In every field of practice—be it medical, IT or real estate marketing—there are specific terms that are commonly used in your industry. It’s easy to get lost as a new real estate investor when you’re unfamiliar with these words.
By studying these words and their definitions, you’ll be able to hold conversations among real estate professionals with confidence.
If you take the time to study common terms in real estate investment, you’ll understand the field better as a whole.
As a new investor, it’s important to master real estate terms to develop rapport and communicate easily with real estate experts. It also makes your transactions more efficient when you don’t need to look up terms anymore.
Learning about the definitions of real estate words serves you when you’re dabbling in real estate investment.
Common Real Estate Investing Terms
Below are some common real estate terms:
1. Rental Property
When planning your rental investment, you’ll often encounter the term rental property. It’s a form of property where an investor receives passive income every month as long as there are tenants residing in the unit.
There are several types of rental properties but most fall into two categories: residential rental property and commercial rental property.
2. Short-Term Rental
Often, short-term rentals are known as vacation rental properties targeting tourists.
These rentals come with their own furnishings and can be in the form of a condo unit or apartment. This is typical of properties rented out under Airbnb.
3. Long-Term Rental
These are traditional properties meant for long-term renters. Typically, leases are signed for a year or two.
Unlike seasonal short-term rentals, long-term rentals are common as a real estate investment to maximize a steady flow of returns.
4. Rental Income
Rental income refers to the earnings deposited to the account of the property owner by the tenant.
Having stayed in the rental home, a renter will be paying a fixed, agreed-upon amount to the landlord. This is a regular term you’ll come across when considering a rental investment.
5. Cash Flow
At the end of the monthly rental operation and after all overhead expenses and loans are paid off, a property investor will be left with a certain amount of money. This money is called the cash flow.
Cash flow can either be positive or negative depending on the cash inflow and outflow. If more money is earned than spent, the outcome will be a positive cash flow. If it’s the opposite, meaning more money goes out than in, then this is called negative cash flow.
6. Buyer’s Market
Depending on the economic condition, the real estate market can reflect an influx of properties. If the demand is less than what’s available, then this is deemed as a buyer’s market.
The advantage in this type of market is with the buyers who can negotiate for lower property prices given that there are more property deals to choose from.
7. Seller’s Market
On the other end, when the real estate market reflects a shortage of properties when compared to its market demand, then this is more favorable to sellers.
Buyers will find it more expensive to purchase real estate while sellers can set higher rates, thereby earning more from the property transactions. This is called a seller’s market.
8. Pre-Approval Letter
Banks typically hand out a pre-approval letter to potential borrowers needing mortgage loans.
This letter helps in creating trust with home sellers. It’s reassuring for them to know that a prospective property buyer has access to solid financial resources upon requirement. This letter contains the loan amount limit.
Keep in mind that pre-approval letters don’t necessarily mean that the housing loan is guaranteed. The offer can still be canceled depending on the current situation of the borrower.
9. Net Operating Income
Net operating income refers to the yearly income that a real estate investment has produced after all expenses are calculated and paid off.
Property taxes, fees from property management companies, and utility costs fall under the list of property expenses.
10. Real Estate Agent
Buyers and sellers of real estate are typically represented by licensed professionals known as real estate agents.
For those seeking a career in the real estate industry, a common entry-level job is a real estate agent. Agents are also typically found to be working for licensed brokers.
Realtors are distinguished by virtue of being members of the National Association of Realtors. They are expected to comply with the set code of ethics of this professional organization.
They also represent buyers and sellers in real estate transactions. Their job function is the same as a real estate agent.
12. Real Estate Broker
Real estate brokers handle property transactions and work for real estate buyers and sellers.
The difference between a realtor and a real estate broker is that a real estate broker can operate in an independent manner. Having passed more certifications, they can handle more complicated property deals.
13. Off-Market Property
Some properties are not publicly revealed to be on sale. This real estate is often sold or negotiated for sale already and is referred to as an off-market property. Usually, no advertisements are released for public marketing. The property would not be found on listing sites.
14. Rental Property Calculator
An online tool that helps property investors measure their returns and the cash flow of their rental property investment is a rental property calculator.
Buyers will find it convenient to determine if a real estate deal is a worthwhile investment.
As years pass, a real estate investment might also experience a spike in value. This is known as appreciation.
Valuation of a real estate property can be higher because of inflation, high demand or unavailability of properties in a given location.
Knowing the definitions behind these real estate common terms prepares you for property negotiations. If you’ve been working in the property industry for a while, it also helps to refresh your knowledge of the terms.
As you delve deeper into your real estate investment journey, you’re likely to master this common industry jargon. This is an important process every property investor goes through to be equipped during real estate discussions.
If you’re still unsure, don’t worry! Get in touch with our team at Bigham & Associates today and let us help you get the most out of your rental property.