Real Estate Investing Terms & Definitions

A simple real estate investment definition is, “The purchase, ownership, management, rental and/or sale of real estate for profit.”
That all sounds very simple but it’s easy to experience problems as a real estate investor if you do not have a deeper understanding of the industry.

If you are new to the world of real estate investment, you may be able to rely on a Property Management Company to carry out tasks such as acquiring tenants for your property. However, if you want to be really successful, it’s important to improve your knowledge around the basic real estate investment definition. It helps to start by making sure that you understand the top real estate investing terms. Let’s take a closer look at some of them.

Acquisition cost

This is the total price that is paid for an investment property. This is not just the purchase price for the property itself. It’s important to factor in expenses such as mortgage fees and closing costs.

Inspection contingency

This is a term that may be included in a purchase agreement. It means that the purchaser of a property can have an independent inspection carried out on the property before the sale is completed. Depending on what, if anything, is highlighted in the inspector’s report, the buyer can renegotiate the purchase cost or terminate the purchase agreement without losing their deposit.

Turnkey property

This type of property does not require any rehabilitation. It is updated and does not require any work to be completed before tenants move into it.

Rehabilitation

These are the repairs or upgrades that are needed before a property is ready for tenants or to be sold on. Sometimes rehabilitation is minor. On other occasions, walls may need to be knocked down or a new kitchen fitted. It’s important that real estate investors do not carry out a rehabilitation that is not cost-effective. Changes that are made should help to increase the ROI.

Adjustable-rate mortgage

This type of mortgage has a rate that varies depending on market conditions. This type of mortgage can be useful for real estate investors who are likely to benefit from the initial lower rates which may be offered. This may apply to an investor who has purchased a property with a view to selling it on quickly.

Fixed-rate mortgage

Another type of mortgage that investors may be interested in; the fixed-rate mortgage is low risk. The rate remains the same throughout the entire period of the mortgage. This is often something that is appealing to a real estate investor who wants to hold on to a property for several years, as a rental property.

Amortization

This is a type of loan arrangement where the owner of a property pays off a certain amount of the principal and interest each month. This makes it easier to build equity in property more quickly.

Liability insurance

This is a type of insurance that provides protection for a property owner should anyone put in a claim of negligence against them. It also offers protection in cases of personal injury or property damage. Some real estate investors fail to see the importance of liability insurance. However, it’s an essential purchase, even if the intention is to sell a property quickly.

Rental income

Rental income is the income that a real estate investor can make from tenants who are living in their property and paying rent. This income forms an important part of the rental cash flow calculation for a property.

Mixed-use building

A building that is defined as mixed-use is zoned to be used partly for residential purposes and partly for commercial purposes.

Leasing fee

The leasing fee is the money that a property owner pays to a property manager when the manager signs up a new tenant. If a tenant decides to renew their lease once it expires, this results in the owner paying the manager a re-leasing fee.

Looking at the basic real estate investment definition, it does not seem to be complicated. However, real estate can be a lot more complex than you may think. It can also involve large sums of money. It’s easy for a property investor to lose a significant amount of cash if they make mistakes. This includes not having a good understanding of real estate investing terms.

If you want to succeed as a real estate investor, it’s important to take time to fully understand the terms and processes that are involved, before you make your first investment. There is always some risk in investing, but having the knowledge that you need helps to reduce the amount of risk involved. This makes it easier for you to succeed in the competitive world of real estate investment.