Whether you work for a hotel, bank, or airline, you’ll encounter specific and technical terms. The real estate investment industry also has its own lingo.
You want to be familiar with these terms so that when you enter property investment discussions, you can proceed with confidence and avoid getting important points lost in translation.
There are some common terms that all new investors should learn. As you become more familiar with the ins and outs of managing rental properties and real estate investing so will your understanding of the professional lingo.
The Rationale for Learning Real Estate Terms for Investors
Getting your message across is essential during real estate discussions and transactions. The ability to communicate strongly can be accomplished when you’ve mastered real estate terms. The negotiations with real estate professionals can also move more smoothly.
Real Estate Investing Terms to Familiarize Yourself
1. Rental Property
A rental property is a real estate investment where the owner can earn a recurring income by renting out the asset. The tenants will pay a regular amount every month in exchange for their occupancy. It’s also segregated into a residential rental property or commercial rental property.
2. Rental Income
Rental income represents the cash inflow that property owners receive from leasing their real estate to tenants. This term is very common in real estate property investment.
3. Short-term Rental
Airbnb is a platform where short-term rentals are typically found. These are commonly apartment and condominium units being rented out by owners for vacationers.
Short-term rentals are typically furnished for use of the visitors. These rentals can be rented over a few days or weeks, depending on the planned holiday stay.
4. Long-term Rental
Long-term rentals are chosen by occupants planning to stay in an area for more than a month or several months. These rentals generate steady returns given the regular income from the longer stay. It’s also not affected by seasonal demands, unlike a short-term rental targeting tourist.
5. Real Estate Agent
Real estate agents carry a license as professional representatives for property sellers or buyers. Usually, their compensation is earned through commissions from a real estate sale or purchase.
Real estate agents are first-tier professionals in the real estate industry and are employed by licensed real estate brokers.
Realtors perform the same work function as real estate agents. They also negotiate property deals and represent the buyers or sellers in a transaction.
Realtors are considered real estate professionals and are members of the National Association of Realtors. They’re bound to adhere to ethical standards set by NAR’s code.
7. Real Estate Broker
Real estate brokers have earned this license and can work on their own. They can open an independent brokerage company and employ real estate agents.
Brokers are divided into associate brokers, managing brokers, and principal brokers. Real estate brokers are also understood to be more adept with real estate transactions given their higher training.
8. Credit Score
A credit score measures an individual’s creditworthiness. Upon careful evaluation, landlords can use credit scores to decide whether to welcome a prospective tenant or not. Lenders can also check a borrower’s credit score before releasing a loan.
The higher the credit score, the higher the chances of being approved by the landlords and lenders. Bad credit scores can mean a huge possibility of being rejected for a tenancy or loan.
9. Cash Flow
Cash flow is the ending sum of money that an investor keeps every month once all expenses and loan payments are made. One can have a positive or negative cash flow.
If you end up with more cash at the end of the month, after all the operating costs are paid off, then you have a positive cash flow. If you have a cash deficit after paying your overhead expenses then this is known as a negative cash flow.
10. Buyer’s Market
A buyer’s market is ideal for buyers given that the demand for properties is weak. Thus, there are more properties available and buyers can negotiate for a lower price. In fact, given the market competition of the sellers, most properties have reduced prices in this scenario.
11. Seller’s Market
A seller’s market is more advantageous to sellers. The demand for properties is strong so sellers can price their real estate higher. Given the low supply of available properties, buyers are more prepared to pay for a higher price tag.
12. Single-family Home
Single-family homes are unattached residential units that allow more room for privacy. It has its own main access to the street and is categorized as an independent dwelling. Its utilities are not shared with others since it’s designed to serve a single-family.
13. Multi-family Home
Multi-family homes are composed of two or more residential units in a building. Families reside in each unit and have different entrances, kitchens, and bathrooms.
Examples of multi-family units are condominiums, apartments, duplexes, and townhomes where several groups of occupants live in one structure.
Appreciation refers to the property value rising over the years. Several factors influence a property’s appreciation such as market inflation and higher property demand in a certain area.
Buyers tend to hold on to real estate longer to maximize property appreciation before selling them.
15. Net Operating Income
Once all property expenses are paid off, what remains is the net operating income. This income is derived from the yearly earnings of the investment property and helps the investor determine whether the real estate investment is profitable or not.
You’ll be learning more terms when doing real estate transactions. As a beginner, it pays to understand these common real estate vocabulary to get up to speed when facing industry professionals.
For help managing your rental properties reach out to the experts at State Property Management!