In any industry, be it real estate, financial, legal or medical, there are always technical jargons we use. These simplify conversations between colleagues and convey to professionals your meaning with fewer explanations. If you want to delve into the rental investment industry, it helps to learn more about the common terms that real estate professionals use.
Some words might sound confusing at first but with practice and familiarity, you’ll be able to master their meanings. Here are some common terms that will be helpful to beginners:
1. Rental Property
People known as tenants are those who occupy rental properties. Tenants pay you a monthly amount for staying in your property. Two classifications exist for rental properties. It can be a residential or a commercial property.
2. Long-Term Rental
Long-term rental is your property rented out to a tenant for a long period. It can be typically a year or longer.
3. Rental Income
Rental income is one of the most familiar terms you’ll recognize. It’s the money you receive as payment from your rental property that a tenant is occupying.
4. Cash Flow
Cash flow is the money left to the property owner, minus the liabilities and expenses obtained for operating a rental. If you have a mortgage loan, this must be deducted as this is considered a liability. There are two types of cash flow; positive and negative.
If your expenses are lesser, the cash flow is positive. However, if the expenses are greater, you’ll end up with a negative cash flow.
5. Pre-Approval Letter
Property sellers seek out a pre-approval letter. The bank or a lender gives you this pre-qualifying document, which signifies that they’re open to lending you the money. It lets the property seller know that you’re eligible for a mortgage loan. This reassures the property seller that you have the means to pay for the property.
6. Buyer’s Market
A buyer’s market scenario is favorable to buyers. This means that supply outweighs the demand. So, there are plenty of real estate properties in the market available for purchase. Buyers can negotiate for lower prices in this type of economy.
7. Seller’s Market
A seller’s market scenario is favorable to sellers. This means that demand is greater than the supply. So, there are fewer real estate properties in the market available for purchase. This leads to higher prices and makes the sellers happy.
Appreciation represents an increased value of the real estate asset as the years go by. Among the factors that lead to appreciation may be inflation adjustment, spike in demand or less supply. The goal of rental investors is to score a considerable gain for their property investments in the future, owing to property appreciation.
9. Debt-to-Income Ratio
A debt-to-income ratio is a measure of your personal finance health. It’s a comparison of your monthly debt payment against your monthly gross income. Lenders compute this to see if you have the capacity to meet regular debt payments.
If your debt-to-income ratio is low, lenders are more open to giving you a loan. A low DTI translates to healthy finances since your income is enough to manage your debt.
10. Credit Score
A credit score is a number that portrays a person’s creditworthiness. The higher the credit score, the more likely that lenders will provide a loan to accommodate it. If the score is low, it can turn away lenders. A credit score is derived from one’s credit history.
Landlords and lenders check the credit score to evaluate if a prospect is acceptable as a tenant or borrower. It displays a person’s readiness to pay off the financial obligation, such as a rent or a loan.
11. Off-Market Property
Off-market properties are those that are unlisted on MLS or multiple listing sites. They could also be considered as sold already without letting the public know. There is no advertised information for an off-market property. Another term for this is a pocket listing.
Sellers might prefer an off-market property to check if there’s demand for it. They could also be guarding their privacy or using it for strategy to increase the price. Buyers might desire an off-market property to save more from a reduced commission. Another incentive for the buyer is lesser competition.
12. Real Estate Agent
A real estate agent is a professional who has a license to handle real estate transactions. They can either represent the buyer or the seller.
The duty of a real estate agent is to help negotiate the purchase or sale of a real estate property. The property deal provides the real estate agent with a commission.
A realtor is a real estate professional who has a membership to the National Association of Realtors. This person adheres to the organization’s ethical code and standards.
14. Real Estate Broker
A real estate broker acts as a representative for real estate buyers and sellers. They have the option to work in an independent manner.
Another option for brokers would be hiring additional real estate agents. They could also opt to open a brokerage. Brokers can afford to do this given their higher training, as they can handle more technical aspects of the property transaction.
15. Single-Family Home
A single-family home is a stand-alone unit of residence. It’s detached from other dwellings and doesn’t share common walls. It also has its own direct entrance and exit to a main street. Single-family homes are typically designed to house a family, a single person or one household.
16. Multi-Family Home
A multi-family home is a single dwelling built for several families that stay separately in different units from each other. A multi-family home can be categorized as a duplex, triplex, fourplex or townhouse.
17. Predictive Analytics
Predictive Analytics is the practice of analyzing big data through the use of past data to come up with future trend predictions. They’re performed to create forecasts to determine if the investment maximizes returns.
If you’re looking for a property management company that can help you as you begin your role in the rental investment business, contact Trusthome Properties today.