Glossary of Real Estate Terms
One of the things that makes real estate investing so fascinating is that there's always something new to learn. There are many ways for you to evolve as a real estate investor. That's one of the reasons we put out not just world-class wholesaling, house flipping and real estate development software but also continuous education.
And that's why we created this real estate glossary. It’s chock full of real estate terms that we hear all the time in this industry and you should know!
You can expand each term to find it’s definition by clicking the “+” sign on the right. Within each term box will a definition for the term, as well as links to relevant articles, videos, files, and tutorials we’ve created that involve the defined term. Happy Investing!
The Rehab Valuator Team
Accredited Investor
An accredited investor is an individual or a business entity that is allowed to trade securities that may not be registered with financial authorities. They are entitled to this privileged access by satisfying at least one requirement regarding their income, net worth, asset size, governance status or professional experience.
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Amortization
Amortization is the schedule of your monthly mortgage loan payments. An amortization schedule shows you how much of your monthly mortgage payment goes to interest and how much to principal. As you continue to make your payments, the interest amount will decrease and more of the payment will be put towards the mortgage balance.
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Appraisal
Real estate appraisal, property valuation, or land valuation is the process of developing an opinion of value, for real property.
ARV (After Repair Value)
The value of a property after it has been rehabbed, not in its current condition. This term can also be used for new construction to signify value of the property once construction is completed.
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Bandit Signs
Small advertising signs that can be placed on a street-facing lawn or elsewhere on a property to let people know a house is for sale
BRRR (Build, Rent, Refinance, Repeat)
Process of building income property ground up, leasing it out, and then refinancing in order to recoup your capital. This is a wealth-building technique that real estate developers employ on a regular basis to grow their portfolios.
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BRRRR (Buy, Rehab, Rent, Refinance, Repeat)
Process of renovating an existing property and repositioning it in the market. Value is added through a renovation, after which the property is leased. The investor then re-appraises the property higher and refinances, pulling out the original capital investment. This allows the investor to then deploy that original capital investment into additional deals.
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Buyer's Agent
A buyer's agent is a real estate professional who guides a buyer through the process of purchasing a home. As a representative of a purchaser in a real estate transaction, a buyer's agent has a legal obligation to protect the interests of the buyer and work to ensure they're getting the best deal possible.
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Cap Rate
The rate of return on a property, computed based on net income (NOI) divided by purchase price. This is way to gauge return before taking financing into account. Best used to compare very similar investments to each other.
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Cap Rate (Based on Cost Basis)
The rate of return expected to be generated on a property. It is computed based on the net income which the property is expected to generate. It's calculated by dividing net operating income by the total cost basis of the property. The number is then expressed as a percentage.
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Cap Rate (Based on ARV)
The rate of return expected to be generated on a property. It is computed based on the net income which the property is expected to generate. It is calculated by dividing net operating income by the After Repair Value of the property. The number is then expressed as a percentage.
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Cash Buyer
This is a term typically used to define investors who buy properties from wholesalers. Even though these investors are termed “cash buyers”, they do not necessarily have to close with cash in order to be considered “cash buyers”. Often times they buy via hard money loans, private money, or even regular financing.
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Cash on Cash Return
This is the rate of return generated on the actual cash invested into the deal. This metric is affected by the amount of leverage you employ. The more leverage, the lower the cash in, and (in a profitable deal) the higher the cash on cash return.
Cash Reserves
Amount of cash you set aside to cover mortgage payments, holding costs, and any other expenses you may encounter such as maintenance or capital improvements.
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Cash Out Refinancing
A refinancing of a property that results in cash in your pocket. This can be a free & clear property that is refinanced with a new loan or it can mean a mortgaged property that is refinanced with a higher mortgage amount.
Cash Flow
Cash flow is the amount of profit you bring in each month after collecting all income, paying all operating expenses, and setting aside cash reserves for future repairs.
Closing Costs
Closing costs are fees and charges due at the closing of a real estate transaction, in excess of the purchase price of the property.
Comparable Sales
Comps that are used to assess the fair value of a home. Generally, comps are sales records of recently sold homes that are similar to the property you are analyzing.
Contingencies
A contingency, as it relates to rehabs and new construction, is an amount of add to the rehab or construction budget to account for unexpected expenses. Normally 5%, 10% or 15% in addition to the budget.
