There are tons of industries available in the whole world. Therefore, every single one of them does have its terminologies. It would be essential for a person who wants to join or deal with a similar industry to know the basic to advanced terminologies used.
There are loads of terminologies available in the Real estate industry that need to be memorized to understand the entire conversation better. Those who are reading this article might be purchasing or selling their house, apartment, or any other category of property for the first time. In that case, the use of real estate terminologies would be essential to understand. It would be easy for everyone to understand better what has been said in the whole conversation.
Learning about the Terminologies is not the only thing that works for any specific person. Instead of that, understanding each terminology is also essential. For that reason, this article would tell all of the terminologies that will be preferable for a wide audience.
List of Top Real Estate Investing Terminologies:
CRE is well known as Commercial Real estate; therefore, its use is only valid or applicable for the Commercial type of real estate. Here, the term is the majority of the time used for offices, Retails, Industrial, and other types of properties that usually generate income per month.
The same terminology is used for the types of residential buildings where there is a list of apartments such as co-ops, Townhomes, single-family homes, etc.
CRE’s importance is that it refers to the type of properties commonly sold or bought by anyone who has well-off investment power. Therefore, things would become a bit harder for those with a minimal investing background.
The Second important term is well-known as the Real Estate Owned. In general, it’s the type of property under the ownership of a lender or bank. On the other hand, these properties tend to be not sold at the auction, but it already remains a foreclosed property.
Several REO departments are available in the Bank whose primary task is to find such properties and try to sell them by hiring a real estate agent of the town. Also, the real estate agent would not be an ordinary one. Why? Because they have to be specialized in the REO Listings.
The importance of REO is that here the house can be easily purchased by the Investors depending upon the actual market value. However, here the property conditions would remain “as-is.” Therefore, the conditions of the property would never be satisfactory. But, it would generate a good income when spending money in the right way on its repairs and wait to sell it in the future.
The GRM refers to Gross Rent Multiplier. As its name implies, many people read this article who would automatically understand its reason to use. Yes, GRM is specifically used to bring out the ratio price of any rental property by considering the Gross rental income. Here, everything is done before considering all of the expenses.
Apart from that, GRE, another meaning in the market, tells out the actual ratio where everything will be cleared for investors that what would be the time required to pay the investment according to the income received for the gross rental. Higher values mean some alarming situations; however, the lower values will mean that the investments are better.
The importance of these investments that investors don’t require to think about deeper analysis and spend their time. On the other hand, it would become a quick procedure for everyone to rank the property investments potential rental.
Heating, ventilation, and air condition are the full-form for HVAC. Here, the use of this term refers to the cool and heat of the house or apartment. For different scenarios, the term is used accordingly. Like, sometimes it would be used for a rental property where it’s expected to have a separate furnace unit and air conditioning unit. Meanwhile, other times the term Is used to integrate cooling and heating systems.
The importance of HVAC terms is that it helps out every investor understand the list of HVAC systems used and working in the local property management. On the other hand, it also clears out everything regarding its maintenance.
PMI’s full form is Private Mortgage insurance. Most of the time, lenders charge extra insurance to any investor to get up to 20% of the down payments for any property. The PMI makes sure or protects the lender for Borrower defaults.
Apart from that, the PMI charges tend to be paid monthly. Why? Because it’s used as the part of mortgage payment of the Total PITI that is usually made to the lender. After the payment reaches approximately 80% and the equity will be 20% for the property, that’s the time when the lender would have to stop the PMI.
SFH’s full form is Single-family Home in the real estate investor’s terminologies. In other words, it’s the most common rental property type terminology used in the market. The properties come inside SFH tends to be free-standing compared to apartment or townhome. Why? Because there would be no neighboring property, consider sharing the utilities or walls. At the same time, such properties would have their land parcel.
In general, the SFH matters because many of the real estate investors dealing with the residential rental property would have been familiar with it. Also, it becomes easy to finance and find single-family homes for investors. At the same time, the use of multiple exits helps out to quickly sell the property when it becomes desirable to sell.
The Term FHA has a full form Federal Housing Administration. As its name implies, this would be automatically understandable for those in the investing field with a governmental agency. Here, the use of the agency refers to the situations where the FHA mortgage loans are insured.
For first-time homebuyers, FHA loans tend to be very common and widespread. Why? Because it helps out every buyer to make payments on a low ratio. With the 580 credit scores, only 3.5% are considered low down payments.
The FHA matters for those who are not preferring direct loans. Opposed to that, it allows the borrowers to consider the FHA-approved lender for the FHA loan. Here, the borrower has to pay the MIP “Mortgage insurance premium” for lender protection. Why? Because the need for it happens at the time of any defaults shown on the borrower side.
In the end, FHA type of loans tends to come with advantages. How? It helps the investor easily make the down payment, and there would be less strict rules in terms of credit score requirements.
LTV’s full form is Loan-To-Value in the Real estate investors market. Here, the term is used as the percentage that a person has to make by measuring the total leverage or debt of the property after considering the actual value in the market.
Any property in the market with more than 80% of loan-to-value (LTE) tends to be considered as over-leveraged property. Here, it would make the potential cash flow risks due to making larger mortgage payments.
It matters refers to the situations where the chances of risks minimize for any investor with negative equity. Here, the loan amount remains the same even when the market decreases.
PITI is used for mortgage payments. Here, it contains the principal, Interest, Taxes, and Insurance. In other words, everything that is relevant to the Real estate investor market comes inside this term. Also, an investor would consider PITI how it’s the residential mortgages for the monthly payments.
