15 Real Estate Investing Terms Every Beginner Should Know
Investing in real estate can be a tricky venture, especially when you don’t know what anyone is talking about. When you’re new to real estate investing, it seems like everyone in the industry is speaking an entirely different language, and this can be quite an intimidating experience. So, to help you feel more confident about your venture into property investing, we’ve broken down the most common real-estate investment terms in our beginner-friendly glossary.
- Appreciation: An increase in the value of an investment property over time. Appreciation can be caused by a number of different factors including a decrease in supply, an increase in demand and even inflation.
- Buyer’s market: This is a situation in the real estate market where the demand for investment properties is lower than the supply. Here, buyers can benefit from low property prices.
- Capital expenditure: Capital expenditures refer to the purchases, improvements and renovations that extend the life of an investment property. These include renovating the kitchen, finishing the basement etc.
- Capitalization rate: Capitalization rate, or cap rate, is a formula used to determine the value of a rental property. It is found by dividing the net operating income by the current value of the investment property.
- Cash flow: This refers to the amount of money a property owner earns from an investment property at the end of each month. It’s the rental income generated versus the monthly maintenance expenses.
- Cash on cash return: This is the ratio of the annual cash flow generated by your investment property to the amount of cash invested in it. Cash on cash return is expressed as a percentage and allows investors to assess the cash flow from their income-generating rental properties.
- Equity: Equity is the difference between the current market value of a rental/investment property and the amount an owner owes on the property’s mortgage. As the property owner pays the mortgage off over time, their equity stake in the rental property grows.
- Leasing fee: This is the money paid to a property manager when they sign a lease with a new tenant.
- Long-term rental: Also known as a traditional rental, these are properties bought with the intention of renting them out to tenants for long periods of time.
- Net operating income (NOI): Net operating income is the income generated from an investment property after deducting property expenses. These expenses include property taxes, utilities etc.
- Rental property: This is a property that is given to occupants/tenants for use in exchange for a monthly payment (rent) to the property owner.
- Rental income: Rental income is the money paid by tenants to the property owner for periodic use of their property.
- Seller’s market: A seller’s market is one where the demand for investment property exceeds the supply. In this case, properties on the market have higher price tags which benefit sellers.
- Short-term rental: Short term rentals are properties that are rented out for a short period of time. These can also be referred to as vacation rentals.
- Turnkey property: A turnkey property is a home or apartment that has been purchased, renovated and is now ready to be rented out or sold to another investor.
Real-estate investing is significantly easier when you know what everyone is talking about, and these 15 terms are a great place to start when familiarizing yourself with the real estate industry.
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