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Cost Basis
Cost basis can be defined a number of different ways, but in a renovation or new construction project, this typically refers to every aspect of the project added up together: purchase, closing costs, holding costs, rehab costs, financing costs, etc.
Debt Coverage Ratio (DCR)
Calculated as monthly Net Operating Income (NOI) divided by monthly debt service. This is a standard measure of risk that every lender uses to evaluate loan limits. It tells the lender how much income the property will bring in vs. the mortgage payment. Lenders will typically require a bare minimum of 1.2 DCR (usually 1.25 or higher).
Discount Points
Also known as “mortgage points”. Fees paid directly to the lender at closing in exchange for a reduced interest rate.
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Duplex
A multi-family home that has two units in one building — regardless of how those homes are arranged. Units can be side-by-side or stacked on top of each other. Duplex buildings also have two separate entrances for each unit.
Equity
Escrow
When a neutral third party holds on to funds during a real estate transaction. It is typically used to protect both the buyer and seller during the duration of the purchasing process.
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F.U. Wall
If you don't know what an FU Wall is, you likely don't have one. You should start building one ASAP!
Learn how to Build Your F.U. Wall!
FSBO
For Sale By Owner
Funding Proposal
A document in which you present the merits of your deal to a potential lender with aim of securing a loan or a joint venture agreement.
Hard Costs
Costs that directly relate to construction, including material and labor costs.
Hold Analysis
Analyzing measures of return when holding a property.
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Holding Costs
These are expenses you incur to “hold” a property for renovation or during renovation and typically include real estate taxes, insurance, landscaping, security, utilities, etc.
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Hybrid Lead Generation
A combination of online and offline lead generation.
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Investor Packet
Also known as a “credibility packet”, an investor packet is a marketing brochure that shows what you as a Real Estate investor brings to the table.
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Internal Rate of Return (IRR)
Off Market Real Estate
Any real estate property that is sold outside of the Multiple Listing Service, these properties are not advertised to the wider market.
Offline Lead Generation
Generating leads by any means without the internet. Includes direct mail, bandit signs, door hangers, and multiple other methods.
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Online Lead Generation
Generating leads via the Internet.
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Origination Points
Fees paid for the evaluation, processing, and approval of mortgage loans.
Payback Period
The length of time required for an investment to recover its initial outlay in terms of profits or savings. For real estate investments, this is typically computed by taking total cash invested into the deal and dividing by net annual cashflow.
Principal
An amount of money that is loaned, borrowed or invested and it is separate from interest.
Private Lender
Private money lenders for real estate are non-institutional lenders who provide typically short-term (but also long-term) loans to investors for the purchase or renovation of an investment property.
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Private Money
Short-term loans given to real estate investors by private companies or lenders.
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Project Management
The process of executing a real estate project including budgeting, bidding, scheduling, tracking and reporting.
Proof of Funds (POF)
A document or documents that demonstrate a person or entity has the ability and funds available for a specific transaction.
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Refinancing Profit
A profit you realize if your cash back at closing during refinancing is in excess of your cost basis in the property.
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Return on Equity (ROE)
ROE = Net Income / Equity. A measure of financial performance calculated by dividing net income by current equity. This is a great alternate measure of return to Cash on Cash because as your equity in a property grows, your ROE will decline vs. your Cash on Cash. ROE is helpful in determining, among other things, optimal times to refinance or sell a property.
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Return on Investment (ROI)
Measures how much money, or profit, is made on an investment as a percentage of the cost of that investment.
Seller Financing
A real estate agreement in which the seller handles the mortgage process instead of a financial institution.
Soft Costs
Costs that are indirectly related to the physical construction of a building. These costs are still necessary for the property's development. Soft costs can include design, financing, and administrative expenses and fees.
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Tax Delinquent Properties
Properties or homes for which property taxes have not been paid. As a consequence, the county in which the property resides in auctions it off.
Tax Overages
An overage exists when the winning bid amount for a property sold at tax sale exceeds the minimum bid.
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Turnkey
Buying a property that is either ready to be leased out or already has tenants in it.
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Vacancy Rate
The percentage of all available units in a rental property, such as a hotel or apartment complex, that are unoccupied at a particular time.
Formula: (# of vacant units x 100) / total # of units
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Wholesaling
In real estate wholesaling, 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. A contract is typically assigned to the buyer, though double closings are also common.