There’s a lot of jargon and acronyms in the investing world, and real estate investing is no exception. Brush up your terminology skills with these top real estate investing terms to learn for beginner investors:
Rental Property
Rental property may be residential or commercial and refers to property from which the owner receives a monthly payment from the occupants (tenants) for using or occupying the property.
Rental Income
The term “rental income” refers to the money paid by a tenant to a landlord for using the landlord’s property.
Short-Term Rental
A short-term rental is a furnished space that is rented out for short periods of time. Airbnb, VRBO, and vacation rentals are common examples.
Long-Term Rental
A long-term rental is a property bought to be used as an investment and rented out to tenants for an extended period of time, usually at least a year. Long-term rentals are very popular with investors.
Equity
Equity is known as the difference between a property’s current market value and the amount owed on its mortgage. Equity grows over time as the mortgage balance shrinks and the property’s market value rises.
Appreciation
Appreciation is an increase in the value of a real estate property. The inflation rate, increasing demand, or weakening availability may be responsible for the rise in value.
Net Operating Income (NOI)
Net operating income is the profit made each year from a property investment after deducting property costs. Property taxes, management fees, and utility bills are some of the expenses that may be incurred.
Debt-to-Income Ratio (DTI)
This is a personal finance calculation that compares an individual’s monthly debt payment to their monthly gross income. Lenders use this measure to assess an individual’s ability to handle monthly debt payments.
Cash Flow
The phrase “cash flow” refers to the amount of money remaining in a fund, after all, operating costs, including loan payments, have been paid at the end of each month. Cash flow can be either positive or negative. If you have a positive cash flow, you’ve spent less money than you’ve received. If the outflows are greater than the inflows, you’ll have a negative cash flow.
Cash Flow Return
The cash flow return is the proportion of a firm’s yearly cash flow before tax to the total amount invested, calculated as a percentage. This financial indicator enables investors to evaluate their income-generating assets’ cash flows.
Capitalization (Cap) Rate
Cap rate is the proportion of a property’s capital cost or current market value to its net operating income. This is one of several real estates investing terms that denotes the level of return anticipated from an investment property.
Pre-Approval Letter
A pre-approval letter is a letter from a bank stating that they have reviewed your financial situation and believe you can afford the purchase price of the property. It assures home sellers you will be approved for a mortgage if needed.
Seller’s Market
This is a real estate market in which there isn’t enough property for sale to match the growing number of buyers. Property values are increasing, and sellers are finding them more appealing.
Buyer’s Market
This is a real estate market where there are too many properties for sale against buyer demand. Property values are frequently cheap, making it an enticing market for purchasers.
Vocabulary Not Really Your Thing?
If you’re looking for a more passive role in owning rental property, trust the professionals at Douglas Realty Property Management in southwest Florida to handle all aspects of renting and maintaining your rental properties. Call us at (239) 542-6906 or contact us online to find out more about our services for landlords.