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Real Estate Terms

Good to Know Real Estate Terms

Part of being knowledgeable in Real Estate investing , like almost any other profession, is getting familiar with the language associated with it. Many of us are too embarrassed to speak up when someone you are conducting business with throws out a term we are not familiar with. Of course this is the exact wrong thing to do since agreeing to terms you are not familiar with can cost you money and make the difference in making a bad deal and a good real estate deal. That’s why I am listing some common terms here you need to know be before you jump into real estate.

  • Acceleration Clause – A clause that can be written into a mortgage contract that allows the seller to accelerate principle payment or demand the entire principle balance if mortgage payments become delinquent.
  • Amenities – Real Estate –
  • Amortization – A term that refers to the reduction of the loan as periodic payments are made in which interest is charged only on the unpaid portion of the loan.
  • Appraisal – A determination of a properties fair market value that is usually preformed by an independent professional appraiser.
  • Appreciation – In Real Estate refers to the amount of increase in property value over that of the original price value. If you purchased a property for $100,000 and it is now valued at $150,000 then the property has Appreciated $50,000.
  • Balloon Payment – A large payment that becomes due on a specified date or event. As an example you take out a loan for $75,000 and at the end of the five year period the remainder becomes due as one lump sum. So if $65,000 is still remaining on the loan you have to pay $65,000 at that time or try and seek additional financing.
  • Boot – Something of value other than cash. As an example – A buyer offers you cash and also offers his boat as additional payment.
  • Capital Gain – The profit that is made at the sale of a property which is subject to taxation.
  • Capital Improvements – Improvements made to a property that has increased its value.
  • Contract Contingencies – These are “conditions” written into a contract that must be accomplished or performed to execute a contract. As an example – “The current owner agrees to replace the roof prior to purchase date”
  • Cost Basis – This is the cost of the property when purchased, it can include capital improvements made at the time of purchase. The cost basis is important in that when you go to sell the property, the cost basis is subtracted from the sales price to determine the profit.
  • Covenants – Restrictions placed on a property that must be adhered to – An example – “all homes built on this property must be no smaller than 2,500 square feet of livable space”.
  • Deed of Trust– A legal way of referring to a mortgage.
  • Depreciation– An accounting term that determines the decrease in value of a property due to age, wear and tear and other factors.
  • Duplex – A two unit rental property.
  • Eminent Domain – The right of the government to take your property for “just” compensation. Usually for the “good” of the community. An example would be for the construction of a new road in the community.
  • Equity – This is the value of your investment in a property. If you purchase a home for $100,000 and put down $20,000 then you have $20,000 in equity. If the following year your home increases in value $5,000 then you now have $25,000 in equity.
  • Equity Loan – A loan that is given based on the value of your equity in a property.
  • Escrow- This refers to any cash funds held in a trust account, in real estate it is more commonly the buyers deposit to purchase a property but can also be other items such as funds for taxes , insurance or other items.
  • Estoppels Letter – This is a letter that stipulates the exact amount of the balance on a loan or mortgage.
  • Eviction – A legal method of removing a tenant from a property.
  • Fair Market Value– A value of the property established  that would be a reasonable purchase or sale amount for the property to independent persons.
  • Fixer Upper – Also known as a “Handyman Special” – A property that is need of extensive repairs.
  • Foreclosure – A legal procedure where the bank or owner of a property takes back the property for default or non payment for the property.
  • FSBO – For Sale By Owner – An acronym for sale by owner – when the owner decides not to utilize the services of a real estate agent to sell the property. Usually this is done to save the fees charged by real estate agents.
  • HOA (Home Owners Association) – An association of property owners that enforce the rules and have the power to collect fees and disburse them in accordance with the communities bylaws.
  • Home Inspection – An inspection of a property prior to purchase paid for by the buyer where a professional inspectors examines the home or property in detail to determine if any repairs need to be done or if there is extensive damage to the property.
  • Investment Property– A property in which the owner buys for the sole purpose of leasing space of the property to generate income from the property.
  • Lease – A written Contract or Agreement where a owner (Rents) grants the use of the property for a specified amount of money for a specified amount of time. May also state over conditions for the rental of the property, for example – No pets permitted.
