Analyzing a Real Estate Deal
How To Run the Numbers On Any Property & Know If You've Got a Deal
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Real estate vocabulary.
Is it really that important?
With any given real estate investment deal, hard-earned money is on the line.
That’s why it’s important to not only understand the intricacies of real estate investing, but also the real estate terms — real estate vocabulary — that go along with it.
In this article, we’ll break down 100 real estate vocabulary terms that every real estate investor should know.
By knowing real estate vocabulary and being proactive to increase your real estate investing skillset, you can ensure that your next deal will be the most profitable one yet.
Real Estate Vocabulary: 101 Terms Every Real Estate Investor Should Know
Here are 101 real estate vocabulary terms that every real estate investor needs to know.
Acceleration Clause: A contract provision in which a lender requires a borrower to repay the entire outstanding amount if certain conditions are not met.
Adjustable-Rate Mortgage (ARM): A type of mortgage in which the interest rate varies throughout the life of the loan. The mortgage rate is tied to a selected index and may be adjusted annually. Also called a variable rate mortgage.
Amortize: Pay a debt in monthly or other periodic installments until the total amount, along with the interest, if any, is paid.
Appraisal: A formal estimate of property value conducted by a professional qualified to make such an opinion.
Appreciation: Increase in property value or worth due to economic or related factors; the opposite of depreciation.
ARV: An estimate of a property’s value after needed repairs and improvements are performed.
Assumption of Mortgage: In real estate terms, this means that the original borrower legally passes on the responsibility of the mortgage to another party.
Balloon Loan: In real estate terms, this describes a loan in which a lump sum payment is scheduled during the life of the loan.
Blanket Mortgage: In real estate terms, this describes a single mortgage that covers two or more properties.
Breach of Contract: When one party fails to live up to the terms and conditions or a contract, without a valid, legal excuse.
Bridge Loan: A short-term financing tool used until a person removes an existing obligation.
BRRRR: A real estate investment strategy acronym that stands for “Buy, Rehab, Rent, Refinance, Repeat.”
Capital Gain: In real estate terms, this is used to describe the profit gained from the sell of a property or asset.
CAP Rate: In real estate terms, this describes the rate of return on an investment property based on the expected income generated by the property.
Cash-Out Refinance: In real estate terms, this is a mortgage refinancing option where an old mortgage is replaced by a new one with a larger amount than was previously owed.
Cash on Cash Return: In real estate terms, this is a rate of return that calculates the amount of cash earned compared to the amount of cash invested in a property.
Caveat Emptor: Latin for “Let the buyer beware.” Under this legal phrase, the buyer is expected to judge and evaluate property carefully before buying, or purchase at their own risk.
Closing Costs: In real estate terms, this refers to the charges associated with the end of a transaction including prorated property taxes, loan origination fees and more.
Construction Loan: In real estate terms, this describes a loan that is used to complete the building or renovation of a real estate project.
Convertible ARM: A type of loan that gives the lender the option to convert the loan to a fixed-rate mortgage.
Conveyance: The act of transferring a property from one party to another.
Deed: A legal document that is signed and delivered regarding the legal rights associated with owning a property.
Deed-in-Lieu: Short for “deed in lieu of foreclosure,” this conveys title to the lender when the borrower is in default and wants to avoid foreclosure. The lender may or may not cease foreclosure activities if a borrower asks to provide a deed-in-lieu.
Deed Restrictions: Conditions in a deed that limit the ways in which the owner can use the property.
Deficiency Judgement: A ruling made against the debtor who is in default on a secured loan.
Delinquent Loan: A loan in which the borrower is behind on his or her payments.
Depreciation: The loss in value of a property due to wear and tear over the course of time.
Down Payment: The amount of money that is due up front when securing a mortgage.
Earnest Money Deposit: A deposit made to a seller that indicates the buyer’s intention to purchase a property.
Easement: The right to cross or otherwise use another person’s land for a specified purpose.
Eminent Domain: The right or power of government to acquire private property for public use without the consent of the owner, provided fair compensation is provided.
Encumbrance: Any impediment to a clear title. It can be a claim, lien, zoning restriction, or other legal right or interest in land that diminishes its value. The report of the title search usually shows all encumbrances.
Escalation Clause: The right of a potential buyer to have the right to increase their offer should a higher and better offer be made on the subject property
Escrow Company: An unbiased third party who specializes in handling the closing of a transaction.
Fannie Mae: Common name for the Federal National Mortgage Association, which buys and sells loans in the secondary mortgage market.
Foreclosure: The legal act of a borrower seizing a property in which the borrower did not repay the mortgage.
Freddie Mac: Common name for the Federal Home Loan Mortgage Corporation, which buys and sells loans in the secondary mortgage market.
FHA: A mortgage insured by the Federal Housing Administration that generally requires a lower down payment than other loan types
Fix and Flip: The act of purchasing a property, rehabbing it and then selling it for a profit; also referred to as “house flipping”.
Graduated Payment Mortgage: Mortgage loan for which the initial payments are low but increase over the life of the loan.
Gross Rent Multiplier: A method of determining the value of an income generating property. By dividing the property price by the gross annual rental income.
Hazard Insurance: Insurance that protects a property owner against financial loss due to fire or natural events.
Home Equity Conversion Mortgage (HECM): Usually referred to as a reverse annuity mortgage, what makes this type of mortgage unique is that instead of making payments to a lender, the lender makes payments to you. It enables older home owners to convert the equity they have in their homes into cash, usually in the form of monthly payments.
Home Equity Line of Credit: A revolving source of funds that works similarly to a credit card that you can access as you choose. The amount is based on the value of your home.
