Glossary of Real Estate Investment Terms

There is a lot of jargon that gets thrown around in the real estate investing world. Some words you may have heard on multiple occasions. Others, not so much. Nevertheless, if you want to understand all the jargon your real estate agent, attorney, and fellow investors are using, here is your chance. This Glossary of Real Estate Investment Terms offers a breadth of items you might hear.

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Glossary Index

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Beyond the definitions, it helps to understand how real estate investing works. Of the books out there, one of the best is Brandon Turner’s Book, The Book on Rental Property Investing: How to Create Wealth and Passive Income Through Smart.

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Adjustable-rate mortgage (ARM)	A mortgage loan with an interest rate can change throughout the loan’s lifetime.
After-Repair Value (ARV)	The estimated value of a property after purchase and renovations. Investors use ARV to estimate the equity or profit they can expect after renovating the property.
Agent	A real estate professional that is legally licensed to buy and sell property on behalf of their clients. An agent cannot operate independently, they must work under a licensed broker.
Amortization	The process of gradually reducing mortgage loan debt over time by establishing scheduled monthly payments. The interest payment of an amortized loan will decrease as time goes on, while the principal payment will increase.
Assessed value	The value assigned to a real estate property that is used to determine its property tax rate.

Balloon Payment	A balloon payment is a larger-than-usual one-time payment at the end of the loan term. A mortgage with a balloon payment may be lower in the years before the balloon payment comes due, but you could owe a big amount at the end of the loan.
Broker	A real estate professional that is licensed to represent clients and manage a brokerage in their state. Brokers receive extensive education and licensing, allowing them to manage individual agents through a firm or operate independently.
BRRRR	Acronym describing a strategy buy-and-hold investors use to Buy, Repair, Rent, Refinance, and Repeat.
Buying agent	A real estate agent or broker that operates on behalf of a client buyer to help them find and purchase a property.

Capitalization rate, or cap rate	A metric used in real estate to evaluate the potential return on an investment property. It is obtained by dividing a property’s net operating income by its asset value, giving an assessment of the yield of a property over one year. For example, a property worth $100,000 generating $6,000 of NOI would have a cap rate of 6%.
Cash Flow	Cash flow is the passive income generated when your rental returns exceed your monthly expenses.
Cash-Out Refinance	A mortgage refinancing option that lets you obtain cash from the equity in your home by taking on a larger loan against your property.
Cash reserves	Money that is set aside or saved by an individual or a business to use in case of an emergency.
Closing	The process of finalizing a real estate transaction. This includes finalizing mortgage agreements, paying applicable transaction fees and signing on the dotted line to close the deal.
Closing Costs	The fees associated with finalizing a real estate transaction. Both the buyer and seller will have expenses during the closing process. Closing costs normally include an application fee, inspection fees, homeowner’s insurance, property taxes and the agents’ commission.
Commercial leases	A leasing agreement that is specific to commercial real estate. There are 7 different kinds of commercial leases that real estate agents should be familiar with.
Comparable, or comp	A term that refers to the prices of recently sold properties that are used to determine the market value of other similar properties. A seller will refer to these “comps” when trying to figure out what their property is worth.
Comparative market analysis	A process used to determine the value of a home-based on the sale prices of similar properties in the area.
Contingency	A condition that must be met in order for a real estate contract to be finalized.
Contract	A written and legally binding agreement between a buyer and seller outlining the details of a real estate transaction.
Curb appeal	The appearance and overall attractiveness of a property’s exterior.

Debt-to-income ratio	A percentage that helps lenders calculate the risk associated with giving out a loan to a borrower. It is the total of all monthly debt payments divided by monthly gross income.
Dual agency	A situation where a real estate agent or broker represents the buyer and seller.
Down payment	The amount of money that a buyer must pay upfront as part of a real estate transaction. It is usually expressed as a small percentage of the overall price of a property. Most mortgage lenders will require a down payment as collateral.

Earnest money	A cash deposit paid by the buyer during a real estate contract to indicate they are serious about purchasing the property. Sometimes called a good faith deposit.
Equity	A measure calculated by taking the market value of a property and deducting the amount that is still owed on the mortgage, if any.
Escrow	An arrangement in which a neutral third-party provider holds the funds associated with a real estate transaction until a specific condition is met.
Exclusive Right to Sell agreement	A listing agreement where a property owner must pay commission to a real estate agent no matter who finds the buyer. If the owner finds a buyer, they must still pay a commission to the agent.
Exclusive agency agreement	A listing agreement between a property owner and a real estate agent where a commission is paid if the agent finds a buyer. The owner is not responsible for paying a commission if they find a buyer themselves.

