If you’re reading this, you’re probably new to the real estate world – or maybe you just want to expand on what you already know! As in any new endeavor, it’s a good idea to educate yourself on common terminology used in the industry. Learn the real estate lingo and acronyms, so you can “talk the talk.”
Below is an extensive list of some of the commonly used terms and acronyms for both traditional and various investment avenues in real estate. You may find us referring to these periodically to this post and encourage you to take advantage of this freebie downloadable – a printable version of close to 100 real estate terms:
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If are you new and serious about integrating into real estate, consider this suggestion: print out the list and tape it to your mirror to skim through morning. Before you know it, you’ll be talking like a real estate pro.
Real Estate Lingo and Acronyms 101
Apartment Syndication
A temporary agreement or partnership made for the purpose of acquiring and managing a large apartment transaction, from purchase to sale. This arrangement is usually between general partners (active investors) and limited partners (passive investors). Both parties share in risks and returns as well as profit at the sale. Modified definition from Joe Fairless’s book on Apartment Syndications.
Appreciation
The increase in value of a property or asset over a period of time. Distressed properties have a depressed value, but this can be changed by value-add improvements, which bring a property up to market standards.
ARV = After Repair Value
The assumed value of a house after all repairs are made to bring it up to market standards.
BRRRR
A strategy used in real estate to recycle money through real estate. The acronym stands for Buy, Renovate/Rehab, Rent, Refinance, and Repeat. One must be sure to account for refinancing costs during initial underwriting.
Capital Expenditures (CapEx)
The cost of goods or services used to upgrade or repair a property which are an expense of the income of the property.
Capitalization Rate
Capitalization rate is calculated by dividing a property’s net operating income (NOI) by current market value.
Cap Rate = NOI / Current Market Value
Cash Flow
The revenue left over after all expenses for the property, which include:
- Operating Expenses (taxes, repairs, vacancies, insurance, HOA fees)
- Debt Services (mortgage payment)
- Asset Management Fee (for syndication investments)
Cash-on-cash Return (CoC return)
A percentage rate of return, based on cash flow and equity investment. To calculate CoC, divide cashflow by initial equity investment. For example. If the cash flow of an apartment complex is $146,457 and the initial equity investment was $1,673,980, the property provides a 8.7% CoC return.
Depreciation
The decrease in value of a property over time due to damage, wear, or age.
Net Operating Income (NOI)
Calculated by subtracting the property’s operating expenses from its revenue.
RR (Real Estate Revenue) – OE (Operating Expenses) = NOI
Accredited Investor
An accredited investor satisfies at least one of the requirements:
- net worth > $1,000,000 either individually or jointly
- annual income of $200,000 or $300,000 for joint income for the last two years with expectation of earning the same or higher
Active Investing
Active investing is a form of investing that requires active work. This looks like locating, qualifying, funding, closing and managing real estate assets.
Adjustable-Rate Mortgage
An adjustable rate mortgage is a type of loan package. “An adjustable-rate mortgage (ARM) is a type of mortgage in which the interest rate applied on the outstanding balance varies throughout the life of the loan. With an adjustable-rate mortgage, the initial interest rate is fixed for a period of time. After this initial period of time, the interest rate resets periodically, at yearly or even monthly intervals.” (Source) <https://www.investopedia.com/terms/a/arm.asp >
Amortization
Paying down a mortgage loan through fixed payments of interest and principal. Usually amortization is set up in a way that percentage of interest paid balloons initially and slowly decreases in proportion to principle
Apartment Syndication
A temporary agreement or partnership made for the purpose of acquiring and managing a large apartment transaction, from purchase to sale. This arrangement is usually between general partners(active investors) and limited partners (passive investors). Both parties share in risks and returns as well as profit at sale. Modified definition from Joe Fairless’s book on Apartment Syndications
Appraisal
An official report from a certified appraiser that establishes market value and determines an asset’s assessed value.
Appreciation
The increase in value of a property or asset over a period of time. Distressed properties have a depressed value, but this can be changed by value-add improvements, which bring a property up to market standards.
Assessed Value
The value of a real estate asset determined by the county in which the property is located.
Assignment Contract
Usually this is an addendum to the standard purchase agreement which gives the buyer to
As-Is
Generally referred to as the condition in which someone is willing to buy a property so as to create an easy transaction for the seller.
