Real Estate Investing Glossary
Absentee Landlord - A landlord that owns and rents out a property to earn profit and does not live on the property or in the local economic region.
Acre - A unit of land area used in the imperial and US customary systems. It is defined as the area of 1 chain by 1 furlong (66 by 660 feet), which is exactly equal to 43,560 square feet.
Adjustable-Rate Mortgage – A homeowner has an adjustable-rate mortgage if their interest rate fluctuates at predetermined intervals throughout the course of their loan.
Amortization – Amortization refers to the amount of principal and interest paid each month over the course of the loan.
Asbestos – A toxic material that was once used in housing insulation and fireproofing. Because some forms of asbestos have been linked to certain lung diseases, it is no longer used in new homes. However, some older homes may still have asbestos in these materials.
Assessed Value – The assessed value is different from the appraised value in that it is the dollar value assigned to the property to measure applicable taxes. This determines the value of a property for tax purposes and takes comparable property sales and inspections of the property into consideration.
Balloon Mortgage – A mortgage with monthly payments often based on a 30-year amortization schedule, with the unpaid balance due in a lump sum payment at the end of a specific period of time (usually 5 or 7 years).
Bandit Signs – Bandit signs sport marketing messages from small businesses and local politicians, often sighted on yards and busy intersections. In real estate, these signs are often used to advertise to investors and motivated sellers.
Bird Dog – Individuals who are paid a fee to identify motivated sellers and distressed properties on behalf of others.
Blanket Mortgage – A single mortgage which attaches to more than one property.
Buy and Hold – The buy and hold strategy is long-term investing, where a real estate investor purchases a property with the intention of holding onto and renting it for the foreseeable future.
Buyers Agent – A real estate agent who represents the interests of the buyer in the homebuying process is called the buyer’s agent. On the other hand, a listing agent represents the seller.
Capital Expenditure (CapEx) – Capital Expenditures (CapEx) are any new purchases or major improvements made that increases the lifespan and value of a property. This also includes any equipment or supplies costs needed to make the improvements.
Clear Title – A clear title is a property where there is no dispute over ownership and no lien from creditors.
Closing Costs – This is any cost that is associated with the purchase of a property that is due at “closing.” This typically includes the down payment on the property and any other fees associated with purchasing a home, such as title insurance, taxes, lender costs, and some upfront housing expenses.
Commercial Real Estate (CRE) – Commercial real estate is the purchase and sale of commercial properties, such as office buildings, retail centers, industrial properties, or land to be developed into a commercial project in the future.
Contingency – A contingency is a condition set on the purchase agreement of a property, often with a buyer termination option.
Counteroffer – A rejection of an offer with a simultaneous substitute offer.
Creative Financing – Any financing arrangement other than a traditional mortgage from a third party lending institution.
Creditworthy – Your ability to qualify for credit and repay debts.
Debt-to-Equity Ratio (D/E) – A ratio that shows how much of a property an investor owns versus how much is owed on the mortgage. This is an important measure of ownership of a property.
Deed – The legal document transferring ownership or title to a property.
Depreciation – Depreciation is the decrease in the value of a property over time.
Distraint – The act of seizing personal property of a tenant in default based on the right and interest a landlord has in the property.
Distressed property – A property becomes distressed when a homeowner defaults on their mortgage payments, is delinquent on paying property taxes, or is condemned due to disrepair.
Down Payment – A portion of the price of a home, usually between 3-20%, not borrowed and paid up-front in cash.
Due Diligence – The due diligence period is a time frame allowing a buyer to fully examine a property. This is often done by hiring specific experts to inspect and perform tests. Buyers who may want to renegotiate the contract based on the results.
Earnest Money Deposit – An earnest money deposit is typically made by the homebuyer when they enter into a contract with the seller. The deposit is about 1 to 2 percent of the home’s purchase price. The deposit is meant to demonstrate the buyer’s earnestness in purchasing the home. The amount deposited is deducted from the total cost of purchase.