Homeowner’s Insurance Policy: A type of property insurance that covers loss and damages to an individual’s home and the assets inside.
HOA Fees: The fees assessed by a homeowner’s association that is paid by homeowners who live within the jurisdiction of the HOA.
House Hack: When the owner of a multi-family property lives in one of the units.
Housing Codes: A local ordinance that dictates the minimum safety levels for existing housing.
HUD: The United States Department of Housing and Urban Development.
Joint Tenancy: The holding of a single property by two or more parties wherein each parties share passes on to the other upon their death.
Judgment: Court decree stating that one person is indebted to another. Also specifies the amount of the debt that is owed to that individual.
Landlord: The owner of a rental property.
Leads: A term used by Realtors to describe people who may be interested in buying, selling or leasing a property.
Lease Option: An agreement that gives the renter the option to buy a property during or at the end of their lease period.
Leasehold Estate: The exclusive right of a tenant to occupy a property for a certain period of time.
Lease-Purchase Option: Another term for lease option.
Liability Insurance: A type of insurance that protects a homeowner in the event that someone is injured or suffers damages while on their property.
Lien: The right to maintain possession of a property belonging to another person until that person pays a debt that they owe to the lien holder.
Loan Origination Fee: An upfront fee charged by a lender to process a loan application.
Loan-to-Value Ratio: Used by lenders to describe the ratio of a loan to the value of the property the loan is being used to purchase.
Marketing Plan: A written plan that describes how a subject property will be advertised.
Mortgage: A loan that is used to buy a property.
Mortgage Broker: A person who brings a lender and a borrower together.
Negative Amortization: Some adjustable rate mortgages allow the interest rate to fluctuate independently of a required minimum payment. If a borrower makes the minimum payment it may not cover all of the interest that would normally be due at the current interest rate. In essence, the borrower is deferring the interest payment, which is why this is called “deferred interest.” The deferred interest is added to the balance of the loan and the loan balance grows larger instead of smaller, which is called negative amortization.
No-Cash-Out Refinance: When a borrower refinances an existing mortgage for a value equal or less than the original mortgage.
No-Cost Loan: A loan in which the lender pays the borrower’s loan settlement costs and then extends a new mortgage loan.
Note: A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
Origination Fee: Another term for “loan origination fee”; A charge by the lender for granting and processing a new mortgage loan.
Owner Financing: A financing strategy in which the borrower finances the property directly through the owner instead of a lending institution.
PITI: An acronym that stands for “Principal, Interest, Tax, and Insurance”.
Pocket Listing: An exclusive real estate listing that is not available to the general public
Prepayment Penalty: A fee charged by some lenders if the borrower repays the entire amount of a mortgage early
Pre-Qualification: An estimate given by a lender about how much money a borrower will be approved for
Property Manager: The person or company who manages a rental property on behalf of the landlord in exchange for payment or other considerations
Promissory Note: Another term for “note”.
Quit-Claim Deed: A conveyance by which the grantor transfers whatever interest he or she has in the real estate without warranties or obligations.
Real Estate Investment Trust (REIT): A type of real estate investing in which multiple investors pool their money in order to purchase a subject property and then split the profits generated by said property.
Refinance: To pay off one loan by taking out another on the same property.
Restrictive Covenants: A covenant that restricts the use of one piece of land so an adjoining piece of land maintains its value.
Reverse 1031 Exchange: allows investment property owners to defer their federal capital gains taxes on the profits when they sell — if they use the profit to purchase another property.
Right of First Refusal: An agreement in which a person gets the first opportunity to buy a property at the same terms that the current property owner possesses.
Right of Survivorship: When a surviving joint owner of a property absorbs the right of another owner when that owner dies.
Sales Contract: A written agreement between parties to purchase a property under certain terms.
Second Mortgage: A loan made in addition to the original mortgage on a property.
Seller Carry-Back: When a seller acts as a lender and carries a second mortgage on a subject property.
Syndication: Another type of crowdfunding real estate investment in which investors pool their money and the syndicate handles purchasing, managing and/or selling a property before dividing the profits among the investors.
Tax Sale: The forced sale of a property based on the owner’s delinquency in regard to taxes owed.
Tax Shelter: A realty investment that produces income-tax deductions for its owner.
Tenancy by the Entirety: When a married couple owns real estate as a single entity.
Tenants in Common: An arrangement in which two or more people have ownership interests in a single subject property
Time-Sharing: Used to describe the use of a property (usually a vacation property) by several joint owners.
Title: Legal ownership of a property.
Title Insurance: A one time insurance that protects you against defects found on a title
Title Report: A statement of the current condition of title for a parcel of land.
Trust Deed: A deed of conveyance that sets forth the conditions of a trust
Subject To: The language used to set forth contingencies in a contract
Variable Rate Mortgage: A type of home loan in which the interest rate is not fixed.
VA Loan: A government-sponsored home loan available to veterans.
Warranty Deed: A deed in which the grantor guarantees that he or she is giving the grantee good title free of encumbrances. Considered to be the best deed a grantee can receive.
Wholesaling: The process of contracting a home with a seller and then finding an interested party to buy the home for a higher amount than the wholesaler contracted to purchase it
Write-Off: A way of minimizing the amount of taxes owed by claiming expenses and other legal tax deductions
The Bottom Line: Real Estate Vocabulary
The world of real estate investing comes with its own language, and as an investor, the profitability of your next deal depends upon understanding the real estate investment and the real estate vocabulary associated with it.
Feel free to brush up on this list of real estate vocabulary at any time in your real estate investing journey.