Property Management Blog

18 Terms All Real Estate Investors Should Know

System - Friday, January 26, 2024
Property Management Blog

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 transactions 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 investors 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 real estate terms often used in the property investment industry:

1. Rental Property

One of the most commonly used real estate terms used is rental property. This is an asset that earns the property owner a passive income by renting it out to a tenant who will pay 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 investors prefer to offer long-term rentals for the more regular rental income these residential real estate properties provide.

tenant opening a moving box with the word books on it

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 real estate investment, an appraisal is required. Lenders typically want to evaluate the current property’s market value before approving loan amounts so the fund matches the real estate value. Appraisals are conducted by professionals to measure the value of your investment property. 

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 fees are paid out. If the buyers 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, real estate agent commissions, and even homeowner’s association (HOA) fees.

person holding a red key next to a house figurine

9. Fixed-rate Mortgage

Fixed-rate mortgages refer to loans with a uniform interest rate over the entire loan term. This arrangement can be beneficial for borrowers since they can expect to make the same monthly mortgage payment no matter the given real estate market conditions.

10. Foreclosure

If a borrower fails to make regular mortgage payments, a foreclosure can happen. This refers to the acceptable process of a lender obtaining the investment property when overdue mortgage payments are unpaid. Lenders typically send a notice to the borrower when the loan 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 property and enforce rules to reduce conflicts between residents. When you buy a real estate property in subdivisions and condominium buildings, you can become a HOA member automatically, if this already exists. As a real estate investor, you will be expected to comply with the HOA policies and pay the regular 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 property value are also inspected during this time.

landlord knocking on a door with a clipboard in their other hand

13. Real Estate Agent

Property buyers 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 property buyers and sellers. They can work independently and engage the services of agents. Real estate 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 buyers 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 buyers 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 loan approved by the lender. If you have this letter, financing a real estate investment is easier.

Bottom Line

Review these common real estate 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!