Ejectment – This is a common law term for the civil action to recover the possession of a title to the land.
Encroachment – The intrusion of a structure that extends, without permission, over a property line, easement boundary or building setback line.
Escalation Clause – A clause in a lease that provides for the rent to be increased to reflect changes in expenses paid by the landlord such as real estate taxes and operating costs.
Escrow – An escrow is a third-party financial account that holds funds, such as earnest money, or documents while the buyer and seller are in negotiations. For instance, when you buy a home, you’ll pay a down payment for the purchase, and this money will be held by an impartial third party until the contract is signed and the deal closed.
Estate – In essence, one’s estate is everything they own; it’s everything that belongs to a person.
Eviction – The legal act of removing someone from real property.
Fair Housing Act – The Fair Housing Act is a law that prohibits discrimination against people based on race, color, sexual orientation, nationality, religion, disability, and family by anyone who has an influence in the decision-making process of buying, selling, renting, or financing of housing. This includes real estate brokers, landlords, and sellers.
Fair Market Value (FMV) – Is what a property would reasonably sell for in the open market without undue pressure to complete a transaction. The FMV of a property allows buyers to ascertain whether they’re paying the right price and sellers to know if they’re leaving money on the table.
Fannie Mae (FNMA) – The Federal National Mortgage Association – A quasi-governmental corporation authorized to sell debentures in order to supplement private mortgage funds by buying and selling FHA (Federal Housing Administration) and VA (Veterans Affairs) loans at market prices.
Fee Simple – Fee Simple is term that describes the most common type of home ownership. It means that the owner’s property rights can be freely transferred or inherited at the owner’s discretion.
Flipping – The process of buying a property, fixing it up or renovating it to increase its market value, and selling it for a profit.
Forbearance – A course of action a lender may pursue to delay foreclosure or legal action against a delinquent borrower.
Ginnie Mae (GNMA) – The Government National Mortgage Association (commonly referred to as Ginnie Mae is a U.S. government corporation that guarantees the timely payment of principal and interest on mortgage-backed securities (MBSs) issued by approved Ginnie Mae lenders.
Gross Rent Multiplier (GRM) – The ratio of the price of a rental property to its gross rental income before expenses. The GRM is a metric that helps to calculate how many years it would take an investment to pay for itself based on the gross rental income received.
Gross Rental Income (GRI) – The amount of money collected in rent plus any additional income such as application fees, pet fees, parking fees, advance rent, or any expenses paid by the tenant to the landlord that are not required as part of the lease. Security deposits paid by the tenant are not considered to be income. Instead, refundable deposits are treated as a short-term liability on the balance sheet for the rental property because the deposit will eventually be returned to the tenant.
Gross Rental Yield – The total income made from a property, divided by the purchase price and closing costs. “Gross” refers to the total income before deducting operating expenses.
Hazard Insurance – Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other covered hazards or natural disasters.
Hiatus – A gap between two parcels of land that is not included in the legal description of either property.
HOA Fees – When you buy a property in a homeowners association or HOA, you become a member in the HOA and are required to pay monthly HOA fees for the maintenance of the properties within the association.
Home Equity – This is the current market value of your home, minus what a borrower still owes on a mortgage.
House Hacking – A strategy in which the property owner lives within the investment property and lives for free (or almost free) based on other tenants paying rent that covers the whole mortgage. This strategy is typically done with a multifamily unit but can also be done in single family homes by renting out extra rooms.
HVAC – Heating, Ventilating, and Air Conditioning systems are used to heat and cool a house.
Income-Producing Assets – Real estate investments that create passive income for the property owner.
Inspection Contingency – An inspection contingency is a clause put in the agreement to allow the buyer to have the home inspected and negotiate costs or terminate the agreement with the seller based on the results of the inspection.
Internal Rate Of Return (IRR) – The internal rate of return is a measure of an investment’s rate of return.