ARV = After Repair Value
The assumed value of a house after all repairs are made to bring it up to market standards.
Bandit Signs
Marketing signs posted on public property by wholesalers or real estate investors in an effort to find sellers. Usually these are put up on a weekend.
Bird Dog
Someone an investor may pay to identify motivated sellers and locate distressed properties on their behalf.
BRRRR
A strategy used in real estate to recycle their money through real estate. The acronym stands for Buy, Renovate/Rehab, Rent, Refinance, and Repeat. One must be sure to account for refinancing costs during initial underwriting.
Buyers Agent
A real estate agent that represents the buyer in a real estate transaction. This agent should be well versed in negotiations, warning signs of certain
Buyers List
A list of buyers a wholesaler will send real estate deals to. Generally wholesalers have a large list, but only sell to a select few whom they know will close.
Capital Expenditures (CapEx)
The cost of goods or services used to upgrade or repair a property which are an expense of the income of the property.
Capitalization Rate
Calculated by dividing a property’s net operating income (NOI) by current market value
Cap Rate = NOI / Current Market Value
Cash Flow
The revenue left over after all expenses for the property, which include:
- Operating Expenses (Taxes, Repairs, Vacancies, Insurance, HOA Fees)
- Debt Services (mortgage payment)
- Asset Management Fee (for syndication investments)
Carrying Costs
Similar to operating costs, in the general business world it is used to describe the costs associated with holding inventory: taxes, insurance, employee costs, opportunity costs, etc.
Cash-on-cash Return (CoC return)
A percentage rate of return, based on cash flow and equity investment. To calculate, divide cashflow by initial equity investment. For example, if the cash flow of an apartment complex is $146,457 and the initial equity investment was $1,673,980, the property provides a 8.7% CoC return.
Certificate of Occupancy
A document provided by the city that declares a property safe to be lived in. This is required before closing on a house where permits have been pulled, such as a large renovation or a new build.
Closing Costs
The fees and expenses incurred when closing on a house. Closing costs include attorney’s fees, appraisals, taxes, title insurance and more.
Contingencies
Contingencies are items that must be completed prior to a closing or for a home sale to be considered final.
Comparative Market Analysis
A Comparative Market Analysis is a comprehensive way to determine the value of a house you intend to buy or sell. Many things are considered in this analysis including improvements or renovations, square footage, proximity to the subject property, neighborhood, style of house, ect.
Cost of Funds
The Cost of Funds, for an investor means, how much it costs to acquire funding, usually referring to the interest rate and points.
Depreciation
The decrease in value of a property over time due to damage, wear, or age.
Distressed Property
A property is considered distressed when, either by way of condition or financial standing with the bank, it is in a place where sellers are willing to sell the property below market value. These are ideal properties for investors to target for value-add opportunities.
Distributions
A distribution is a “disbursem*nt of assets from a fund… or individual securities from an investor”– Investopedia
Double Close
When two real estate transactions on the same property occur on the same day, the purchase and sale – two independent deals.
Due Diligence Period
Typically it is a time capped period in which the buyer is legally able to do all inspections and research needed to verify they want to continue with the contract and purchase the property.
Earnest Money
Funds deposited with the closing attorney or title company by the buyer. The amount should be written in the purchase contract. Earnest money becomes the Sellers after the Due Diligence period.
Private Equity Investment
This type of investment opportunity involves a syndication and, in real estate, can be used to fund a large apartment, storage facility, or mobile home park deal.
“The term “private equity” refers to an entirely different type of ownership structure than that for publicly traded equities. If someone talks about their private equity holdings, it usually means they have a stake in a limited partnership or some other legal entity that is run by a private equity manager.” – The Balance
Exit Strategy
A plan of action for the end of an investment property’s life cycle or way to shift based on external factors that were different from the initial investment opportunity.
Fair Market Value
Fair Market Value is the selling price for a house to which a buyer and seller can agree.
Fixed-Rate Mortgage
The opposite of a variable rate mortgage in which the interest rate is fixed and does not change during the life of the loan. Property Taxes and Insurance amounts may adjust during the life of the loan, but the Principal and Interest total remain constant.
Flipping Houses
The act of purchasing a home and renovating and/or making improvements then selling on market. Ideally during the process of renovating the property the owner is able to increase the value of the renovated home more than what they bought it for and added to it.
