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Every industry has its terminologies and peculiar jargon. Real estate is not an exception. As a real estate investor, you don't need to master all the terminologies that exist. However, there are essential keywords you ought to know as a real estate investor. We curated a list of real estate terms that will help you transact in real estate like a pro.
If it’s your first time encountering a real estate-related blog, you don’t need to discard this post as irrelevant. We will run you through the essentials you need to know about real estate investment. However, you can start your information research journey from our ABCs of real estate investment.
What is Real Estate Investment All About?
Real estate investment is the acquisition of lands and properties in a bid to make a profit. There are several ways to profit from real estate. While some strategies require your active participation, others are passive income sources you can benefit from.
A common myth about real estate investment is that you need lots of money to get started. However, this is false. In our guide, invest in real estate with little or no money, we show you how to invest in real estate without breaking the bank.
Essential Real Estate Investment Terms
Your knowledge of basic real estate investment terms can help you sound like a professional real estate investor. Additionally, it helps you maximize real estate investment conversations without looking lost. In this segment, we will be showing you 12 essential real estate investment terms you should know.
1. BRRRR
BRRRR is an acronym for a real estate investment strategy. It means “Buy, Rehab, Rent, Refinance, Repeat”. It involves the purchase of property to revamp, upgrade and rent it out.
The properties that are purchased in the BRRRR strategy are often properties that are not desirable to regular people. However, for an investor who has a goal in mind, it is usually a gold mine. If you are looking to make a profit from property ownership without having all the funds to construct a new building, BRRRR could be a good option for you.
2. Motivated Seller
A motivated seller is a seller who is eager to sell their properties quickly. As a real estate investor, you shouldn't waste time acquiring properties from motivated sellers. This is because such sellers do not care about the market value of the property they are trying to sell. Most times, motivated sellers sell properties at prices that are way below the market value.
The most important thing motivated sellers look for is someone with the willingness and finances to buy their properties. There are several reasons why property owners could become motivated sellers. These reasons range from relocation to unexpected financial need and sometimes divorce. When you come across such sellers, they are more open to negotiation.
3. Distressed Property
A distressed property is a property in poor condition. Such properties get to such a state as a result of neglect and sometimes financial hardship the owner is going through. Distressed properties are usually cheaper than well-kept regular buildings in the areas they are located. Most of the time, you would come across them in developing neighbourhoods.
Distressed properties are most times the target of the BRRRR strategy. However, before acquiring a distressed property, you must be prepared to put in the work and money. You need to assess the property and factor in the cost of renovation and upgrade of the facility. With the permission of the owner, you could get contractors to give you a renovation price estimate before acquisition.
4. House Flipping
House Flipping is similar to the BRRR, but different in some ways. It involves the purchase of distressed property to sell it for profit. When engaging in house flipping, it is important to analyze the cost of renovation and purchase capital before purchasing the property
Based on this analysis, the sale cost will be scheduled. It is best to set a sale price way above your capital and renovation margin. This will give allowance for your profit and ensure you do not run at a loss.
5. Hard Money Lending
Hard money lending is an investment strategy in which a person lends money to real estate investors who buy and own properties. In this investment strategy, hard money lenders have the right to set the terms for financing. Furthermore, they are legally permitted to earn interest on properties purchased with the money. However, it is essential for the terms of the agreement to be clearly stated before the commencement of the project
Hard money lending enables you to partake in real estate investment without being an active investor. When venturing into hard money lending, research the borrower’s credibility before signing an agreement with them. This eliminates the possibility of getting scammed by fraudsters.
6. Rental Property
Rental property is one of the most commonly used real estate terms in Nigeria. A rental property is occupied by a person who is not the owner of the property. Rental properties are usually constructed for the purpose of having other people occupy them in exchange for money. The money paid is usually for a pre-specified period. It could be a monthly, weekly or yearly payment.
After payment of the specified amount, the occupant is free to use the property within the agreed limits by the owner.
7. Rent and Lease
Rent is the periodic fee paid by a tenant to a property owner for the use of the property. Most rents often span the duration of 6 months to one year.
A lease is a similar arrangement to rent. However, a lease has a longer duration than rent. Furthermore, the agreement for the use of property in a lease is usually more stringent and advanced.
8. Real Estate Investment Trusts
Real Estate Investment Trusts can be likened to stocks and bonds. It is a real estate investment strategy in which members of the public own shares in companies that invest in income-producing properties.
REITs are a suitable investment plan for you if you desire to generate passive income from real estate. Just like stocks, you could go to rest while the investment company does all the necessary real estate tasks.
9. Off Market Property
An off-market property is a property that is not actively marketed for sale. Sometimes, you may get a good deal from off-market properties. Most especially, if the owner bought the property without a plan in place.
Since off-market property owners aren't actively looking to sell the property, you may be able to convince them to take your offer. However, getting off-market property will require you to network with other real estate investors.
10. 70% Rule
The 70% rule is a guide that ensures investors do not overpay for a property. It states that as a real estate investor, you should not pay more than 70% of the after-repair value minus the repair costs of a property. The 70% rule mostly applies to BRRRR, house flipping and distressed property real estate investors.
By implication, before getting a property, you should estimate the market sale price of the property after repairs. Then, subtract the cost of repairs from the estimated market value. After doing the maths, you should not pay more than 70% of the final figure to the initial owner of the property. This will help you lock down your profit and prevent you from running at a loss.
11. Appreciation
This is the increase in the market value of a property after some time. Appreciation can happen in two ways. It can either happen naturally or by forced appreciation.
Natural appreciation is an increase in property value that is caused by changes in the real estate market. On the other hand, forced appreciation is induced by the real estate investor to make more money. For more information about real estate appreciation, read our blog, How to Leverage Forced Appreciation in Real Estate.
12. Realtor
A realtor is an independent contractor who buys and sells real estate on behalf of other people. Realtors serve as a link between potential buyers and sellers of real estate. Consequently, taking the stress off both parties and ensuring they both have a good deal.
Realtors have a dynamic relationship with the sellers and buyers of real estate property. They analyze the property critically to ensure that both parties are satisfied after the deal.
Conclusion
Real estate investment is a field that is open to everybody. It requires little or no certification before you get started. However, you should know the basics before venturing into the field. In this guide, we walk you through essential real estate investment terms you ought to know.
Land Republic is committed to seeing you excel as a real estate investor. We have several resources for your real estate investment journey. If you ever need to make enquiries or acquire real estate properties, contact us via +2348122222283 and support@landrepublic.co.
