The real estate industry has its own jargon that's used to communicate conditions, performance, and other critical elements about properties.
As a new real estate investor, you should familiarize yourself with some of the terms you're likely to come often across on your investment journey.
This will help you be more confident in your interactions with the various professionals in the field. It will also allow you to make informed decisions that'll determine the viability of your investment in California real estate.
We should mention that you obviously can't know every term in the field, but having knowledge of the basics will really be helpful to you.
In this article, Pinnacle Property Management provides a few common real estate terms you'll need in the real estate business.
1. Short-Term Rental
A short-term rental is also referred to as a vacation rental. These properties are often furnished units that are rented out for short periods of time. The name 'vacation rental' is derived from the short duration of tenure.
These units have gained popularity over the years thanks to their flexibility, especially for professionals and people who travel a lot for work. Their popularity can also be attributed to the increased use of short-term applications such as Airbnb, Expedia, and more.
2. Long-Term Rental
These types of units are the usual units that are rented out for a long period of time. The length of the tenancy is typically defined by the lease agreement.
They're also referred to as traditional rentals. These types of units are the oldest forms of real estate investments and are a good source of stable rent income.
This is the difference between the money you still owe on a property's mortgage and the current market value of the property itself.
Generally, your property will appreciate and the mortgage will shrink, so the equity will increase.
4. Rental Income
Rent is the money that a tenant pays periodically in exchange for occupying your unit. This is one of the most common terms that you'll encounter in the real estate industry.
5. Monthly Cash Flow
This is the amount of money that you, as the property owner, end up every month after all expenses are paid. Your cash flow could either be positive or negative.
Positive cash flow means you're earning more than you're spending on the property, whereas a negative cash flow implies the opposite.
6. Pre-approval Letter
A pre-approval letter is a document that a bank provides before you begin looking for a home or applying for a mortgage. The letter is used to determine what kind of property you can afford.
The lender will request your financial information and also have a look at your credit score. The pre-approval process will determine how much you can borrow, as well as the interest rate.
7. Seller’s Market
In real estate, a sellers’ market refers to a market where the demand from property buyers exceeds the supply available in the market at a given time.
In a sellers’ market, property prices are often higher than usual and entice more homeowners to sell their property.
This leads us to the opposite...
8. Buyers’ Market
A buyers’ market refers to a market where the demand for properties for sale is lower than the properties available to be sold.
In such a scenario, property prices are often low, which discourages most property owners from selling their properties. However, property investors tend to buy properties during such times.
Appreciation can be defined as the increase in value of a property over a given period of time. There are several reasons why the value of a property may increase.
Some of the reasons for property appreciation include increased demand for housing, a low supply of housing units, and infrastructural developments in the neighborhood.
10. Predictive Analytics
Predictive analytics refers to the analysis of huge amounts of historical data in order to predict future trends.
Professionals in the real estate industry use predictive analytics to derive reliable forecasts on the ROI to be expected from a given property.
11. Hard Money Loan
A hard loan is an asset-based loan that's issued by private investors or companies. These organizations are typically quick to fund but have higher interest rates than conventional loans.
12. Cash on Cash Return
A cash on cash return is the ratio of annual cash flow before tax is imposed to the total amount of money invested. Cash on cash return is often expressed as a percentage.
The cash on cash return helps investors assess the amount of cash flow generated from their investment.
13. Debt to Income Ratio
The debt to income ratio is a term used to compare the monthly debt of a person to their monthly gross income.
This metric is often used by lenders to measure the ability of an individual to handle monthly debt repayments.
14. Net Operating Income
Net Operating Income is the amount of money that you generate from an investment annually. This amount is determined by deducting the total expenses incurred while running the property.
Some of these expenses include property management fees, utilities, and property taxes, among others.
15. Credit Score
A credit score is a numerical expression used to evaluate the creditworthiness of an individual by analyzing their credit history.
A credit score is often used by lenders to determine whether an individual qualifies for a loan, as well as the amount of credit they're eligible for.
16. Capitalization Rate
This is one of many terms in real estate that refer to the rate of return expected from an investment property.
The capitalization rate (or cap rate) is the ratio of the net operating income earned from an investment to its current market value.
17. Off-Market Property
An off-market property is a property that has been sold or one that is in the process of being sold.
The means of sale is done without any public knowledge or advertisement. Off-market properties are not listed to the public.
Exceptional Property Management in Torrance, Long Beach, and South Bay area
If you're a beginner investor or you just don't have that much free time to manage your properties, contact Pinnacle Property Management. We're the leading property management provider in the area.
We are a full-service property management, and can handle the day-to-day tasks of managing your investment property for you. Get in touch today!