For Sale by Owner
Many people attempt to list their home For Sale by Owner to avoid realtor fees.
Foreclosure
When a mortgage isn’t paid for several months most banks will send the owner a letter stating they are entering the property into foreclosure. This process is several months long and will conclude typically with a hired attorney auctioning off the property at the county courthouse. Issues around foreclosure consist of unknowns, extra fees and attorney fees.
General Partner
One of the owners in a partnership, usually syndication deals in real estate. The general partner is an active manager in day to day operations and activities. The GP may also be referred to as the sponsor or syndicator.
Hard Money Loan
These loans are based on the asset value and estimated ARV. Typically a hard money lender will loan a buyer a percent of the ARV for purchase and renovation costs. For example: A property ARV is $400,000. The Hard Money Lender may lend up to 75% of the ARV max. $400,000 x .75 = $300,0000. If the purchase price is $360,000 and a rehab of $60,000 is presented they may lend all of the rehab amount and $340,000 of the purchase price. Causing the buyer to come to the closing with $20,000 to complete the purchase.
Holding Period
Typically in reference to the time a project is held under ownership. This could be a few weeks or possibly years in large multifamily projects
Inspections
Inspections are completed by the municipality where the permits were obtained. This could be the county if the property is located outside of town or city limits. These are done in specific order.
Interest Rate
The percentage of interest paid typically monthly or daily for the time a property is held. Example: if you are loaned $100,000 to purchase a rental property at 7% interest. The interest only amount monthly would be calculated as shown:
$100,000 x .07 = 7,000 / 12 for monthly (or 365 for daily) = $583.33. Please also consider you will likely still owe principal as well as taxes and insurance on this property.
Joint Venture
Joint Venture is a way to structure a partnership – an agreement between two entities or people going into a project. The agreement structures the entirety of the project and relationship.
Lease
A preset amount of time that a tenant is legally able to occupy a property. The lease will specify all terms of the agreement.
Lease to Purchase
A Lease [to purchase] Option is an option a buyer may want or a seller may offer where a potential buyer may rent a property from the owner and possibly a certain portion of their rent goes towards the purchase price. The option could also be a separate agreement paid for upfront by the tenant allowing them to purchase the property during a certain time frame for a certain price.
Loan to Value
Generally a ratio of what a bank will loan based on appraised value. For example: a bank may allow up to 80% loan to value on a purchase for an apartment building. The appraised value of the property is $5,000,000. 5,000,000 x .80 = 4,000,000. Loan amount cannot be greater than 4,000,000 in this example. The buyer would either need to have 1,000,000 to bring to the deal or would need to do a capital raise.
Limited Partner
Another owner in a partnership, usually syndication deals in real estate. The limited partner, otherwise referred to as an LP, is a passive investor who funds part of the equity investment.
Limited Liability Company (LLC)
A Limited Liability Company one of the common ways to structure a real estate business. Wikipedia defines it as, “a business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation.”
Market Rent
The rental rate a particular area supports. It is determined by the condition of the property and comparable units listed and successfully rented at the specific rate.
Mortgage
An agreement between a lender and owner of the property which allows the lender to take ownership of the owner’s property if payments, which include interest and principle, are not made.
Mortgage Broker
An intermediary between lenders and borrowers whose purpose is to compare, locate and secure the best rate.
Motivated Sellers
Homeowners or landowners who for one reason or another need to sell their property sooner rather than later. The goal here is to provide a great service to them in their need, not to take advantage of their situation. Most sales happen in less than 30 days from going under contract, but could take up to 6 months.
Multiple Listing Service (MLS)
A more widely understood acronym, the Multiple Listing Service provides a place for Real Estate Brokers or REALTORS to list homes for sale on the retail market for their clients.
Net Operating Income (NOI)
Calculated by subtracting property’s operating expenses from its revenue. RR(Real Estate Revenue) – OE (Operating Expenses) = NOI
Operating Account
“An operating account is a financial fund that’s used to pay for the services that carry out everyday functions of a community. This includes (but is not limited to) the following services: Contracted services, including landscaping, general maintenance of common areas, security, and property management.”
Operating Agreement
“An operating agreement is a key document used by LLCs because it outlines the business’ financial and functional decisions including rules, regulations and provisions. The purpose of the document is to govern the internal operations of the business in a way that suits the specific needs of the business owners.” sba.gov
Operating Expenses
“An operating expense is an expense a business incurs through its normal business operations. Often abbreviated as OPEX, operating expenses include rent, equipment, inventory costs, marketing, payroll, insurance, step costs, and funds allocated for research and development.”
