Getting involved in a particular industry means familiarizing yourself with the technical jargon used in the field. If you’re thinking of exploring the field of real estate investing, it’s time to catch up on the vocabulary used here. So, when you’re conversing with realtors and real estate professionals, you won’t be left confused.
You can start with the most common terms. This is to ensure you fully grasp the concepts when making real estate transactions. You’ll also save time since you won’t need to research the terms or constantly ask what a specific term means. Everything is made more efficient with a clear understanding!
Here are some of the common real estate terms you’re bound to come across:
1. Seller’s Market
This market scenario bodes well for sellers since the power to affect prices resides with them. Property buyers’ demand for housing outstrips that of sellers putting up their properties for sale. Sellers can raise their prices, giving them an upper hand since properties are hot and attractive in this particular time.
2. Buyer’s Market
The reverse of a seller’s market, this market scenario fares well for buyers since the power to influence prices is in their hands. There are more property sellers while buying demand remains low. Buyers can negotiate prices, giving them an upper hand as there are many properties to choose from and the competition between sellers remains stiff.
3. Cash Flow
Cash flow is the remaining amount an investor gets after all the operating costs and liabilities have been paid out. Liabilities can refer to mortgage loans. One either has a positive or negative cash flow.
If you have fewer expenses, you’ll get a positive cash flow. If your spending is higher than your earnings, then your cash flow is bound to be negative.
4. Rental Income
Rental income refers to the earned money you gain upon renting out your property to a tenant. This includes advanced paid rent and paid expenses by the renter.
5. Rental Property
This is the property that is being leased by the owner to tenants. In return, the landlord receives regular rent payments. This property can either be categorized as a residential or commercial property.
6. Long-Term Rental
Property owners may choose to invest in long-term rentals to enjoy the benefits and stability that come from servicing the same tenants for an extended amount of time. This is a popular strategy for those who want to earn ROI over a longer timeframe.
7. Short-Term Rental
Property owners may opt to invest in short-term rentals such as condominium units or furnished apartments to gain back ROI faster. Short-term rentals tend to be profitable, especially if the property is located in a hot location that’s popular with travelers. This is common in Airbnb property bookings.
8. Pre-Approval Letter
Pre-approval letters are issued by banks or lenders to show a buyer is cleared to borrow a certain loan amount. It lets property sellers know that the buyer is qualified for a housing loan. This document reassures the seller that the buyer has a loan source should the need arise.
Note that this financing offer is tentative and will still require the borrower to submit additional documents to the lender.
9. Net Operating Income (NOI)
Net operating income is the income that a property investor generates yearly from a real estate asset. This is the amount left once expenses are calculated and deducted, such as the tax on properties, utility bills, property management charges, and HOA fees. This formula is vital to property investors since it shows the real estate property’s revenue and profitability.
10. Credit Score
Credit score is a useful gauge when evaluating a prospective tenant. It determines one’s creditworthiness.
If the credit score is high, lenders can easily arrange a loan. On the other hand, landlords will see it as a positive sign in considering a renter. If the credit score is low, lenders will find it difficult to approve a loan application. Landlords will also be discouraged from accepting such a renter.
Credit score is based upon one’s credit history. This is a useful metric in evaluating a borrower or renter since it displays one’s financial obligations and responsibility in paying.
An excellent score will open a borrower to lower interest rates and stronger credit lines. Credit scores can be improved in several ways since the figure is dependent on one’s current financial state.
11. Single-Family Home
A single-family home is a freestanding unit of residence that’s designed for a family. Basically, it’s separate from other buildings. It has an independent entrance and its own set of utilities.
A single-family home structure is made up of one dwelling. Single-family homes can be spacious with their own backyard lots, providing more privacy to their residents.
12. Multi-Family Home
A multi-family home is a building made up of units. It’s suitable for several families staying in different dwellings. Even if the families share one roof, they still maintain their own living spaces. Each unit has a separate kitchen, utility meter, bedrooms, bathrooms, and entryways.
Multi-family homes can be labeled as a duplex, triplex or quadplex, depending on the number of units it’s composed of. Normally, it’s owned by a single property owner, unlike a condo building where there are different owners per condo unit.
Sometimes, multi-generational families prefer to live in a multi-family unit to be closer to each other while still maintaining their independence and personal space.
13. Real Estate Agent
Real estate agents are licensed professionals who are allowed to manage real estate dealings. They represent the buyer or seller. They handle the negotiations of the sale of real estate and gain commissions from the property transactions.
Realtors are professionals in the real estate industry who are active members of the National Association of Realtors (NAR). They follow the code of ethics and standards of this organization. Not all real estate agents are members of NAR so they can’t be called realtors. If you desire to be a member of NAR, you’re required to join your local real estate board or association.
There you have it! Knowing these common terms will serve you well in getting a headstart with your investment pursuits. By having an understanding of the technical lingo, you won’t be caught off guard or confused about what’s involved in such an important decision.
If you’re looking for a professional property manager to take care of your current or future real estate investment, contact Evolve Nevada today! We’d be happy to speak to you about our property management services.