Real Estate


eg: UK or Brides UK or Classical Art or Buy Music or Spirituality

Business & Money

Technology

Women

Health

Education

Family

Travel

Cars

Entertainment

Real Estate Investor Jargon Every Newbie Should Know

View:

Real estate investing is a new, exciting, andwonderful adventure when you're first getting started. For me, the new hasn't worn off. I love real estate investing as much as Iever have. But, if there's one thing Iwould have changed, it would be my knowledge of the terminology thrown aroundby more seasoned investors. If you?retired of feeling like a dunce for having to look up the meaning of a realestate term every time you hear one, here's a primer that should help get youup to speed.

Accelerationclause? a provision in a mortgage loan that allows the lender to demand immediatepayment of the entire outstanding balance because of the violation of a loanprovision, such as defaulting on the mortgage.

Addendum ? an addition to acontract adding a provision that wasn't in the original document. Once agreed to by both parties, the addendumthen becomes a part of the original contract and is enforceable in court(assuming the provision is legal).

Appreciation ? the increase in valueof an asset.

Balloonpayment? a required large final payment of a contract, frequently a large percentageof the original amount borrowed. Many times a contract will consist primarilyof interest only payments for a period of time followed by a large payment thatpays off the entire balance. For instance, someone might make interest onlypayments on a property for five years and then have to pay the entire balanceoff at the very end.

Cash flow ? the amount of moneyleft over on a monthly basis after paying all operating expenses on a property.This amount can be expressed as either a positive or a negative number. Forexample, if a property has total income of $1500 per month and expenses anddebt service of $1000 per month, monthly cash flow on the property would be$500.

Closing ? a meeting between thebuyer and seller of a property where legal ownership is transferred. When thishappens, there is typically a large stack of legal documents that needs to besigned by both parties. At this time, the seller receives certified funds aspayment for their property, all closing costs are paid, and the buyer signsmortgage and other legal documents and receives a large stack of papers relatedto the purchase.

Closingcosts ?expenses that must be paid in order to legally transfer ownership of a propertyfrom the seller to the buyer.

Depreciation? aprovision in the Internal Revenue Code that allows the owner of a property totake a tax reduction for the value lost through the year. One unique aspect ofthis provision is that the federal tax code allows a real estate investor totake a depreciation allowance on their tax return even though their property actuallyincreased in value.

Due on Sale Clause ? aprovision in a mortgage contract requiring that the entire loan balance be paidimmediately on demand in the event of the sale of a mortgaged property. Certain things can trigger the due on saleclause in the contract, such as the legal transfer (or equitable transfer) ofownership from the original loan borrower to another party.

Earnestmoney deposit ? when someone places a written offer on aproperty, the seller will normally require that the buyer provide a smalldeposit (usually $500 or $1000) to prove to the seller that they are seriousabout making the purchase. These funds are normally placed into an escrowaccount by the real estate agent and will become the property of the seller inthe event that the buyer fails to execute the contract as agreed.

Foreclosure ? thelegal process involved in repossessing a property, usually for nonpayment of amortgage contract. There are two kinds of foreclosure: judicial andnonjudicial. Specific foreclosure laws vary from state to state, but in generalthe foreclosure process takes considerably longer in a judicial state becausethe lender must go to court and prove that the borrower has failed to maketheir payments as agreed. In a nonjudicial state, the process is much shorterand simpler because the lender is not required to receive court approval priorto forcing the removal of the borrower from the property.

GRM ? alsoknown as the Gross Rent Multiplier, which is a ratio you can use to estimatethe value of an investment property. Tofigure the GRM, you need two pieces of information about the property: thesales price and the market rent rate. The way you figure the GRM is by taking the sales price and dividing bythe monthly rent. For instance, pretendyou have a property with a list price of $125,000 that would rent for $1600 permonth. 125,000/1600=78. In this case theGRM would be 78.

HomeEquity Loan ? a type of loan where the owner of a propertyborrows money from a lender based upon the value of the property. Proceeds froma home-equity loan are typically used to make repairs to the property, pay offother debt, or to fund additional real estate investments.