FHA loan	A mortgage loan that is backed and administered by the Federal Housing Administration.
Financial Runway	A term describing the time a person can maintain their standard of living based on savings and other investments
Fixed-rate mortgage	A home loan with an interest rate that stays the same throughout the loan’s lifetime.
Foreclosure	A legal process resulting from a property owner failing to uphold their mortgage agreement and make payments. The mortgage lender will claim the property and resell it in an attempt to recoup losses.

Guaranty	Refers specifically to a written agreement that one party will pay the money required if another party fails to honor the agreement.

Home Appraisal	The process during which a licensed appraiser evaluates different elements of a property to determine its fair market value. An appraisal is ordered by a mortgage lender. An examination of the overall condition of a property.

Interest	The profit a mortgage lender makes in exchange for the loan. It is quantified as a percentage.

Listing	A property that is up for sale.
Listing Agent	A real estate agent or broker that operates on behalf of the property owners to help them sell their property.
Listing Agreement	A legally binding contract that allows a real estate agent to sell a property on behalf of their client: the property owner.

Mortgage	A long-term loan is given by a lender to finance a real estate property. The property is used as collateral in exchange for the money that is borrowed.
Mortgage Insurance Premiums (MIP)	MIP is what the Federal Housing Administration (FHA) requires borrowers to pay to self-insure an FHA loan against future loss.
Multiple listing service (MLS)	A digital database of current real estate listings that is operated by a group of agents or brokers. An MLS provides accurate, up-to-date information about the status of local listings.

Pocket listing	A property that is up for sale but hasn’t been made publicly available to other agents or buyers.
Principal	The total amount borrowed in a mortgage loan.
Private Lender	A person or organization that lends money to people who are having difficulty getting loans, usually at a higher rate than a bank would charge
Private mortgage insurance (PMI)	An insurance policy that requires payment of additional premiums that protect the lender in case the borrower can’t pay the mortgage. It’s usually required on conventional loans if the down payment is less than 20% of the total mortgage amount.
Promissory Note	A promissory note, or note payable, is a legal instrument in which one party promises in writing to pay a determinate sum of money to the other, either at a fixed or determinable future time or on demand of the payee, under specific terms and conditions.

Realtor	an individual who is a member of the National Association of Realtors (NAR), a trade association for real estate professionals. By becoming a member, realtors agree to abide by a strict Code of Ethics laid out by the NAR.
Refinancing	The process of replacing a current mortgage loan with a new one under different terms and conditions. The goal is to get a better interest rate on the new loan.
Return on Investment or ROI	Return on investment (ROI) is the measure of the profit derived from any investment. It is a ratio that compares the gain or loss from an investment relative to its cost. One way to calculate it is to divide Net Return on Investment by Cost of Investment.
Reverse mortgage	A loan that allows the borrower to relinquish home equity in exchange for money. This type of loan is only available to homeowners that are 62 and older.

Security Deed	A security deed functions in a similar fashion as a mortgage. The security deed is an interest in real estate which gives legal title of property to the lender of the mortgage for the term of the mortgage note. Once the note is paid off by the borrower, there is a formal cancellation of the security deed based upon full payment. In Georgia, a security deed is the document that secures a loan on real estate. OCGA § 44-14-80 states that security deeds expire seven years after the maturity of the last installment date stated in the security deed.
Short sale	A property that is sold for less than the amount that is owed on the mortgage. Also known as a compromise claim.
Staging	The process of organizing the interior of a home to be more attractive to prospective buyers.

Title insurance	A type of insurance that protects the buyer and lender in case the seller does not have full lawful ownership of the property.
Title search	The process of searching through public records to ensure the seller of a property has lawful ownership of it. A title search can uncover possible deficiencies or defects in ownership that could greatly impact a real estate transaction.
Turn-Key Property	A turnkey property is a fully renovated home, duplex, or apartment building that an investor can purchase and immediately rent out.

Open listing	A situation in which a property owner chooses to sell their home on their own. There is no exclusive agreement, which means they can have listings with multiple agents.
Open House	An event run by a real estate agent that allows prospective buyers to visit a property without an appointment for a certain period of time. The goal is to generate interest and showcase the property in a casual setting.

Wholesaler	A wholesaler contracts a home with a seller, then finds an interested party to buy it. The wholesaler contracts the home with a buyer at a higher price than with the seller and keeps the difference as profit.

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