200 Real Estate Terms Every Investor Should Know

Whether you're a beginner or experienced real estate investor, one of the biggest challenges is the terms and vocabulary that go with finding and acquiring properties.

That's why we created this list of real estate vocabulary so that you can brush up and learn new terms.

After all, the best way to minimize your risk and maximize your profit on your next real estate deal is to boost your real estate investing IQ.

200 Real Estate Terms Every Real Estate Investor Should Know

Abstract A property history including a copy of every recorded document dealing with a property. It is customarily examined by an attorney to determine whether an owner has a marketable title.

Abstractive method An appraisal method to determine land value. The value of improvements is deducted from the current sale prices of comparative property to determine the value of the land.

Acceleration clause A provision in a note which makes all payments due upon something happening. A due-on-sale clause is a type of acceleration clause making all payments due if a property is sold.

Access right Right of ingress or egress of an owner.

Accommodation A cosigner who agrees to be liable on a note. The credit of the accommodation party gives strength to the note.

Accredited investor A type of real estate investor that is allowed to invest in riskier investments. The most common qualifications are having a $1M net worth or earning an income of $200,000 for 2 years in a row ($300,000 if married).

Accrued depreciation The actual depreciation that has occurred on a property. Acre 43,560 square feet. A square acre would be approximately 208.7 feet by 208.7 feet. Four to five average city lots can be made from one acre.

Active contingent When a seller accepts an offer from a buyer, that offer is contingent upon the buyer’s ability to meet certain conditions before finalization of the sale. Contingencies might include the buyer selling their home, receiving mortgage approval, or reaching an agreement with the seller on the home inspection.

Active under contract When the seller has accepted an offer with contingencies, but still wants the house to be listed as active. In this situation, the seller is also likely accepting backup offers in case their current offer fails to meet its contingencies

Acquisition Cost The total cost of buying an investment property, including mortgage loan fees, closing costs, inspection fees, etc.

Adjustable-Rate Mortgage A homeowner has an adjustable-rate mortgage if their interest rate fluctuates at predetermined intervals throughout the course of their loan

Adverse Possession Customarily known as ''squatters' rights." A hostile user can acquire title after a statutory period of time. It usually requires payment of taxes Ad Valorem Tax Ad valorem is Latin for “according to value.” So, unlike excise or transactional taxes, where the tax amount or percentage is constant, ad valorem tax is proportional to the property’s assessed value.

Affordable Housing Dwelling units that cost no more than 30% of an area’s median household income as determined by the federal government, local government, or a recognized national affordability index.

After Repair Value (ARV) Describes an estimate of a property’s value, after repairs and renovations have been made. As a part of deal analysis, real estate investors utilize this calculation to determine the profit potential of a renovation property.

Amenity A feature of the home or property that serves as a benefit to the buyer but that is not necessary to its use; may be natural (like location, woods, water) or man-made (like a swimming pool or garden).

Amortization Mortgage payments are amortized when they include both interest and principal payments, allowing the borrower to start building equity from the very first payment.

Annual percentage rate (APR) The amount of interest charged on your loan every year.

Anticipated Hold Period This is the period of time that an investor anticipates holding each home before looking to liquidate the property. Financing terms are often matched to this hold period to optimize returns.

Application The first step in the official loan approval process; this form is used to record important information about the potential borrower necessary to the underwriting process.

Appraisal An independent survey conducted by a lender to determine a property’s value, based on its condition and comparable listings. This process helps validate the agreed upon purchase price between a buyer and seller.

Appraiser A qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate.

Appreciation The amount a home increases in value over time. To calculate a home’s likely appreciation rate, add one to the annual appreciation rate, raise this to a power equal to the number of years you’d like to estimate, then multiply that by the current value of the property. As-Is A property that is stated “as-is” indicates the seller is unwilling to perform repairs. It could also mean the property’s price is “as-is.” It is common this price is lower than market prices in the local area.

