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17 Terms All Real Estate Investors Should Know

property management company

The real estate industry, just like any other, isn’t without its fair share of jargon. When looking to invest in real estate, you’re bound to encounter them throughout your investing journey.

Knowing what certain terms mean can help you communicate effectively with other real estate stakeholders and enable you to work more efficiently.

So, what are some of the common terms that every beginner in real estate should know? Here are the most common:

1. Rental Property

This is inarguably the most common term you’re bound to encounter in your real estate investing journey. A rental property is a type of property that generates a passive rental income for the owner. A tenant occupies it in exchange for paying rent every month.

There are various types of residential rental properties. Including, single-family homes, condos, multi-family buildings, apartments, and vacation rentals.

2. Vacation Rental

Vacation rentals have become increasingly more popular over the last couple of years. It is a type of rental property that a tenant occupies for a short period of time.

Also, unlike a traditional rental, a vacation rental is usually fully furnished and self-contained. A common example of a vacation rental is an Airbnb.

3. Equity

Equity is the value of a homeowner’s interest in their home. Put in another way, it’s the difference between the fair market value of a property and the debt the owner owes.

The amount of equity rises as the mortgage balance reduces.

4. Rental Income

Rental income is the amount of money a tenant pays to occupy a rental property. It’s equivalent to the monthly rent amount.

5. Cash Flow

This is the amount of monthly rental income a landlord receives, less the operational expenses. Cash flow can either be positive or negative. If it’s negative, it simply means that the cost of expenses is higher than the rental income. When it’s positive, it means that the rental income exceeds the cost of expenses. This is the goal of any investor.

tenant writing a check

Pricing your rental property correctly coupled with effective property management can help you better achieve a positive cash flow.

6. Single-Family Home

This is a freestanding residential building that is set up to accommodate one family. Unlike condos, apartments, and townhouses, it doesn’t share any walls with adjacent structures.

7. Multi-Family Home

This is a residential property with at least two living units. Examples include a duplex, triplex, and semi-detached houses. A multi-family home is also known as a multi-dwelling unit (MDU).

8. Real Estate Agent

A real estate agent is a professional that helps people to either buy or sell a home. Usually, real estate agents require to have a license in order to operate in that capacity.

9. Real Estate Broker

This is an individual who has taken their real estate career beyond the agent level. Their work entails processing documentation and negotiating transactions relating to the selling, buying, or leasing of a property.

10. Realtor

This is also another term that you are bound to encounter in the real estate industry. Similar to a real estate agent or broker, a realtor is someone whose job involves helping people buy or sell a home. They can even help you determine where to invest.

realtor selling a house

But unlike them, a realtor needs to be licensed by the National Association of Realtors (NAR) and is bound by a code of ethics.

11. Off-Market Property

These are property listings that are for sale but are not listed on multiple listing services. In other words, it refers to a house that sells without ever being publicly marketed for sale.

Sellers can do this for multiple reasons. Including, to create a sense of exclusivity that could result in a higher selling price, save on commissions, maintain privacy, or simply test the waters.

12. Credit Score

A credit score is a number between 300 and 850. It depicts a person’s creditworthiness. A high credit score means lenders will view you as low risk. On the other hand, a low credit score means lenders may view you as high risk.

Lenders typically use the metric to determine three important things. That is, if someone qualifies for a loan, the interest rate, and the credit limits.

13. Cap Rate

This is also known as capitalization rate. It’s a real estate evaluation measure used to compare different real estate investments. It compares the Net Operating Income and the property value.

Many investors agree that a capitalization rate of between 5% and 10% is indicative of a good investment.

14. Cash on Cash Return

This is another metric that savvy real estate investors use to determine the potential return on investment. It’s sometimes abbreviated as CoC, and is referred to as cash yield or the equity dividend rate.

Calculating Cash on Cash return is simple. You simply need to divide the received net cash flow for the year by the amount of cash you have invested.

person calculating

Generally speaking, most experts agree that a good cash-on-cash return falls between 8%-12%.

15. Debt-to-Income Ratio (NOI)

NOI is all revenue from the property, less all reasonably necessary operating expenses. Common operating expenses include insurance, repairs and maintenance, leasing and property management, utilities, marketing and advertising, and property taxes.

16. Hard Money Loans

A hard money loan is a type of loan that is secured by real property. They are short-term loans that don’t come from traditional lenders, but rather from individuals or private companies.

These are often considered loans of “last resort” or short-term bridge loans. While rates range from one lender to another, the average hard money loan ranges between 11%-13%, at least according to Bankrate.com.

17. Appreciation

This is an increase in the value of a real estate investment. Generally speaking, the home you buy today will be worth more in the future. According to Millionacres.com, the current national average annual rate of appreciation rate is 14.5%.

Bottom Line

These are just a handful of the common terms that you’re bound to come across in your real estate investing journey. There are more! Knowing what they entail can help make your communication with other real estate professionals both effective and satisfying.

If you have any questions at all about any of these terms or want to learn about what we can do for you and your investment property, contact us today. We at Realevate Specialists are always happy to help!

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