12 Terms All Real Estate Investors Should Know

On the other hand, the buyer's market contrasts with the seller's market by exhibiting lower pricing and various available properties.

Single-Family and Multi-Family Property

A single-family home refers to a residential property that is not connected to other properties using shared walls. Multi-family properties contain many different households living in separate units but a single building.

Pre-Approved Letter

Before looking for a home, it is crucial to get pre-approved by your creditor before you apply for a loan. A pre-approval letter lets you know how much you can spend before deciding to purchase a home.

Return on Investment (ROI)

This is a ratio between investment and net income, where a high return on investment means the asset is faring well to its cost. ROI is a performance measure used to evaluate the efficiency of investments or compare them.

Multiple Listing Service (MLS)

The United States has thousands of MLS services that provide reimbursement and support made by real estate brokers to other realtors. However, only realtors who are certified and affiliates of a real estate association can list properties on an MLS.

For Sale by Owner (FSBO)

This refers to a property owner who manages to sell their home without any help from a realtor. If the market is hot, the homeowner may not see the need for an agent, mainly if they cannot finance the commissions. However, buyers should be aware of properties not listed through realtors since private owners are not held to a code of ethics.

Principal, Interest, Taxes, and Insurance (PITI)

PITI stands for all the crucial elements included during a mortgage payment: Principal, interest, taxes, and insurance. PITI offers investors a single number when it comes to expenses, making it easy to combine cash flow with operating expenses. Failing to account for these factors can result in erroneous calculations and a false picture of the property's potential profit.

Gross Rental Income (GRI)

Gross rental income refers to rent value plus expenditures and additional fees paid to the renter by the landlord. However, security deposits are not counted as income since they may be returned to the tenant. GRI is a tool used by investors to estimate potential income. Investors can calculate the adjusted gross income and then subtract expenditures.

Fair Market Value (FMV)

This refers to house value on the open market if the buyer and seller are knowledgeable and free of pressure. Buyers can compare FMV to the given price to determine if they are getting a fair deal. It is crucial to note that the FMV is not similar to the appraised value used for tax purposes. Investors can use a third-party realtor or broken price to determine FMV.

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