Assessed value The value of a property determined by a public assessor for tax purposes. An assessor calculates the assessment of a home’s value by looking at comparable homes in your area and reviewing an inspection of the home in question.

Assignment of contract A wholesaler operates by negotiating below-market-value deals with motivated sellers. They then sell the property contract to an end buyer, such as a rehabber, by using a legal document called a contract assignment. Also see “Wholesaling.”

Assisted living These licensed facilities combine housing with a variety of personal support services, such as transportation, meals, laundry, and healthcare assistance.

Assumable mortgage When a seller transfers all terms and conditions of a mortgage to a buyer. The buyer takes on the seller’s remaining debt instead of taking out a new mortgage of their own.

Balloon mortgage Instead of a traditional fixed-rate mortgage in which the owner pays on the loan in installments, a balloon mortgage is paid in one lump sum (e.g., the balloon payment). It’s usually associated with investment or construction projects that are issued for the short term and don’t require collateral.

Bandit signs Small signs on street corners and telephone poles used to advertise to investors and motivated sellers.

Bird dog When a real estate investor wants to enlist someone’s help in finding investment leads, they may hire a bird dog. These are individuals who are paid a fee to identify motivated sellers and distressed properties on behalf of others.

Bi-weekly mortgage When a homeowner pays their monthly mortgage payment in two monthly installments instead of one. With a bi-weekly mortgage, you'll make 26 payments per year instead of 12. The end result is that you'll pay the equivalent of 13 monthly payments each year lowering interest rates and your principal balance at a faster pace.

Borrower A person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms.

Bridge loan A short-term loan a homeowner takes out against their property to finance the purchase of another property. It’s usually taken out for a period of a few weeks to up to three years.

Broker A broker has passed a broker’s license exam and received education beyond what the state requires of real estate agents. They understand real-estate law, construction, and property management. Real estate agents are required to work under the supervision of a broker.

Broker price opinion (BPO) A real estate professional’s opinion of a property’s value.

BRRRR An investing acronym that stands for buy, rehab, rent, refinance and repeat, BRRR describes a framework where investors build passive income over time.

Budget mortgage A mortgage in which the borrower pays one- twelfth of the estimated taxes and insurance costs with each monthly payment so that funds will be available to pay them when they are due.

Building classifications (A,B,C,D) Building classifications allow an investor to differentiate buildings and rationalize market data. Investment properties and their value falls into four category classifications, A, B, C or D.

Building code Based on agreed upon safety standards within a specific area, a building code is a regulation that determines the design, construction, and materials used in building.

Build-up method A process to determine tile capitalization rate by rating a riskfree and management-free investment and then adding for risk and management factors.

Buydown A mortgage-financing technique lowering the buyer’s interest rate for anywhere from a few years to the lifetime of the loan. Usually, the property seller or contractor makes payments to the mortgage lender lowering the buyer’s monthly interest rates, which, in turn, lowers their monthly payments.

Buyer’s Agent A real estate agent who represents the interests of the buyer in the homebuying process is called the buyer’s agent. On the other hand, a listing agent represents the seller. Buyer's market An economic situation in which there are few buyers and many sellers. Prices tend to fall during a buyer's market.

Call option A contract giving one party the right to buy and another party the right to sell a piece of property at a future time and specific price. Cap A limit, such as that placed on an adjustable rate mortgage, on how much a monthly payment or interest rate can increase or decrease.

Capital expenditures (CapEx) Large, one-time expenses undertaken to extend the life or add value to a real estate property. These include renovations and upgrades, as well as equipment or supply costs needed to make the improvements.

Capital gain A gain on the sale of real property or a business or investment asset when the asset has been owned for over one year. Capital gains are taxed at a lower rate than other kinds of income.

Capital loss Loss from the sale of real property or other business or investment assets. A capital loss can be used to offset a capital gain in the year of the loss.