Intestate – When a person dies before determining a will. An intestate estate is also one in which the will presented to the court was deemed to be invalid.
Joint Tenants – In estate law, joint tenancy is a special form of ownership by two or more persons of the same property.
Jumbo Loan – A type of mortgage that is used to finance real estate that is too expensive for a conventional conforming loan.
Keogh Funds – A tax-deferred retirement-savings plan for small business owners or self-employed individuals who have earned income from their trade or
business. Contributions to the Keogh plan are tax-deductible.
Lessee – A person who rents land or property from a lessor. The lessee is also known as the “tenant” and must uphold specific obligations as defined in the lease agreement.
Lien – A legal interest in a property, which must be paid in full before the property can be sold. If there is a lien on a property, this is typically identified in the escrow process and will break the contract.
Long-Term Rental – A type of rental property where the tenant signs a lease for a longer-term period, typically a year.
Maximum Allowable Offer (MAO) – The maximum price point at which investors in a real estate deal can realistically expect to pull in a profit while minimizing the risk of losing money.
MLS – The multiple listing service (MLS) is a database accessed by licensed real estate agents to view property listings.
Mortgage – A mortgage is the sum of money borrowed from a lender, such as a bank, to purchase a property. Though it can be higher, a mortgage is frequently given for up to 80% of the property’s value.
Mortgagor – The owner of real estate who pledges property as security for the repayment of a debt; the borrower.
Multiple Listing Service (MLS) – A service used by a group of real estate brokers. Once a buyer begins working with a real estate agent/broker, they will typically be set up with an MLS email drip that will send new listings every day.
Mutual Funds – A fund that pools the money of its investors to buy a variety of securities.
National Housing Act – The American Housing Act of 1949 was a sweeping expansion of the federal role in mortgage insurance and issuance and the construction of public housing.
Negative Amortization – An increase in the balance of a loan caused by adding unpaid interest to the loan balance; this occurs when the payment does not cover the interest due.
Net Operating Income (NOI) – The gross profit of a rental property. It’s calculated as gross rents – all expenses other than interest.
Note – A written promise to pay a specified amount under the agreed upon conditions.
Note Broker – A person who acts as an intermediary between a holder of an existing note and a prospective purchaser of the note.
Open House – When the seller’s real estate agent opens the seller’s house to the public. You don’t need a real estate agent to attend an open house.
Original Principal Balance – The total amount of principal owed on a mortgage before any payments are made.
Owner Financing – A loan provided by the seller of a property or business to the purchaser.
Pass-Through Taxation – The process in which a company that does not pay a corporate income tax passes all of its earnings to its owners. The owners then pay taxes on the company income. Also called single taxation.
PITI – An acronym for the four primary components of a monthly mortgage payment: principle, interest, taxes, and insurance.
Planned Unit Development (PUD) – A real estate project in which individuals hold title to a residential lot and home while the common facilities are owned and maintained by a homeowners’ association for the benefit and use of the individual PUD unit owners.
Plat – Map of a specific area, such as a subdivision, that shows the boundaries of individual lots together with streets and easements.
Power of Attorney – A legal document that authorizes another person to act on one’s behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.
Pre-Approval Letter – A document that states the loan amount a lender is willing to extend to a borrower. It is not a guarantee to lend, but it carries significant weight, especially to other parties in a real estate transaction, such as agents and sellers.
Predatory Lending – Abusive lending practices that include making mortgage loans to people who do not have the income to repay them or repeatedly refinancing loans, charging high points and fees each time and “packing” credit insurance onto a loan.
Promissory Note – A written promise to repay a specified amount over a specified period of time.
Quality Control – A system of safeguards to ensure that loans are originated, underwritten and serviced according to the lender’s standards and, if applicable, the standards of the investor, governmental agency, or mortgage insurer.
Quiet Title – A circuit court action, or lawsuit, intended to establish or settle the title to a property, especially when there is a disagreement. It is a lawsuit brought to remove a claim or objection on a title.