Source: Investopedia
Owner Financing
A situation where a property owner sells a property to another owner, but maintains in place as the “lender”.
“Owner financing is a transaction in which a property’s seller finances the purchase directly with the person or entity buying it, either in whole or in part. This type of arrangement can be advantageous for both sellers and buyers because it eliminates the costs of a bank intermediary.” Source: Investopedia
Owner Occupied
The description of a property that is owned and resided in by a potential seller.
Passive Investing
A long-term type of investing that involves no involvement in the day to day management of a real estate asset.
Pre-Approval Letter
A letter from a bank that shows a seller is preliminarily approved for a loan for a property.
Preferred Return
“A preferred return is a profit distribution preference whereby profits, either from operations, sale, or refinance, are distributed to one class of equity before another until a certain rate of return on the initial investment is reached.” Source
Private Placement Memorandum (PPM)
“A document outlining the terms of the investment and the primary risk factors involved with making the investment.”
Joe Fairless’s book on Apartment Syndications
Private Money Loan
Money given to an individual or company by a private organization or wealthy individual.
(Source)
Private Mortgage Insurance
Insurance required by most bank lenders. Usually PMI can be dropped once 20% equity is achieved.
Probate Sale
The sale of an estate after someone dies. Each state had different processes and regulations around this type of property sale.
Pro Forma
A calculator, usually built in the form of a spreadsheet, used to underwrite and analyze deals.
Profit and loss Statement (T-12)
This document lays out a company’s realization of profits and losses for the last twelve months. This is calculated by subtracting the costs of doing business from the gross revenue to equal net profits.
Proof of Funds
A bank or financial statement from an institution that shows the amount of liquid funds available to an individual.
Property Management
A company or individual that coordinates operations, maintains and controls real estate assets. This can include repairs, turns, updates, leases, etc.
Refinance
When a bank revises or replaces an existing loan, usually at more favorable terms.
Refinancing Fee
A fee charged for the work of managing a refinance.
REI = Real Estate Investing
Enough said? Real Estate Investing.
Rent Roll
“A rent roll is an essential document that allows landlords and others to easily view rents that are due and rents that have been collected on an investment property. It focuses on the gross rent collected, not net rent after expenses, such as a monthly mortgage, insurance, taxes, or utilities.” (Source)
Return on Investment (ROI)
For the lender, a Return on Investment is seen as the interest rate earned in lending monies to fund a project.
Seller’s Agent
“The seller’s agent focuses on selling the property according to the terms the seller or owner sets. This includes getting the best price for the property, negotiating terms, selling it quickly and managing the legal transaction.” (Source)
Subject Property
The property which you are intending to purchase or are gathering data on.
Short Sale
“A short sale in real estate is when a financially distressed homeowner sells their property for less than the amount due on the mortgage. The buyer of the property is a third party (not the bank), and all proceeds from the sale go to the lender.” (Source)
SFR = Single Family Residence
Single Family Residence is a house that is detached – not a multi-family, townhome, or condo.
Submarket
A real estate market outside of a major metropolitan area.
Tenant Screening
The process of using a standardized list of minimum criteria in order to locate a qualified tenant.
Turnkey Investing
A type of investing that avoids the work of renovation – purchasing a property that is rent ready and cash flowing.
Underwriting
The thorough research necessary to determine if a property or investment opportunity is worth pursuing.
Vacancy Rate
“The vacancy rate refers to the percentage of units that are vacant or unoccupied in a given property. This is essentially the opposite of the occupancy rate.” (Source)
Value-Add Property
Fairly straight forward, this is a house that is found to be in disrepair, where there is opportunity to add value by making improvements to bring it up to market standards.
1031 Exchange
“This is a procedure that allows the owner of investment property to sell it and buy like-kind property while deferring capital gains tax.” (Source)
We hope this list of terms has been helpful! Don’t hesitate to connect with us over on Instagram and be looking out for our periodic emails!
Wishing you all the best in your real estate endeavors,
Katie, Uriah, and the entire Tii Team
We hope this list of real estate terminology equips you and repels you forward in your real estate goals!
Until next time …