HELOC ? HomeEquity Line of Credit is a type of loan where the borrower pledges the equityin their home as collateral. In exchange for receiving a HELOC loan, thehomeowner usually receive a checkbook that they can use to access funds. Whilethe homeowner is typically notified at the time that their loan is approved howmuch money they are qualified to receive, they don't normally receive cash atthat time. Instead, they use the checkbook to access HELOC funds, so they onlypay interest on the portion of the loan that they are utilizing at any giventime.

HUD-1settlement statement ? this form is also known generically as theclosing statement. Put simply, it is nothing more than a detailed accountingsheet that discloses where every dollar of a real estate transaction is going.It lists things such as real estate commissions, mortgage broker fees, escrowamounts, etc. At the very bottom of thesheet it details the total amount of money paid by or on behalf of the buyer tothe seller.

Lien ? atype of encumbrance that can be placed on a property by a creditor thatprevents the property's sale without the payment of a legitimate debt. Forinstance, if a homeowner loses a lawsuit and is bordered by the court to paythe winning party a certain amount of money, many times the winning party willplace an encumbrance upon their real estate to ensure that the judgment ispaid.

LTV ? anumeric value that can be used to determine how heavily leveraged a propertyis. If a borrower takes out a loan in the amount of $100,000 and the propertyis worth $125,000, the LTV is 80%.

NOI ? theNet Operating Income of an investment property is the amount of money left overeach month after making all debt payments and paying all operating expenses,such as insurance, maintenance, and repairs.

Ownerfinancing ? a method of financing where the seller acts as the bankand agrees to take payments for their equity over a period of time. This is avery common and creative real estate financing technique utilized by a lot ofreal estate investors who for one reason or another have decided to forgoinstitutional bank financing or the use of hard money lending sources.

PITI ? anacronym that stands for principle, interest, taxes, and insurance.

ROI ? anacronym that allows a real estate investor to determine their return oninvestment, which is expressed as a percentage. For instance, if you invest$100,000 and you receive $10,000 in annual returns, your ROI would be 10%.

Titleinsurance ? an insurance policy that the purchaser of a real estateproperty can purchase to guarantee that there are no outstanding liens or otherencumbrances that would affect the transfer of ownership from one party toanother.

As you can clearly see from this list of real estateinvesting terminology, there is a huge vocabulary for you to learn as you beginto fully immerse yourself into the world of real estate investing. This is by no stretch of the imagination afull list. It is, however, enough of astarter list that you can feel a little more comfortable with getting up tospeed. Your eyes won't completely glazeover if you happen to overhear more experienced investors talking, and in manycases you can smugly smile ? knowing that you're a member of a select club ofspecial entrepreneurs who have their own secret language. Plus, you won't have to wear a specialuniform or try to explain to people where the Klingon empire is located.

To learn even more of the jargon used by real estateinvestors, navigate over to andlook around a site built by investors for investors. It's packed with all the tips, tools, andinformation you need to turn the corner and reach all of your investingdreams.

More Articles from

Property Investment Pg50

Current Trend In Education

Even Better Than The Real Thing U2

I Know Its Real

Investment Property How To

Loan For Investment Property

Month To Month Residential Rental

Places To Invest In Real

What Is A Good Strategy

What Your Money Means

Wont Leave Me Alone

What You Need To Know About Creative Real Estate Investment Strategies

What You Must Know About The Lenders Point of View Before You Invest In Real Estate

Which Real Estate to Invest In

When to Back Out of a Real Estate Investing Deal

What You Should Know Prior To Investing In Real Estate

Why choose to make a Cyprus property investment?

Where Should You Invest In Real Estate

Where To Invest In Foreign Property

When It Comes to Real Estate Investing, Limit Your Risk

When To Invest In Residential Real Estate

» More on

Property Investment

Related Articles
Author
Most Popular

Charrissa has sinced written about articles on various topics from Property Investment, Real Estate and Bankruptcy Law. Charrissa Cawley is the founder of www.reiconferences.com, one of the fastest growing real estate investment training organizations in the US in addition to www.rewexclub.com , the top rated Real Estate Investor Community on the web today.. Charrissa's top article generates over 27100 views. to your Favourites.

Best Phones For Business
Publish relevant information, news and comments about your industry and soon you will have more visitors, better position in the search engines and more clients thanks, all to your blog