Capitalization method Appraisal method whereby the net income of a property is divided by a desired rate of return for that property. The greater the risk, the higher the rate.

Capitalization rate Also called “Cap Rate.” The cap rate is the NOI divided by the purchase price. The cap rate is an indicator of the risk and return of a property. It tells you the return of an investment before financing costs.

Carrying costs When an investor purchases a property to rehab, they must factor carrying costs into their list of expenses. These are the expenses incurred from the time the property is purchased until the time that it is sold, including interest payments, taxes, insurance and utilities.

Cash buyer An investor with liquid funds looking to purchase investment property typically to rent or flip

Cash buyer list A rolodex of investors who are actively looking for investment opportunities. These lists are built via marketing, networking and repeated business.

Cash flow The net income generated by a rental property, after subtracting the costs of owning and operating the property.

Cash-on-cash return The cash return on investment compared to the amount of cash invested. For example, an investment with cash distributions of $50 on a $1,000 investment has a 5% cashon-cash return.

Cash-out refinance Also known as a cash-out refi, is when a homeowner refinances their mortgage for more than it’s worth and withdraws the difference in cash. To be eligible for this kind financing, a borrower usually needs at least 20% in equity.

Cash reserves Required by some lenders, cash reserves are funds leftover after the down payment and closing costs are paid, to be set aside for emergencies.

Cash throw-off Net spendable, same as cashflow.

CC&Rs Covenants, conditions, and restrictions Private restrictions placed on the use of a property by owners.

Certificate of eligibility During the VA loan process, lenders require veterans to show proof they’ve met the minimum service requirement to qualify for a VA loan.

Certificate of occupancy Required by local government prior to occupancy of a new structure.

Certificate of reasonable value Issued by the Department of Veterans Affairs and is required for veterans to receive a VA loan. It establishes the maximum value of the property and therefore the maximum size of the loan.

Certificate of title A document provided by a qualified source (such as a title company) that shows the property legally belongs to the current owner; before the title is transferred at closing, it should be clear and free of all liens or other claims.

Chain of title Like a Blue Book for homes, the chain of title is the documentation of all past ownership of a property. It runs from the present owner to the very first owner of the property

Clear title Also known as a "just title," "good title," or a "free and clear title" – a clear title doesn’t have any kind of lien or levy from creditors. It means there's no question of legal ownership of the property such as building code violations or bad surveys.

Closing A meeting at which a buyer and seller finalize a real estate transaction. Both the buyer and seller are required to fill out legal paperwork to officially transfer ownership of the property in question at the time of closing.

Closing costs At the time of closing, a buyer and/or seller should expect to pay various fees, such as excise tax, processing fees, title insurance and the appraisal.

Co-insurance A policy requirement that a structure carry a minimum amount of insurance coverage in order for the insured to be covered completely for a loss. If the insured carries only a percentage of the coverage required, then the insured gets only that percentage of any loss, should there be a loss.

Collateral Property given as security for a loan.

Commercial acre The original gross size of a parcel without deducting for losses for streets. While a property could be 160 commercial acres, the developable land could be only 120 acres.

Commercial real estate (CRE) Commercial real estate is the purchase and sale of commercial properties, such as office buildings, retail centers, industrial properties, or land to be developed into a commercial project in the future.

Comparable sales Similar homes in close proximity used to derive a precise value for the property in question. The act of conducting this research is referred to as a comparative market analysis (CMA).

Commission Real estate commission is generally 5-6% of the home’s sale price. That commission is usually split between the buyer’s and seller’s agents and is paid by the seller at the time of closing.

Compound interest Interest upon interest The ordinary real estate loan is simple interest, not compound interest, since interest is paid each month as it accrues. If a payment were missed, then there would be compound interest.

Concentric circle Growth pattern of a city in all directions from a core area. Growth. Condemnation See “Eminent Domain”.

