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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

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

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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A

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.
AgentA 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.
AmortizationThe 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 valueThe value assigned to a real estate property that is used to determine its property tax rate.

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B

Balloon PaymentA 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.
BrokerA 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.
BRRRRAcronym describing a strategy buy-and-hold investors use to Buy, Repair, Rent, Refinance, and Repeat.
Buying agentA real estate agent or broker that operates on behalf of a client buyer to help them find and purchase a property.

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C

Capitalization rate, or cap ratea metric used in real estate to evaluate the potential return on an investment property
Cash FlowCash flow is the passive income generated when your rental returns exceed your monthly expenses. 
Cash-Out RefinanceA mortgage refinancing option that lets you obtain cash from the equity in your home by taking on a larger loan against your property.
Cash reservesMoney that is set aside or saved by an individual or a business to use in case of an emergency.
ClosingThe 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 CostsThe 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 leasesA 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 compA 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 analysisA process used to determine the value of a home-based on the sale prices of similar properties in the area.
ContingencyA condition that must be met in order for a real estate contract to be finalized.
ContractA written and legally binding agreement between a buyer and seller outlining the details of a real estate transaction.
Curb appealThe appearance and overall attractiveness of a property’s exterior.

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D

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.

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E

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.
EquityA measure calculated by taking the market value of a property and deducting the amount that is still owed on the mortgage, if any.
EscrowAn 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 agreementA 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.

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F

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 mortgageA home loan with an interest rate that stays the same throughout the loan’s lifetime.
ForeclosureA 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.

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G

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

H

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.

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I

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

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J

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K

L

ListingA 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.

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M

MortgageA 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.

N

Net operating income (NOI)A value that determines how much profit a commercial real estate property generates.

O

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.

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P

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.

Q

R

Realtoran 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.
RefinancingThe 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.
Reverse mortgageA 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.

S

Short saleA property that is sold for less than the amount that is owed on the mortgage. Also known as a compromise claim.
StagingThe process of organizing the interior of a home to be more attractive to prospective buyers.

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T

Title insuranceA type of insurance that protects the buyer and lender in case the seller does not have full lawful ownership of the property.
Title searchThe 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 PropertyA turnkey property is a fully renovated home, duplex, or apartment building that an investor can purchase and immediately rent out.

U

USDA loanA government-backed mortgage loan available to US residents that live in rural areas.

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V

VA Loan

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VA loans are available to active and veteran service personnel and their surviving spouses, and are backed by the federal government but issued through private lenders.

W, X, Y, Z

WholesalerA 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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Well, that’s it. At least for now.

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This post is a living document, so check back for updates. What real estate terms would you add? Let me know in the comments below.

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