Are you a landlord who finds themselves confused when it comes to the terminology of rental properties? Luckily, our team is well versed in real estate and can help you understand the ins and outs of the industry in no time.
Below, we have listed 25 different terms that can help get you started.
Common Real Estate Terms You Should Know:
One of the more common terms, a rental property has an owner and is rented out to tenants. The renters will make monthly payments in exchange for using or occupying the property. This can include residential or commercial properties.
Short Term Rental
A short term rental, also known as a vacation rental, is a fully furnished and self contained property that is rented out for shorter periods of time.
Long Term Rental
This is a traditional rental property. A long term rental property is the most common kind of rental home, usually purchased for the purpose of renting out the space to tenants.
Your equity refers to the value of your property after deducting the amount owed on the mortgage. Over time, your equity will grow as your remaining mortgage balance decreases and your property’s value increases.
This is one of the most common terms that you will hear when it comes to owning a rental property. Rental income refers to the monthly payments your tenants make when they are renting out your property.
Your cash flow is the amount of income that you, as a property owner, will be able to keep after paying all the expenses that come with your property, including the mortgage. If you are receiving more money than you are spending, then you will have a positive cash flow. However, if your expenses are greater than your income, then you will end up with a negative cash flow.
Before you start to look for a property to purchase, it is important to get a pre-approval letter from your bank. A pre approval letter will determine how much you can afford to spend.This also assures the property seller that you are able to be granted the necessary loan if needed.
A seller’s market refers to when the demand for buying property is larger than the amount of properties being sold. This means that the prices of properties will increase and the real estate market will be more profitable for sellers.
A buyer’s market is when there is less of a demand for buying property, and there are more properties on the market. During this period, prices will be lower than usual, so it is an ideal time for buying property.
Appreciation is the gradual increase in the value of a property. This happens over time, and can happen for a variety of reasons including inflation or a larger demand for buying property.
Predictive analytics refers to the use of previous historical trends to predict future data. This can provide property owners insight when it comes to the return on their property investments.
Hard Money Loan
A hard money loan is a loan based on your assets and granted by private investors. They typically have higher interest rates than other more conventional loans.
Net Operating Income (NOI)
Your net operating income refers to your annual generated income from a rental property after subtracting the expenses that come with owning property. This can include maintenance, property tax, or property management fees.
Debt to Income Ratio
This is a financial metric used to determine whether a property owner is able to manage their monthly mortgage payments. This measures whether or not a property owner’s gross income is higher than their monthly debt payments.
Cash on Cash Return
Cash on cash return is a metric used to calculate how much financial return your rental property provides compared to the amount of mortgage paid. This will be expressed as a percentage and can help a rental property owner assess their cash flow.
Cap (Capitalization) Rate
A cap rate is a financial metric used to compare different rental properties. It is generally calculated as the difference between the annual rental income compared to its real estate value.
Your credit score is a metric that evaluates how reliable someone is when it comes to paying back loans. The higher your score is, the better your financial reputation is. This is used by lenders to determine whether or not you qualify for a loan, and can also impact your interest rates and credit limits.
Off Market Property
When a property is off market, it means that it is in the process of selling or has been sold without being listed publicly.
Internal Rate of Return
An internal rate of return can be used to estimate how profitable a rental property will be. It is a discount rate where the net present value is equal to zero in your cash flow analysis.
Real Estate Agent
A real estate agent is a licensed individual who can represent both sellers and buyers of properties. They usually will work under a licensed broker, and this role can be a starting point for many real estate professionals.
A realtor is someone who can act as a real estate agent in property transactions, however they are also a member of the National Association of Realtors. They must abide by all rules, regulations and the code of ethics set in place by the association.
Real Estate Broker
With a proper license, a real estate broker can work independently and represent both buyers and sellers of properties.
Rental Property Calculator
This is an online tool to help property owners estimate their cash flow, cap rate, and the return on their investment. Once provided with basic financial information on the property, the online calculator can help you decide if a rental property is worth investing in before you commit to it.
Single Family Home
A single family home is a property that is not attached to any other building or unit. Only one family will rent or occupy this type of property.
Multi Family Home
A multi family home is a building that holds multiple separate rental units and can house more than one family at a time. Examples of these are duplexes, apartment complexes, or town houses.
There you have it! These are just some of the terms that can be helpful for you to be familiar with if you’re wanting to get into real estate. Of course, as you continue as a rental property owner, you will encounter many more terms and concepts, but learning the above is a great place to start.
If you want more hands-on assistance, hire a property management company. Here at Rollingwood , we take care of everything, so you don’t have to worry.