  • Lease – Land or Ground – Tenant is leasing just the land for use but not any improvements on the land.
  • Lease – Sub – A lessee on a property is allowed to lease the property to another person in order to meet the requirements of the lease. Most leases prohibit this unless the property owner specifically approves of it.
  • Lease with Purchase Option – A contract to Lease or rent the property for a specified amount of time and cost and allows the Lessee the option to purchase the property for a specified amount.
  • Lessee – The Tenant(s) of a property
  • Lessor– The Landlord of the Property
  • Letter of Intent – a formal written Letter that notifies the owner of a property of the intent to lease or the purchase of the property. More commonly associated with Commercial real estate.
  • Leverage – A term to describe the amount of money required to purchase a property. For example if you put a down payment of $20,000 on a property but next time you put down $10,000 on a property ( of the same price)  then you have a higher leverage. In other words you are using others people’s money to purchase the property.
  • Lien – A legal claim on the property for monies that are owed on the property.
  • Liquidity – Refers to the amount of money that can be taken out of a property in a short period of time.
  • MLS – ( Multiple Listing Service)  – A database created by real estate professionals  to provide information on home and properties for sale or lease.
  • Mortgage – A loan that is taken out on a property that allows for the purchase of the property (or other properties) and has a lien against the property.
  • Mortgage Constant – The interest rate on a loan which includes both the Principle and the interest being paid.
  • Mortgage Points– A name for the fees which are charged by the lender.
  • NNN (Triple Net Leasing) – A term that replies to commercial real estate properties meaning that the tenant pays for almost all property related expenses. Usually it is included in the lease amount and is divided between tenants based on leased square footage of the property. It includes property taxes, maintenance, utilities, and other associated costs of the property. For instance if you are leasing a space and the air-conditioner needs to be replaced the tenant is responsible for the cost.
  • Owner Financing – When the owner of the property agrees to finance the purchase of the property in part or in whole.
  • Pre-Payment Penalty – A penalty fee charged for paying off a mortgage early if such fees were written into the contract. Usually done by lenders wishing to protect themselves from loss of income.
  • Principle – The amount left owing on a loan.
  • Property Manager – A person or company that is hired to manage a property. Associated with rental and commercial properties.
  • Quadplex – A four Unit rental property.
  • Quitclaim Deed– a procedure that releases ownership and interest in a property.
  • Rental Property Insurance – An insurance policy taken out by the lessor or landlord to protect the property and protect themselves from lawsuits by tenants.
  • Renter’s Insurance – An insurance policy taken out by a lessee to insure their personal property
  • Residential Property – Property where individuals reside
  • Right of Way – A form of easement granting access to a property
  • Sale/Leaseback – A procedure where an owner sells a property then leases it back for a long term lease. Usually used in commercial real estate to free up a company’s capital for other uses.
  • Second Mortgage – an additional mortgage taken out on a property and is subservient to the first loan.
  • Security Deposit – A Refundable fee collected by a landlord to ensure with lease compliance.
  • Short Sale – The lender agrees to accept an amount on the sale of the property that is less than the amount owed in order for the borrower to avoid foreclosure of the property.
  • Spec House – A home that is built by builders in mass, not custom built homes.
  • Title Insurance – Insurance that protects the owner of a property from claims of ownership in the title. For instance if someone claims the property was illegally obtained from them
  • Triple Net – A term used for Commercial real estate. A Triple Net Lease (NNN) means that the tenant pays all costs associated with the upkeep and maintenance of a property such as grounds keeping, Utilities, building maintenance as well as insurance and property taxes. The Common Area Maintenance (CAM) fee is usually divided up by the square footage occupied by each tenant to determine their share.
  • Tri-plex – A three unit rental property
  • Trust Account – An account held by a professional that holds money that is kept separate from their own business in order to disburse monies for various needs.
  • Vanilla Box – A term associated with Commercial Leases meaning that the property is provided as a blank space, with all electrical, and walls up but tenant will be responsible for the “Build Out” of the space for their individual needs.
  • Wraparound Mortgage – Additional money is taken out in a loan as a second mortgage but the new money is folded into the original loan.

Did we leave anything out? Make a mistake ? If so please feel free to let us know in the comment section.

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