Every industry carries specific jargon that you need to be familiar with and the real estate industry is no exception. If you want to perform real estate transaction professionally and converse confidently about property investments, you need to level up your understanding of real estate terminology.
This post will cover commonly used terms to help buyer navigate the real estate industry more confidently. Over time, you will be able to master using these terms in everyday conversation. Below are some common terms often used in the property investment industry:
1. Rental Property
One of the most commonly used real estate terms used is rental. This is an asset that earns the property owner a passive income by renting it out to a tenant who will be paying a regular fee for using the unit. Rental properties are divided into residential and commercial real estate.
2. Short-term Rental
Short-term rentals are units that are often furnished and ready for occupancy. They can appear as apartments, condominiums, and vacation homes. Rental properties shown on Airbnb fall into this category.
3. Long-term Rental
Often labeled as traditional rentals, long-term rentals are rented out to residents who intend to stay in the real estate investment for a long time. Most property buyer prefer to offer long-term rentals for the more regular rental income these residential properties provide.
4. Rental Income
The fixed monthly fee received by a property owner for allowing tenants to stay in the rental unit is known as rental income. Learning to set an accurate monthly rent price is vital to sustaining solid returns on your investment.
5. Cash Flow
Once all the operating costs are paid off, including mortgage loan fees, the money left is referred to as cash flow. If the earnings are more than the operating expenses, you have a positive cash flow. However, if you have more expenses than earnings, you have a negative cash flow.
6. Appraisal
To learn the market value of your investment, an appraisal is required. Lenders typically want to evaluate the current property’s market value before approving loans amounts so the fund matches the real estate value. Appraisals are conducted by professionals to measure the value of your investment.
7. Closing
Often the last stage in selling or buying a property, closing is the final period when the real estate investment transfer happens. The real estate is handed officially to the buyer and it can be assumed that the property and loan fees are paid out. If the investors wish to improve the unit, they can now start performing renovations since they are considered the new property owners.
8. Closing Costs
Before the property ownership is transferred, closing costs are paid by the buyer. These costs can include lender fees, attorney fees, insurance charges, agent commissions, and even homeowner’s association (HOA) fees.
9. Fixed-rate Mortgage
Fixed-rate mortgages refer to loans with a uniform interest rate over the entire loans term, as well as a mortgage down payment. This arrangement can be beneficial for borrowers since they can expect to pay the same monthly mortgage no matter the given market conditions.
10. Foreclosure
If a borrower fails to make regular mortgage payment, a foreclosure can happen. This refers to the acceptable process of a lender obtaining the investment property when overdue mortgage payment is unpaid. A mortgage lender typically send a notice to the borrower when the mortgage loan down payment has been unpaid for the past 90 days. The foreclosure of the property can help mortgage lenders gain back money through a real estate property sale.
11. Homeowner’s Association
In planned communities, a homeowner’s association (HOA) typically exists. This is a private organization that aims to develop the rental and enforce rules to reduce conflicts between residents. When you spend money to buy a property in subdivisions and condominium buildings, you can become a HOA member automatically, if this already exists. As a real estate buyer, you will be expected to comply with the HOA policies and pay the regular money fees.
12. Home Inspection
Through a home inspection, you can find out the condition of an investment property. This is a service conducted by home inspectors to assess the property's home systems, such as plumbing, heating electrical, including safety issues. Mold, pest infestation, and other issues that impact the fair market value are also inspected during this time.
13. Real Estate Agent
Property investors and sellers are represented by real estate agents. They have a license to negotiate transactions on investment properties on behalf of the interested parties. Generally, a real estate agent is hired by a broker.
14. Realtor
Realtors are licensed representatives of buyers and sellers during real estate negotiations and are members of the National Association of Realtors (NAR). They are expected to observe the NAR code of ethics while performing their duties.
15. Real Estate Broker
Real estate brokers are professional representatives of commercial and residential investors and sellers. They can work independently and engage the services of agents. Brokers are experts in handling complex investment property transactions.
16. Buyer’s Market
When more properties are available for sale compared to the number of interested property buyers, this is considered a buyer’s market. This market condition is beneficial for investors and they can bargain for discounts since more properties are available to be sold.
17. Seller’s Market
When properties for sale are scarce due to the high real estate demand, this condition is referred to as a seller’s market. Sellers can take advantage of this situation and raise their investment property prices since there are more interested investors than available properties.
18. Pre-approval Letter
A pre-approval letter is a document furnished to potential borrowers by lenders. The pre-approval letter will show the amount of loans approved by the lender. If you have this letter, financing a investment is easier.
Bottom Line
Review these common investing terms since you are bound to encounter them often in the property industry. If you’re new to real estate investing, you gain more confidence by understanding these terms. If you need help managing your rental properties consider working with KRS Holdings today!