In each field you immerse yourself in, there are specific terms or jargon that you will need to learn. Sports, baking, and finance have their own set of words that are particular in their niche.
Communication becomes easier between industry professionals and investors when they all speak the same language, so learning these terms would be a real benefit. Learning the basics goes a long way. The more you expose yourself, the more the words and meanings stick in your mind.
With that in mind, we at Lone Eagle Management have put together this article containing some common words that spring up now and then while conducting property negotiations and transactions:
Rental Property
A property in which a landlord allows someone else to stay in (a tenant) in exchange for rent. The rental property can be differentiated as residential or commercial real estate.
Short-Term Rental
Short-term rentals properties suitable for vacationers, these are people who need a furnished home for a defined but short period. Month-to-month leases, for example, are for a shorter duration.
Long-Term Rental
Long-term rentals are suitable for tenants wanting to rent for a longer time frame. They’re often labeled as traditional rentals and give out more steady earnings to investors.
Rental Income
Once investors receive money from renting out their properties, it’s called rental income. Tenants make a regular payment each month for occupying the property.
Cash Flow
Cash flow is the money that an investor gets to keep once all expenses are paid off. It can be differentiated as positive or negative cash flow.
If the expenses are more than the amount left, this is called negative cash flow. If there’s cash left after paying off the expenses, this is called positive cash flow.
Amortization
When one is paying off a mortgage loan, there is a schedule of payments referred to as amortization.
Typically, amortization is a monthly payment spread out over 15 to 25 years and will be defined in any terms you agree to with a bank.
Appraisal
An appraisal is often performed by lenders to gauge the market value of a property. They want to ensure that the loan they’ll release matches the value of the property.
Appraisals help to form an accurate estimate of the property’s value. Once the process of appraisal is done and it turns out that the home value is lower than the buyer’s estimate, lenders let the buyers pay for the difference in the property’s cost.
Closing
Closing is the last step in a property’s transaction. It’s the official period where the property’s ownership is transferred from the seller to the buyer.
Closing means that all payments have been made. Buyers can now settle inside the property and make changes or improvements to the home.
Closing Costs
Termed as processing fees, closing costs are charges one needs to pay to close a real estate transaction. This covers fees to a lender, attorney, insurance company, real estate agent, and also any homeowner’s association involved in the deal.
Fixed-Rate Mortgage
When you have a fixed-rate mortgage, this means that you have a uniform interest rate through the remainder of the loan period. This is beneficial to the borrower as the interest is more predictable over the long run.
Foreclosure
Foreclosure happens when property owners fail to make payment on a mortgage. Typically, the payment must not exceed 90 days. The foreclosure requires the owners to relinquish the rights to the property.
They may sell it through a foreclosure auction. If the property remains unsold then the lender retains control of the property.
Homeowner’s Association
Planned communities, subdivisions, or condominiums often create a private organization known as a homeowner’s association or HOA.
Their responsibility is to formulate and enforce policies within the community homes. HOA typically collects fees. When you purchase a property governed by an HOA, your membership is automatic.
Home Inspection
A home inspection is a process of evaluating the state of a home. This is often done during the purchase of the property and conducted by a professional home inspector. A report is handed to the client once the inspection is over.
The report contains the findings of the inspection and can be used by the client to make a critical decision whether to go forward or cancel the property purchase.
Probate Sale
If a homeowner passes and in the absence of a will bequeathing the property, a probate sale happens.
The estate's attorney will be authorized by the probate court to obtain a real estate agent’s service to commence with the property sale. Probate sales are usually more complicated than conventional sales and require more time to close.
Real Estate Agent
Real estate agents are duly licensed representatives of buyers and sellers of real estate. They handle the transactions and work under a real estate broker.
Realtor
Realtors represent buyers and sellers during real estate transactions. They’re members of the National Association of Realtors and must perform their work while complying with the code of ethics of the NAR.
Real Estate Broker
Real estate brokers are professional representatives of property buyers and sellers. They’re independent, licensed, and can have several real estate agents working under them. They’ve taken multiple training courses and can handle complex real estate transactions.
Bottom Line
These are just some of the common real estate investing terms you’ll be confronted with, in your life as a real estate investor.
You’re likely to come across more but starting with these will already be helpful to you when discussing real estate with other professionals. So, if you have any questions regarding these terms or anything else don’t hesitate to contact an experienced property management company such as ourselves at Lone Eagle Management.