It is essential because it affects the Monthly cash flow due to its direct significance. Many Investors always forget about the additional property insurance and tax expenses when calculating the mortgage payments depending on the interest of the loan.
Based on that, the rental property profit potential and cash flow would usually be overstated. So, all of the similar situations pretty much comes inside it.
The RTO is a full form of Rent to Own. Here, the real estate purchase agreement combines with the real estate lease agreement. $1,200 per month would have to be pay by the tenant under the RTO Agreement. The normal rental income would be $1,000 by the landlord within the payment. Therefore, the remaining balance would have to go down in the house purchase price that will be done in the purchase agreement.
The importance of RTO matters for two different scenarios. Therefore, anyone who is willing to understand it can search for the two scenarios on the internet. It would clear out every piece of information.
#11 Cash Flow:
Cash flow is generally used in the Real estate investor’s market for the amount of money saved at the end of the month. The amount that would be saved will be accumulated after paying out all of the expenses made for the expenses. The amount will come out positive if the spending is lower than the amount earned. On the other hand, the amount would come out negative when the spending would be higher than the amount earned.
The importance of Cash Flow is enormous in the Investors industry. Why? Because it creates several reasons for anyone to invest in real estate quickly. In general, the cash flow tends to be positive whenever anyone is considering an investment property.
CapEx full form is Capital Expenditures. In general, the meaning of this term refers to the situation where a person would have spent out the money on any property that has a poor appearance. Hence, the investment made on it would go into the renovations/improvements, which would quickly help out every person extend property life. When it comes to maintenance/improvements, such investments tend to be done for once.
CapEX matters that ordinary or advanced repairs/improvements would have an essential role. Why? Because it helps out any single person who is considering the property for investment purposes to sell it without any hassles demands of other buyers. Why? Because an un-ordered or poorly maintained house or apartment would not sell out at the desired prices. Therefore, the repairs/improvements would become mandatory, and it would bleed down a considerable amount of investment.
#13 Cash-on-Cash Return:
The term refers to a percentage made after the total amount of cash invested in the annual pre-tax cash flow. Here, it would easily measure out the annual return that helps out to understand how much money the investor has made.
Cash-on-cash return is crucial because it helps everyone quickly analyze the investments. Here, the actual cash investment would be a focusing point. Meanwhile, the leverage effects would also analyze in the same term. In the last, whatever mortgage loan used by the investor made for the financing part would also come out that helps to understand how it looks like for the cash-on-cash return.
NOI’s full form is Net Operating Income, which quickly helps out any individual understand the profit depending upon the real estate property potential. The income would easily calculate by anyone after subtracting the operating expenses by estimating the property’s revenue. Here, the expense would be HOA Fees, Maintenance, Repairs, Property taxes, etc.
The importance of NOI is that it quickly helps out an individual to analyze the different types of properties without any need to consider the terms used in financing. For calculating the Cap Rate, the NOI is as vital as anything else.
#15 1031 Exchange:
Any individual has to pay the capital gains taxes when selling an investment property. However, 1031 is a term used in the investment property market set by the U.S Internal revenue code. The meaning of this term is that every taxpayer would have to pay the federal income tax liabilities and capital gains at the later dates by considering the types of properties.
In other words, the income generated after the property sale, its pay taxes would have to be paid at a later time. Here, the importance of this term is that the same term brings out much flexibility to sell or buy assets for those who are investing in single-family rental properties. Therefore, the investors don’t need to worry about every sale regarding the taxing situations.
Hence, it would help out every investor put up their real estate investment portfolio by considering the purchasing power.
#16 HOA Fees:
HOA full form is Homeowner Association; here, the word fees includes the term that initiates its meaning relevantly to the fees side. Here, the HOA Fees refers to the properties located in condominium, community, and subdivisions. In other words, the HOA is used to enforce and create rules for the same properties.
Here, the investors need to understand that they would become the member whenever under HOA’s Jurisdiction they purchase a property. Therefore, it would initiate that a person pays the HOA fees monthly to improve and maintain the properties.
#17 Cap Rate:
The full form of Cap Rate is the Capitalization rate. Here, the meaning of this term quickly measures the real estate investment annual rate of return by considering the property profit that tends to be generated as per the expectations.
In a more precise definition, a person would consider it as the ratio between the purchase price and Net operating income (NOI). On top of that, the calculations would be made by dividing the NOI in the first year with the property’s purchase price.
Note: Many others Terms are used in Real-estate Investing. However, the article has talked about the most important ones used commonly in the market and tried to explain everything in the right way possible. If a person wanted to know about real estate terms that refers to wholesaling, commercial properties, residential properties, or else, they would easily get it by considering the online platforms.
For any real estate investor to sell or buy a house or apartment for the first time, there would be many real estate terms that come out. Therefore, it would be necessary for every single of them to understand the terms in advance so that it doesn’t cause any issues at the time of conversation. Meanwhile, it pretty much helps out every investor understand what is talking about by the other persons in the discussion.
For those reasons, the article has introduced around 17 Real estate investing terms for the Readers. Every single one of them have a bit of co-relation with each other. Therefore, reading and analyzing them in the mentioned pattern would make everything easily clear for the reader.
If anybody would read out the whole terms mentioned here, he/she would never have to worry about talking with any real estate customer or company in the future as an investor. Why? Because everything that would be discussed can be easily analyze or understand without any issues due to the knowledge of the popular terms.