As an investor, new or experienced, you get a lot of words tossed at you. A lot of so-called real estate gurus have worked hard to develop branded lingo designed to leave you, if anything, a tad bit confused. Where to start? Cap what? Don’t worry – we understand that entering into the great big world of real estate investing can be a bit overwhelming – and we’ve got your back. In today’s investing blog post, we’re going to go over some of the most basic real estate investment lingo and explain it in terms that even your dog can understand (ok – maybe not, but maybe!).
Also referred to in a fancier way, as a capitalization rate, a cap rate just means it’s your annual rate of return on a real estate investment property based on the expected income that the property will generate. Of course, there’s a formula for calculating your cap rate – but since variables exist, we’ll keep it simple and stop here!
AKA The Perfect Title! What this means is that the title to a property is now free and clear of any deficiencies or problems that could bother the owner. The owner of the perfect, or absolute, title can not be challenged and has unequivocal rights to their property. No liens. No Judgements. No attachments. AH. That’s what we like….
Simple: your downpayment. How much money do you have to invest in a property you purchase?
No financing. No annoying mortgages. Just catch, and deeds, switching hands.
This is also referred to as your equity divided rate. How much is your property going to do for your wallet? That’s what the cash-on-cash return is all about. It’s simple to calculate.
Cap rate? We covered that. This one is a bit different. A capped rate is an interest rate that has some leeway – so the interest rate can vary a bit – but it can not go past a set capped rate agreed upon in advance.
Income Property Mortgage
This is a loan given to real estate investors for both residential and commercial properties that are bought with the express purchase of renting them – and making money from them. Income property mortgages are a bit trickier to qualify for as lenders need more facts before signing on board.
Not the lender. Not the borrower. Mortgage brokers are the middle guys and gals who do the grunt work: gathering paperwork, documenting everything – and then passing it along to a lender who makes the final yes or no decision.
Tenancy At Will
This is a tenant agreement in which a tenant occupies your property without a formal agreement that specifies a definite rental period or regular paying of rent….um…….
Obviously, there’s a whole bunch of terms to learn – and for a new real estate investor, it can be overwhelming. Take it slow. Use the power of Google when in doubt – find a mentor – or reach out to us. We’re always happy to help with any and all questions – post a question here or email ali@hipsterinvestments!