation
The increase in the value of real estate over time is termed as appreciation. It can be affected by rising interest, demand in a particular area, and inflation.
9. Pre-Approval Letter
Banks give out a pre-approval letter to potential borrowers to encourage them to sign up for a mortgage loan. It lets a client know the available options to finance a property.
A pre-approval letter signals that you have a source of funding to purchase real estate. It also reveals that you have good financial standing with a bank, which means they trust you.
10. Credit Score
Being aware of your credit score is important since it can be used as a requirement by landlords and lenders. Before they approve tenancy or funding, they may check if your credit score is satisfactory and meet their standards.
A credit score is an assessment of one’s creditworthiness based on records and reports. If you have a high credit score, it equates to being a more reliable tenant or borrower who can pay the rent or loan payment regularly.
Lenders also base the interest rate on the credit score of the individual so if your credit score is high, you can obtain more financing.
11. Hard Money Loan
Hard money loan requires one to present an asset before a loan is approved. It’s provided by private investors or organizations. The fund is released quickly if you have a ready collateral. The interest rates are often high and you stand to lose the asset if you default on the loan.
12. Real Estate Agent
The representatives of buyers or sellers during a property transaction are known as real estate agents. They need a license before they can accept clients and are employed by a broker.
13. Realtor
Similar to real estate agents, realtors act as representatives for either a property buyer or seller during a real estate negotiation.
They differ in terms of membership since realtors are part of the National Association of Realtors. They must comply with the code of ethics and standards set by the organization.
14. Broker
Brokers are real estate professionals who are able to work on their own and set up a company. They have real estate expertise and training. They can represent both property buyers and sellers.
15. Net Operating Income
Net operating income is the income gained each year from a real estate investment after all property expenses have been paid. The expenses deducted may be from property tax, property management fees, and utility bills.
16. Off Market Property
Some property sale takes place without informing the public or releasing ads. This type of property is called an off-market property and isn’t listed on sale at the Multiple Listing Service platform.
17. Single-Family Home
A single-family home is detached from other structures and is considered an independent residential building. It offers more privacy to residents.
18. Multi-Family Home
A multi-family home offers housing to several families. It’s a building containing a number of units. It can share common areas with different residents.
Bottom line
Although real estate terms can sound complex, they become easier if you use them often. If you’re a new property investor, it helps to learn these common real estate terms so transactions with real estate buyers and sellers go smoothly.
Are you looking for a committed property manager to handle your real estate investment? If yes, contact Limestone Country Properties today!
