No matter what field you’re passionate about, fully grasping the industry jargon can make your life easier. As someone interested in real estate investment, mastering the common terms in the real estate industry will be beneficial to your life.
It’s easy to get confused when surrounded by professionals with years in the real estate industry. But, with practice, you can power through the property investment conversations and gain confidence over time. Before starting, it’s essential to ask why it’s vital to be aware of the meaning behind these real estate investment terminologies.
Familiarizing Yourself with Real Estate Terms
One of the best reasons for improving your knowledge of real estate terms is improving your communication. When you don’t have to look up every term during a property negotiation then you save a lot of time. You can quickly be on the same page with the other real estate experts during the discussions.
When participating in transactions with property buyers and sellers, you’re bound to encounter these real estate investment terms.
Here are some of the common real estate investing terms to learn:
1. Rental Property
This term refers to a property type where owners receive a fixed income from renters. As an investment property, rental properties can be split into two categories: residential and commercial real estate.
2. Short-term Rental
Aimed at tourists, short-term rentals have ready furnishings for use. They’re rented out for a short duration and are popular on platforms such as Airbnb.
3. Long-term Rental
This type of property is designed for renters looking to stay in one location for a long time. Investors often gain a steady stream of income from owning a long-term rental unit.
4. Homeowner’s Association
Common in condominiums and planned communities, homeowner’s associations oversee taking care of residences in a particular area. If you own a property handled by an HOA, you’re expected to comply with their ready set of policies. An HOA fee is also collected from you.
This refers to finalizing a property purchase. This means that the contracts and documents are all in order and signed. The money transfer payment has also been completed. When a lender is part of the transaction, it also means that the financing of the purchase has been approved.
6. Closing Costs
Prior to the closing of real estate sales, there are payments to be made. They can include payment to insurance firms, lawyers, lenders, homeowner’s associations, realtors and other companies. Payment is done when a property transaction is closed.
7. Rental Income
This refers to the money accepted by the landlord from the tenant staying in the rental property.
8. Multiple Listing Service
Composed of a database where homes are listed for sale and for rent, it’s a marketing system that real estate agents and brokers can access. Listing agents add properties for sale and rent. Agents can then check the available properties in the market on behalf of their clients.
9. Cash Flow
This is known as the money that an investor ends up with after all the payables are done. Payables can refer to mortgage payments and operation costs. Cash flow can be defined as negative or positive.
If you’re left with more cash at the end of the month, your cash flow is positive. If the expenses are more than your earnings, your cash flow is negative.
10. Seller’s Market
In a market where the properties are fewer and the demand is high, property prices increase. This environment is advantageous for the property sellers. It’s known as a seller’s market.
11. Buyer’s Market
In a market where the properties are abundant and the demand is low, property prices go down. This environment is advantageous for the property buyers. It’s known as a buyer’s market.
Given a longer duration, a real estate property is bound to raise its value. This phenomenon is termed as appreciation. The cause of higher value can be attributed to a growing demand, inflation or lack of supply.
13. Credit score
This measures a person’s trustworthiness based on their credit ratings. A good credit score means a quick approval for loans and application to be a renter. This number is often used by lenders and landlords to evaluate whether someone will be able to pay off a loan or rental dues.
This refers to real estate professionals who represent buyers or sellers during property negotiations. A realtor is a member of the National Association of Realtors and subject to its rules of conduct and ethics.
15. Real Estate Agent
This refers to real estate professionals who can act on behalf of the buyers or sellers during a negotiation. Most beginning real estate professionals start off as an agent. They typically are employed by a real estate broker.
16. Real Estate Broker
This refers to real estate professionals who are licensed and can act as representatives for buyers and sellers in a transaction. They operate independently and hire real estate agents.
Brokers have plenty of real estate expertise and can handle complex contracts.
17. Proof of Funds
Prior to making a property offer, a buyer must have proof of funds. Sellers will look for it so they can rely that you have available funds to proceed with the purchase. If you choose to buy through a mortgage, you still need to provide evidence that you can pay off the down payment and closing costs.
Among the documents that are accepted as proof of funds are bank statements with the bank letterhead. Another would be certified financial statements bearing the signature of an accountant.
You’re likely to encounter more real estate investing terms while being immersed in the field. For now, familiarizing yourself with these terms can make real estate transactions easier for you! If you’re still having trouble, be sure to give T-Square Real Estate Services a call. We’ll help you navigate the real estate industry and make the most out of your investment property.