Like every industry real estate has its own language. Here are a few basic real estate terms you should know to help you navigate your real estate deals, whether you are buying your first home or looking to build an investment portfolio.
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Appraisal:
The financial evaluation of a property by a licensed appraiser to determine its value. Banks look at the appraised value to determine how much they will lend, and will never lend more than the appraised value of the property.
Adjustable
Rate Mortgage: A property loan with an interest rate that changes throughout the life of the loan.
Closing: A meeting of all parties -buyer, seller, lawyers, and title company- to transfer the ownership of the property. This is the final stage in the purchase of a property.
Closing Costs:
Costs, in addition to the final price of the property, that cover various fees
associated with the real estate transaction.
Contingency: A clause placed into the purchase contract that is designed to protect the best interest of the buyer or seller. The conditions in the clause must be met before the property can close. For example, if an appraisal contingency is not met, a buyer can back
out of the deal.
Depreciation: Refers to the decrease in the value of a property over a set period of time due to wear and tear.
Equity: The difference between a property’s market value and the remaining balance on the mortgage on that property. The more mortgage you pay off, the more equity you gain.
Exit Strategy: An “exit” event where an investor cashes out of the property. For example, the sale of a property you just acquired for a profit right after you fix it up.
Fixed-Rate Mortgage: A property loan with a stable interest rate throughout the life of the loan.
Loan to Value Ratio (LTV): Financial term that lenders consider before approving a mortgage, referring to the ratio of the loan to the appraised value of the property.
MLS: Multiple Listing Service – An online database that licensed real estate agents use to view property listings.
Return on Investment (ROI): The net profit an investor makes in relation to the total cost. The higher your ROI, the more money you make.
Title Search: A thorough background check through public records on the property done by a title company to help determine whether the property rightfully belongs to the owner and if there are any outstanding liens on it.
Vacancy: Refers to the amount of time that a rental unit remains unoccupied. An investor should keep the vacancy rate as low as possible to maximize profits.