Like any industry, real estate comes with its own set of terminology. Whether you currently own your
own investment properties, or you are brushing up on your real estate knowledge before taking the
plunge there are a number of terms and abbreviations you need to know to invest efficiently.
Here’s our top 20 real estate investment terms you should know:
1. Amortization
Amortization is the repayment of a loan in installments of principal and interest rather than in
interest-only payments.
2. Appreciation
Appreciation is the increase in a property’s value over time. An area’s market value,
development, or inflation can all affect a property’s appreciation. Home improvements are
another way in which the owner can appreciate their property’s value.
3. Cap Rate
Capitalization rate (cap rate) is an estimation of an investor’s potential return on investment.
Cap rate is calculated as a percentage: the net operating income is divided by the property’s
asset value.
4. Cash on Cash Return
Cash on cash return is a calculation that examines the total cash earned on an investment. Cash
in cash return can be calculated by dividing the annual net cash flow by invested equity.
5. Comparative Market Analysis (CMA)
A comparative market analysis (CMA) is an estimation of a property’s value based on the price
of other recently sold property in the same area. Knowing the area’s CMAs that you plan to
invest in can help you make competitive offers.
6. Contingency
A contingency is a condition that must be fulfilled before a contract is binding. For example, a
sales agreement may be contingent upon the sale of the buyers’ home.
7. Equity
In real estate, equity is the difference between what your home is worth and what you owe on
your mortgage.
8. Escrow
Escrow protects all parties during the sale of a property. A third party, often the lender, acts as a
stakeholder for both the buyer and seller by temporarily holding money or the property until
certain conditions are met.
9. Debt-to-Income Ratio
Debt-to-income ratio (DTI) is a measurement of what you owe (your debt) compared to what
you owe (your gross monthly income.) Understanding your DTI can help you determine the your
current debt and the level of credit you are willing to take on.
10. Loan to value (LTV)
Loan to value (LTV) looks at the risk assumed by financial institutions upon approving a loan.
Those with higher LTV ratios would be considered a higher risk and may require the purchase of
mortgage insurance prior to approval.
11. Multi-Family Home
A multi-family home is comprised of multiple units that are rented out to different tenants and
can include apartments, townhomes,
12. Net Operating Income (NOI)
Net operating income (NOI) is a measurement of the profitability of an income-generating
property. NOI is a pre-tax figure – to calculate NOI the property’s operating expenses must be
subtracted from the income generated.
13. Off-Market Property
An off-market property is a property that is either not for sale or is for sale but is unlisted on the
Multiple Listing Service (MLS.)
14. PITI
PITI stands for principal, interest, taxes, and insurance, or all of the standard costs that go into a
mortgage. Your lender will estimate your PITI so that you are not approved for a loan that you
can’t afford.
15. Points
A borrower can purchase points, or fees, that are paid upfront when obtaining a loan. By
purchasing points the borrow can essential reduce their rate – 1 point equals 1% on the
mortgage amount.
16. Principal
Principal is the amount owed on a mortgage, prior to the assessed interest.
17. Rate of Return
Rate of return (ROR) is a measurement of the profit or loss of an investment over a specific
period of time.
18. Rental Property
A rental property refers to a property that generates a monthly payment from the tenants for
occupying the property. Both residential and commercial buildings qualify as rental properties.
19. Single-Family Home
A single-family home is a standalone residential building.
20. Vacancy Rate
A vacancy rate is calculated as a percentage and looks at the number of unoccupied or vacant
number of units in a property at any given time.
The real estate professionals at STL Mogul are St. Louis’s multifamily experts. Get in touch
today to see how we can help you invest in your success.