Radon – A toxic gas found in the soil beneath a house that can contribute to cancer and other illnesses.
Real Estate – Property containing land, buildings, or both.
Real Estate Investment Trust (REIT) – REITs are corporations that own and manage a portfolio of real estate properties and mortgages.
Real Property – Land and anything permanently affixed thereto — including buildings, fences, trees, and minerals.
Realtor – An individual who acts as an agent for the sale and purchase of buildings and land; a real estate agent.
Rent To Own Homes (RTO) – A combination of a rental and purchase agreement. With an RTO, the tenant’s monthly payment to the landlord is divided up in a way that part of it goes towards the monthly rent and the remainder towards the purchase price of the house as set out in the agreement.
RevPAR (Revenue Per Available Room) – Total room revenue for the period divided by the average number of available rooms in a hospitality facility.
Rural Housing Service (RHS) – An agency within the U.S. Department of Agriculture, which operates a range of programs to help rural communities and individuals by providing loan and grants for housing and community facilities. The agency also works with private lenders to guarantee loans for the purchase or construction of single-family housing.
Sale-Leaseback – A transaction in which the buyer leases the property back to the seller for a specified period of time.
Self-Directed IRA (SDIRA) – A Self-Directed IRA or retirement account is similar to a traditional IRA with one key difference: in addition to stocks and bonds, an SDIRA can also be used to invest in the real estate industry. Any returns from this type of investment are tax-deferred and must be deposited back into the IRA.
Seller-Paid Points – Lump sum payments (or finance charges) made by the seller to the buyer’s lender to reduce the cost of the loan to the buyer.
Seller Take-Back – An agreement in which the seller of a property provides financing to the buyer for the home purchase.
Short Sale – When the property is sold for less than what is owed on the mortgage. All the proceeds of this real estate transaction go to the lender.
Sweat Equity – A borrower’s contribution to the down payment for the purchase of a property in the form of labor or services rather than cash.
Syndications – An effective way for investors to pool their financial and intellectual resources to invest in properties and projects much bigger than they could afford or manage on their own.
Tenant At Will – One who holds possession of premises by permission of the owner or landlord. The characteristics of the lease are an uncertain duration and the right of either party to terminate on proper notice.
Title – The right to, and the ownership of, property. A title or deed is sometimes used as proof of ownership of land.
Title Defect – Any potential threat to the current owner’s full right or claim to sell a property. The property has a publicly-recorded issue, like a lien, mortgage, or judgment, that gives another party a claim to the property.
Turnkey Property – An investment property that does not require any repairs or renovations to rent out to tenants and is updated to current market standards.
Underwriting – The process used to determine loan approval. It involves evaluating the property and the borrower’s credit and ability to pay the mortgage.
Uniform Residential Loan Application – A standard mortgage application you will have to complete. The form requests your income, assets, liabilities, and a description of the property you plan to buy, among other things.
Use and Occupancy (U&O) – Refers to a type of permit required by some local governments whenever real property is transferred.
VA Guaranteed Loan – A mortgage loan that is guaranteed by the U.S. Department of Veterans Affairs.
Vacancy Provision – Money that’s put aside by an investor to cover expenses in the event that a rental property sits vacant for a period of time.
Vacancy Rate – The ratio of rental units not rented versus the total number in the building.
Variance – Permission that allows a property owner to depart from the literal requirements of a zoning ordinance that, because of special circumstances, cause a unique hardship.
Walk-Through – A common clause in a sales contract that allows the buyer to examine the property being purchased at a specified time immediately before the closing.
Warranty Of Title – A guarantee by a seller to a buyer that the seller has the right to transfer ownership and no one else has rights to the property.
Wholesale – To contract a property with the intention of reselling it quickly at a higher price.
If there is a term you were looking for in the Real Estate Investing Glossary and you don't see it, you can submit it here, and we will add it.