22 Terms All Real Estate Investors Should Know
Are you thinking of investing in real estate? If done well, it can be a lucrative venture. Among other things, it can help you get passive income and gain profit through regular appreciation.
But as you ready yourself to buy your first investment property, it’s important to familiarize yourself with several real estate terms. That’s because, just like any other, the real estate industry isn’t without its own unique jargon.
Having the knowledge of these terms will help make your real estate investment journey smooth and enjoyable.
The following is a breakdown of some of the most common terms you should know before buying an investment property in Saskatchewan.
1. Rental Property
This is without a doubt the most common term in investment real estate. It refers to a property that’s leased/rented to a tenant over a certain period of time. This property can either be residential or commercial.
2. Rental Income
This is the dollar amount that a landlord makes (on a weekly or monthly basis) for renting their property to a tenant.
Equity is the difference between what you owe on your mortgage and what your home is currently worth. So, supposing you have a debt of $200,000 on the mortgage and your home is valued at $250,000, then your equity on the home would be $50,000.
Your equity increases every time you pay down your mortgage debt.
4. Vacation Rental
A vacation rental is a private property that’s rented out on a short-term basis to travelers. The property is usually a furnished, self-contained home. A good example of a vacation rental is an Airbnb unit.
5. Cash Flow
Cash flow is the money that flows in and out of your investment. It can either be positive or negative. Positive cash flow means that an investment is making more money than it’s losing on expenses. In other words, your investment is profitable.
On the other hand, a negative cash flow means your investment is losing money; you’re spending more money than you’re bringing in.
6. Buyer’s Market
A buyer’s market results from supply exceeding demand. For property buyers, it’s the perfect time to buy a home because you’ll have less competition from other buyers and properties will be cheaper.
7. Seller’s Market
This is the opposite of a buyer’s market. In a seller’s market, the demand for housing outpaces the supply. Because of that, homes don’t stay on the market for very long and tend to increase in price.
8. Pre-Approval Letter
This is a document from a lender stating that they are tentatively willing to lend to you, up to a certain loan amount. It’s a crucial first step in the home buying process because it proves to the seller that you’re a serious buyer.
In real estate, the term ‘appreciation ‘ refers to the increase in the value of a property over time. This is unlike assets such as furniture, boats, and cars that tend to lose value over time.
10. Single-Family Home
A single-family home is an independent residential unit or building. Unlike townhomes or condos, these types of properties don’t share walls with other homes.
11. Multi-Family Home
As the name suggests, a multi-family home is a property with a single structure that contains more than one dwelling.
12. Real Estate Agent
A real estate agent is someone that helps people either buy or sell a home. The requirements to become a real estate agent vary from place to place, but generally, an agent needs to have completed a series of Salesperson Licensing courses.
13. Real Estate Broker
A real estate broker is a step above a real estate agent. They generally have more education and training than an agent. They are licensed professionals that facilitate the purchase, sale, and transfer of properties.
Just like a real estate agent, requirements vary by province. But at the bare minimum, they need to be at least 18 years old, have a high school diploma, and have up to 4 years of experience as a practicing salesperson.
A realtor is a professional real estate broker or agent who is a member of the Canadian Real Estate Association (CREA). Members are required to comply with the strict CREA Code of Ethics.
15. Off-Market Property
An off-market property refers to a property that isn’t listed on a Multiple Listing Service (MLS). They usually come with more caveats that can make them attractive to investors.
16. Security Deposit
A security deposit is an amount of money collected from a tenant in order to protect the landlord from lost income. For example, if a tenant ends their lease early or causes damages to the property, the landlord can use the security deposit to cushion themselves from a loss of money.
Like all provinces, Saskatchewan has its own security deposit laws.
17. Credit Score
A credit score is a number between 300 and 850 that represents a person’s reliability in terms of payment. The scores are based on a variety of personal financial data.
Basically, a good credit score means you’re a responsible borrower who is likely to make timely repayments.
18. Cap Rate
Also known as capitalization rate, a cap rate is a rate that helps budding real estate investors evaluate a property. It’s equal to the Net Operating Income (NOI) divided by the current market value of an asset.
19. Cash-on-Cash Return
Cash-on-cash return is the income that an investor earns on a real estate investment. It’s abbreviated as CoC return and is also referred to as cash yield or the equity dividend rate.
20. Debt-to-Income Ratio
Your debt-to-income ratio (DTI) compares how much you owe each month to how much you earn. Lenders use the debt-to-income percentage to know how much money you make versus how much you spend.
21. Net Operating Income
The Net Operating Income is a measure of the profitability of a real estate investment. It considers all ordinary expenses of an investment, before taxes and interest. This helps investors determine the cash flow expectations of a real estate property.
22. Hard Money Loan
A hard money loan is a low LTV loan that’s secured by real property. It’s a way for one to borrow money for real estate without using traditional mortgage lenders. Hard money loans are usually short-term, and with a high-interest rate. Because of this, they’re normally used as a last resort.
These are just a handful of the real estate investing terms you’re bound to come across as a potential investor.
If you find the world of property investment overwhelming, Leenan Property Management can help! We’ve guided countless investors through Regina/Saskatoon real estate investments. We’ll help you make informed decisions and can help you manage your rental property to get the best ROI. Contact us today!