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 an 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. 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 property for a long time. Most investors prefer to offer long-term rentals for the more regular income these 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 rent price is vital to sustaining solid returns on your investment.
5. Cash Flow
Once all the operating costs are paid off, including mortgage payments, the money left is referred to as cash flow. If the earnings are more than the expenses, you have a positive cash flow. However, if you have more expenses than earnings, you have a negative cash flow.
To learn the market value of your property, 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 property.
Often the last stage in selling or buying a property, closing is the final period when the property 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 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.
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 pay the same amount no matter the given market conditions.
If a borrower fails to make regular mortgage payments, a foreclosure can happen. This refers to the acceptable process of a lender obtaining the property when overdue 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 lenders gain back money through a 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 property in subdivisions and condominium buildings, you can become a HOA member automatically, if this already exists. 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 a 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 value of the property are also inspected during this time.
13. Real Estate Agent
Property buyers and sellers are represented by real estate agents. They have a license to negotiate properties on behalf of the interested parties. Generally, real estate agents are hired by a real estate broker.
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 property buyers and sellers. They can work independently and engage the services of real estate agents. Real estate brokers are experts in handling complex real estate transactions.
16. Buyer’s Market
When more properties are available for sale compared to the number of interested 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 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 property investment is easier.
Review these common real estate investing terms since you are bound to encounter them often in the property industry. If you’re new to property investing, you gain more confidence by understanding these terms. If you need help managing your rental properties consider working with KRS Holdings today!