A glossary of real estate investing terminology, designed to give new real estate investors a look at everything they need to know about real estate for beginners.
Real estate investing has a language of it’s own.
If you’ve ever been on any real estate websites or read any real estate books, it doesn’t take long before you’re bombarded with real estate terms, many of which might not be familiar.
Buy and hold. Fix and flip. Foreclosures. Syndication. Property Manager. Private Lender. Hard Money. Conventional Loan. Fannie Mae and Freddie Mac… and on the list goes.
It doesn’t take long before you feel completely overwhelmed.
Let’s fix that.
Here’s a list of the most common real estate investing terminology, and a simple definition of what each term means, so you can get familiar and ditch the overwhelm.
A Glossary of Read Estate Investing Terms
NOTE: This is an ever-growing list. Is there an important real estate term that should be added? Let us know!
Appraisal: An appraisal is an evaluation by a trained professional appraiser to determine how much a property is worth. Banks order an appraisal when they are giving you a mortgage to make sure the house you are buying is actually worth the sale price.
Appreciation: When the value of a property goes up. This usually happens naturally over time. It can also happen when a house is renovated, or when an additional bedroom or bathroom is added to an existing house; this is called forced appreciation, because you are forcing the value to appreciate through the rehab or reno work.
Asset: The simplest definition of an asset (thanks to the Rich Dad, Poor Dad book) is anything that puts money into your pocket. An asset is anything that MAKES you money.
Bigger Pockets: Arguably the world’s biggest resource and community dedicated to real estate investing. They publish online content, books, podcasts, online forums and more.
BRRRR: A real estate investing strategy acronym that stands for Buy, Rehab, Rent, Refinance, Repeat. Using this strategy, an investor buys a below-market-value (aka cheap) property with private money, cash, a short term loan etc. Usually, in order to get a property that is below market value, it will require rehab (aka renovation) work to increase it’s value. After the property is rehabbed, it is rented out to tenants. The next step is to refinance the property with a mortgage that lets you take out part of the new value of the home. This is how you get most (or all) of your money back out to be able to do the last “R” step: Repeat.
This is THE book on the BRRRR real estate investing strategy, published by Bigger Pockets. It also covers a lot of the basics of real estate investing as it walks you through the BRRRR strategy, so it’s a fantastic book to read as you begin in real estate.
Buy and Hold: When you buy a property and hold (keep) it, usually using it as a rental property. The alternative to buy and hold is usually fix and flip.
Cash-Out Refinance: The process of refinancing a property, taking out a new mortgage on the newly appraised value, and being able to take a portion of the cash out to invest in something new.
Closing: The finally step in the home buying or selling process; a meeting with the title company to sign papers and complete the real estate transaction.
Conventional Loan: The most common type of mortgage offered by banks. Usually requiring 20% down (possibly 25% or 30%, depending on the type of investment property and the bank’s rules). These loans are taken out with a bank near you, and then sold to bigger, national financial institutions, but your mortgage terms remain the same. There are limits on how many conventional loans people can take out, so after you invest in your first few investment properties, you’ll likely have to move on to another type of financing.
Deal: The term “deal” is used by real estate investors to talk about a real estate transaction. “I did my first deal last year.” Or “I refinanced, pulled the cash out, and then used that to buy an other deal.”
Driving for Dollars: The process of driving around, looking at real estate. Looking for For Sale By Owner signs, or For Rent signs, looking at foreclosures and houses going to auctions. Analyzing neighborhoods and looking for potential opportunities.
Fannie Mae and Freddie Mac: Federally backed home mortgage companies. These set the national rules and used by banks when they give out conventional mortgages.
Fix and Flip: The process of buying a fixer upper property in need of rehab and renovation. You fix it up after you buy it, and then you sell it to make a profit. A short term process, as opposed to the long term process of buying a property and holding it as a rental property.
Foreclosure: Describing the process when someone stops paying their mortgage. Usually due to personal or financial hardships such as job loss, divorce, death etc. Eventually, the house goes into foreclosure and will go back to the bank who provided the mortgage for the house.
Hard Money: A loan you take out from a third party lending company (not a bank) that usually has higher interest rates, but the benefit is there are less hoops for you to jump through. Hard money is most often used to buy a house you plan to flip, or to buy a house you plan to BRRRR which you’d then take a more “normal” mortgage out on it during the refinance stage.
In House (Portfolio) Loan: As opposed to a conventional loan where banks follow strict lending rules and offer the lowest interest rates, an in-house or portfolio loan is done by the bank itself. It is not sold to a larger loan company after closing; it stays with the bank. The downside is the interest rate is usually higher, but the benefit is often more flexible lending terms.
Landlord: A landlord is someone who owns and manages a rental property. However, in cases where an investor uses a property manager to manage their rental property, the property manager is acting as the landlord of the property, even though they don’t own it.
Liability: As per the Rich Dad, Poor Dad definition, a liability is anything that TAKES money OUT of your pocket.
Market Value: The value of a property, determined by what it can sell for in current market conditions. Determined by a professional appraiser.
MLS: Stands for Multiple Listing Service, and is a database of home listings that real estate brokers and agents gain access to. It shows listings from agents across all different companies, in hopes of connecting home buyers to a property that’s for sale.
Multi-Family Property: A property consisting of multiple units, like a duplex (2) or triplex (3).
Private Lender: A person, organization, or company that loans money to someone (with interest) but isn’t tied to any bank.
Property Manager: Someone who is hired to manage a rental property, for a monthly fee. Property management services handle everything from screening tenants, collecting rents, maintenance, city permitting and more.
Real Estate: Property consisting of land and buildings.
Real Estate Agent: A real estate agent represents someone who is looking to buy or sell property or land.
Realtor: The title given to a real estate agent who is part of the National Association of Realtors, the largest trade organization in the United States.
Single Family Home: A house suitable for one family.
Syndication: When multiple investors come together and pool their money, with the hopes of buying a bigger investment like an apartment complex.
Tenant: Another name for renters; the people who rent a property.
Vacation Rental Property: A property that is listed for short term rent on vacation rental sites like VRBO and AirBnb.
Zillow: An online website and app that provides users with home listings, city and neighborhood information, estimated home values, property history, real estate agent details and more. Another similar app is Redfin.
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When I read my very first real estate business book, I didn’t know what most of these terms meant.
It felt a little bit like reading a foreign language.
But it didn’t take long before the real estate investing terminology started to become familiar, and they’ve shown up again in every real estate book I’ve read since.
Slowly, they became second nature and soon, you don’t have to think so hard to remember what they mean.
The trick is to stick with it.
Everything is unfamiliar and awkward when you first start.
Soon, you’ll be using terms like asset and BRRRR in sentences and wonder “Who am I and where did I come from?!”