25 Terms All Real Estate Investors Should Know

Investors globally have turned to real estate when making long-term investments that promise returns. It’s one of the most reliable investments you can make. However, it’s not as simple as just purchasing a property.

As an upcoming real estate investor, you need to be familiar with the industry’s jargon and have solid knowledge to back it. To help you with this, below are twenty-five terms all real estate investors should know!

Rental Property

This is a property that generates the proprietor/investor a monthly income by renting it out for residential and commercial needs. Rental property can be either short-term or long-term, depending on the occupants’ needs.

Short-term rental properties include vacation rentals or monthly rentals. On the other hand, long-term rental properties include apartments, townhouses, and single-family homes that generally have a lease of a year.

Appreciation

This is a term used to define the increase in value of a piece of property over time due to factors such as a weakened supply, inflation, increased bank interest rates, and increased demand. This is important to know as it influences when to make certain decisions, such as during selling and purchasing seasons.

Return on Investment

The ROI is a term used to define a passive income property’s return on investment. It lets the investor know how much profit they stand to make on a piece of property or other assets.

roi for rental property

It’s important to be aware of a property’s ROI as it will indicate whether a deal is viable or not prior to investing.

Real Estate Agent

A real estate agent is a professional who serves the purpose of closing the gap between a buyer and seller in the industry. They work to help buyers or tenants reach their desired rental properties and similarly help sellers or landlords reach their potential clients. Knowing professional real estate agents helps investors save time and get deals.

Property Management

This is the practice of overseeing rental property operations such as tenant screening and selection, rent and security deposit collection, and the servicing and maintenance of the property.

Property Marketing

This is the process of informing the public of existing properties available for sale or leasing. It involves actions such as putting up adverts on various media channels such as listing sites, social media, and newspapers.

Depreciation

Depreciation is the gradual decrease of property value due to a number of reasons such as normal wear and tear and asset destruction or damage. This directly influences resale value.

Rental Agreement

The rental agreement is a written contract between landlord and tenant outlining all the terms and conditions of engagement between the parties. Some of these are the monthly rent, dates of payment, the liability clause, and the dos and don’ts.

Net Present Value

The NPV is an investment property’s analysis metric that indicates the present value of all future cash flows generated by a property.

npv for rental property

The initial cash investment is deducted from the future cash flows to derive NPV.

Mortgage

A mortgage is a loan sourced and repaid periodically to buy and maintain a home or land using the property as the loan’s collateral.

Cap Rate

This is the ratio of the net operating income to its current market value. By forecasting the rate of return expected from an investment, one can make an informed decision.

Net Operating Income

The NOI is an investment property’s income after deducting expenses such as utilities, taxes, and management fees.

Cash Flow

Cash flow is the investor’s monthly pocketed profit after all deductions including deposits to cash reserves for future needs, highlighting the business's health.

Internal Rate of Return

This is the discount rate at which the NPV of all investment cash flows is zero. It shows the annual growth rate an investment is expected to generate.

Tenant Screening

This is the process of vetting candidates interested in renting out a property using metrics such as the ability to pay and suitability of operations to the existing tenants' operations.

Off-Plan Property

An off-plan piece of property refers to one that is yet to be completed. They exist in various stages such as the planning stage or undergoing construction.

Amortization

This is the process of lowering the cost value of a mortgage through scheduled payments made by the borrower to the lending company.

Collateral

Collateral is an asset that a borrower commits to the lender as security to a loan.

collateral for property loan

In the event of a default, the collateral can be auctioned by the creditor to settle outstanding payments/debt.

Capital Gains Taxes

The CGT is a tax charged by the tax authorities on gain generated from property transfer or sale. It is charged as a percentage of the profit. 1031 exchanges are a great strategy to defer this.

Real Estate Investment Trust

An REIT is an organization that owns and operates income-generating real estate investments. They allow a real estate investor to diversify their portfolio and access better returns.

Title Deed

This is a legally acknowledged document that serves as indisputable proof of ownership of a piece of property. Investors must ensure that they secure a verified title deed for all properties purchased.

Appraisal

An appraisal is a process of unbiasedly evaluating a property’s monetary value through metrics such as comparables, present market trends, and any developments.

Comparative Market Analysis

This is the process of assessing a property’s value based on current market trends of similar properties or existing in the same markets.

Real Estate Equity

This is the difference between a property’s present market value and the mortgage balance/outstanding amount marking what the borrower owns of the property.

Occupancy Rate

This is the ratio of utilized space to the total amount of available space. A high property occupancy rate is desirable for all investors.

Bottom Line

If investing in rental properties is new to you, consider hiring an expert in the field. McKenna & Vane Property Management is a Maryland-based company that offers property management services including marketing, tenant screening, lease signing, eviction coordination, maintenance, property inspections, rent collections, and more on behalf of its clients.

Contact us today to learn more about how we can help you reach your investment goals!