No matter the field you’re entering, there’s industry jargon to learn by heart. This facilitates easy understanding and interactions with peers. In real estate investing, you’ll also find a multitude of special terms that investors use during consultations and transactions.
If you’re a new investor, you may find yourself overwhelmed at first. Just start familiarizing yourself with the common terms that real estate investors use and you’ll be participating in conversations in no time.
Certain advantages are open when you know these real estate terms. You’ll be able to focus on the discussions. Given that these terms are repeated during transactions and negotiations, it’s vital to learn the meanings behind the words.
Here are some real estate investing terms and definitions to get you started:
1. Rental Property
A property where the owner can generate passive income monthly by renting it out to tenants is considered a rental property. It can either be categorized as a residential or commercial real estate property.
2. Rental Income
A fixed amount of money that a renter pays towards the landlord is known as a rental income. This is a popular real estate investing term you are bound to come across.
3. Short-term Rental
Vacation rental homes fall under the category of short-term rentals. Often furnished, these property types ranging from condos to apartment units are available to be rented in short durations. These are highly popular to tourists using the Airbnb platform.
4. Long-term Rental
Categorized as traditional rentals, long-term rentals are aimed at tenants planning to stay for a longer set of time in a property. Real estate investors prefer this as the income is more stable and predictable over a longer period.
5. Cash Flow
Cash flow is what is left at the end of the month once all the operating expenses are paid off. This covers all loan payments, maintenance costs, and mortgage payments (if any).
Cash flow can be labeled as positive or negative. If there’s money left, it’s termed as positive cash flow.
6. Seller’s Market
Seller’s market is when the real estate market has more buyers than available properties for sale. This raises the demand from the buyers. Thus, sellers can benefit by raising property prices.
7. Buyer’s Market
The buyer’s market is when the real estate market has fewer buyers than available properties for sale. The supply far outnumbers the real estate demand. Thus, they can negotiate for lower property prices from the sellers.
8. Pre-approval Letter
Banks normally issue a pre-approval letter for potential mortgage applicants. The letter will contain the loan amount extended to you. The pre-approval letter builds trust to home sellers that a potential buyer has an available financial source to follow through with the sale and purchase.
9. Real Estate Agent
Real estate agents hold licenses to represent sellers and buyers professionally during property transactions. Typically, they’re employed by a real estate broker.
10. Realtor
Realtors are known as professional representatives of real estate buyers and sellers. They’re duly licensed and known to be members of the National Association of Realtors. They’re expected to adhere to the association’s code of ethics and standards in the course of their work.
11. Real Estate Broker
Real estate brokers are independent and licensed professional representatives of real estate buyers and sellers. They can employ real estate agents and have undergone additional training. Hence, they can also navigate more complicated real estate matters.
12. Credit Score
As a measure of one’s creditworthiness, a credit score helps lenders and property owners in the assessment of an individual’s financial capabilities. It helps them decide whether to approve a loan of a borrower or a tenant application made by a prospective renter.
The credit score usually falls between 300 to 850. The higher the score, the higher the possibility of approval by lenders and landlords.
13. Closing
Home sales are deemed final during closing. It means that the documents have been signed, payments have been made and the lender has approved the loan, if applicable. For some states, it includes registering the deed at the office of the county clerk.
When all these steps have been accomplished then the buyer can enter the property and it becomes theirs.
14. Closing Costs
Before closing a sale, there are fees to be paid out to the lender, lawyers, insurance companies, HOAs, real estate agents, etc. These are categorized as closing costs to complete the transaction of a real estate purchase.
15. Due Diligence
Due diligence period may be provided in the contract agreement between a real estate buyer and seller. This allows the buyer a set of time to evaluate the property and hire professional inspectors to conduct testing.
The buyer may also be given a chance to renegotiate the terms depending on the outcome of the findings during the due diligence period. This helps buyers assess the property they’re considering for purchase.
16. Probate Sale
If a property owner passes away with no will, a probate sale is required. There will be an estate attorney that the probate court will authorize. The lawyer or representative will need to engage the services of a real estate agent for the property to be sold.
17. Proof of Funds
When submitting an offer, a potential buyer is expected to release proof of funds. This assures the seller that you have cash at your disposal to pay for the property’s down payment and closing costs.
Some documents that can be considered proof of funds are online statements from the bank that displays the bank’s letterhead and financial statements with an affixed signature by an accountant.
Bottom Line
These are just some of the real estate investment terms you’ll encounter as an investor. As a new investor, it helps you communicate better and feel more confident in your interactions with other real estate professionals.
If you would like help managing your investment properties contact the team at Young Management today! Our team of property managers are ready to answer any questions you may have.