Real estate is widely considered one of the best investments a person can make.
Real estate investment can help you generate a lot of wealth if you make the right decisions. It’s not as simple as just buying, selling, and renting out properties, however. You need to know what you’re doing if you want to be successful.
In this guide, we’ll cover some key real estate investment terms that beginners should know. Keep reading for more.
Sometimes called “net operating income”, this is the money you earn from renting out a property. It’s essentially the profits you make as a rental property investor.
Equity is the difference between a property’s value and how much you owe on it. You can calculate this by subtracting the total debts against a property from its overall value.
The cash flow is the difference between the profits you make on a property and how much you spend running it. If this number becomes negative, it means you’re losing money on a property, which is bad for investment. Following a first home buyer guide will help you make good investment choices.
A seller’s market is when there aren’t many homes up for sale. This causes higher demand, so sellers can usually sell for a higher price.
A buyer’s market is when there’s much less demand, so there are plenty of homes on the market. Buyers then have more options, so houses will typically have lower asking prices.
This is the gradual increase in the value of a home. Factors such as location and demand will affect this. As a first-time home buyer, it’s important to be aware that this isn’t guaranteed.
Real Estate Agent
Real estate agents or “brokers” help people buy, sell, and rent properties. If you’re interested in flipping houses, a real estate agent can prove very helpful.
This is a technique used to forecast future trends based on historical data. You can use this to get a better idea of future sales, prices, and customer behavior. It’s quite complex, but understanding this can help you make better-informed investment decisions.
Hard Money Loan
You can take out a hard money loan in exchange for your property. The lender will own the property and earn interest on it until you repay the loan. People usually do this when conventional financing options aren’t viable.
DTI is the ratio of your regular debt payments to your total income. The lower your DTI, the more easily you’ll be able to qualify for a loan. You ideally want to keep this below about 36%.
An off-market property isn’t listed on the Multiple Listing Service (MLS). These aren’t advertised or listed on real estate websites, so you’ll only be able to purchase one with the help of an experienced broker.
The Use of Real Estate Investment Terms
Knowing these real estate investment terms is helpful, but there’s plenty more to learn if you want to be successful. Never rush into things, or you could make some serious mistakes. Do your research, and take the time to ensure you always know what you’re investing in.
For more real estate articles, check out some of our other blog posts.