The real estate industry has its own particular jargon used in investment deals or transactions. Understanding the popular terms used here will help make communication easier and more effective for beginner real estate investors.
Though there are countless terms for a beginner real estate investor to learn, the following are the most common ones to know.
1. Rental Property
Rental property is a type of real estate investment where a landlord rents out their property to a tenant. They are charged rental payments that are due over a specific period, such as on a monthly or quarterly basis. The rent is then paid out to the landlord. This term can be used in reference to either commercial or residential property.
2. Short-Term or Vacation Rental
A short-term rental is a fully-furnished and self-contained dwelling that is rented out for a period of less than 90 days. The Airbnb industry is a well-known example of this.
The length of stay can be set to a daily, weekly or monthly term. Vacation homes common in condominiums and apartments also fall into this category. There are even certain types such as hotel rooms that have been professionally decorated to make them feel like your home away from home!
3. Long-Term Rental
The most common type of real estate investing is to buy properties and rent them out for a longer period of time. This strategy is known as “long-term renting,” and can be an effective way to build your portfolio without taking on too much risk at once. It is also referred to as the standard or traditional rental model. It works well because it allows investors to consistently generate cash flow from monthly rent collections.
4. Rental Income
Rental income simply describes the money generated by renting out property. This is determined by the landlord and paid by the tenant in exchange for living on the property. Rental income may also take the form of monthly subscriptions or landlord fees. Landlords are paid rent for as long as the lease agreement states.
5. Cash Flow
Making money is the ultimate aim of real estate investing. Cash flow is the entire sum of cash an investor can keep after deducting all operating costs (including mortgage repayments). This term is used to determine your profits in the real estate business.
If your expenses are lower than your income, you will have a positive cash flow. If expenses outweigh your income it is a negative cash flow.
6. Seller’s Market
A seller’s market means that there are less sellers than buyers. Since demand for real estate is high in this situation, the advantage lies with the sellers as they can increase the sale price above the market.
7. Buyer’s Market
A buyer’s market is when there are more sellers than buyers. The buyer’s market is an excellent place for first-time homebuyers. Here, the buyers have the upper hand. It makes it easy to find your dream house at reasonable prices in a buyer’s market!
8. Appreciation
Appreciation refers to the increase in the value of a real estate property over time. Property value is often subject to many factors, including inflation, market changes, and most importantly, property demand.
9. Net Operating Income (NOI)
Net operating income is the total annual income earned from your rental property after you deduct operating expenses. This excludes loan payments and taxes. Investors use this metric to determine the property’s profitability.
10. Predictive Analysis
The use of previous data to analyze large amounts of information in order to predict future real estate patterns is known as predictive analysis.
Real estate investors can benefit from this by accurately forecasting the return on investment (ROI) they expect from a particular property, which can help them make more informed decisions when investing. Do you research and look into the best areas for your investment. Make sure the top reasons for investing in that area align with your goals.
11. Debt-to-Income Ratio
The debt-to-income ratio is a personal finance metric that lenders use to assess your ability to manage monthly loan repayments. This ratio takes into account all of your debts and paychecks.
12. Capitalization Rate
The capitalization rate, or cap rate, is the ratio of an investment property’s net operating income (NOI) versus its capital cost or current market value. It is used to determine how much ROI you can expect to earn for every dollar that goes into building or buying the property.
13. Credit Score
A credit score is a quantitative expression used to evaluate a person’s creditworthiness after reviewing their credit reports. Lenders use credit ratings to assess who is eligible for loans. It’s critical that this assessment is accurate since they also affect the interest rate you can receive on your account. A person with a high credit score is more likely to be approved for a loan with favorable terms.
14. Off-Market Property
An off-market property is a property that has been sold or is in the process of its sale without any public advertising or listing on a public Multi Listing Service (MLS), such as Zillow.
Closing Thoughts
Learning standard terminology will give you a great advantage in real estate negotiations. Whether you’re a rookie real estate investor or just need a refresher, it’s imperative to understand the definitions of these key terms.
Another key part of property investment is its management. If you’re constantly searching for new renters, answering their inquiries, managing requests for property upkeep, fixing items, and filling out paperwork, consider hiring a professional property management company.
Keyrenter New England can help you reclaim your time and freedom. We take on the daily work of managing your investment property with our high-quality services and dependable communication. Call us today at (603) 641-4000 for a FREE rental analysis!