Conditional loan commitment A promise to loan on a property even though a buyer has not been located. The buyer has not been located. The promise is conditioned on the buyer qualifying for the loan.

Conditional sales contract A sales agreement for personal property whereby the seller retains title but the buyer has possession. It is very similar to a land contract for real property.

Condominium A subdivision in which there is individual ownership of a unit of airspace but common ownership of the common areas with the other owners.

Construction loan Also called a “self-build loan,” it’s a short-term loan used to finance the construction of a home or real estate project. This type of loan covers project costs before long-term funding can be financed.

Contingencies Conditions that must be met, either by the seller or the buyer, before the purchase of a property can close. Contingencies are intended to protect buyers and sellers, and often include items such as inspections, mortgage approvals and appraisals.

Contingent vs pending When a property is contingent, it means the owner has accepted an offer -- but certain contractual expectations must be met or the offer will be void. If all contingencies are met, the property changes status to “pending.” While contingent offers are still considered active listings, pending offers are taken off the market and other offers will not be entertained.

Conventional mortgage A loan not guaranteed or insured by the federal government. These borrowers usually make larger down payments (at least 20%), don’t require mortgage insurance, and are at a lower risk of defaulting on their home loan payment.

Convertible ARM A convertible adjustable rate mortgage (ARM) allows buyers to take advantage of low interest rates by receiving a loan at a “teaser” loan interest rate. Their monthly mortgage payment stays the same, but interest rates fluctuate (usually every six months). The borrower has the option of converting their ARM to a fixed-rate mortgage, but there are generally fees for the switch.

Cooperative (Co-op) Residents purchase stock in a cooperative corporation that owns a structure; each stockholder is then entitled to live in a specific unit of the structure and is responsible for paying a portion of the loan.

Cost approach Appraisal method whereby a value is based on the cost to replace a structure, less the accrued depreciation on the structure, plus the value of the land.

Counter-offer An offer made in response to a previous offer. For example, after the buyer presents their first offer, the seller may make a counter-offer with a slightly higher sale price.

Credit history History of an individual’s debt payment; lenders use this information to gouge a potential borrower’s ability to repay a loan.

Credit report A record that lists all past and present debts and the timeliness of their repayment; it documents an individual’s credit history.

Credit bureau score A number representing the possibility a borrower may default; it is based upon credit history and is used to determine ability to qualify for a mortgage loan.

Cubage Number of cubic feet in a structure.

Curable depreciation Depreciation which can economically be cured.

Dealer A person who buys and sells or develops property as a regular part of his or her income. Dealers are not allowed to take long-term capital gains on their profits, which are taxed as ordinary income.

Debt service coverage ratio A financial metric that compares a company’s or individual’s total debt obligations to its income. Lenders use it to determine a borrower’s financial health.

Debt-to-equity ratio (D/E) A ratio that shows how much of a property an investor owns versus how much is owed on the mortgage. This is an important measure of ownership of a property.

Debt-to-income ratio A comparison of gross income to housing and non-housing expenses; With the FHA, the-monthly mortgage payment should be no more than 29% of monthly gross income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 41% of income.

Declaration of restrictions A declaration recorded by a subdivider of all covenants, conditions and restrictions. They are men usually incorporated into each deed by referencing the recorded restrictions.

Dedication A gift of land to a public body. It is frequently required that a subdivider dedicate land for streets, etc., prior to subdivision approval.

Deed The legal document transferring a title from the seller to the buyer. It must be a written document and is sometimes referred to as the vehicle of the property interest transfer.

Deed in lieu of foreclosure A document transferring the title of a property from a homeowner to the bank that holds the mortgage. A homeowner might submit a deed-in-lieu of foreclosure if the bank has denied them a loan modification or short sale. However, the bank can deny the request for a deed-in-lieu (and often do).

Deed of reconveyance In cases of a trust deed, the deed given by the trustee to the trustor when the beneficiary has been fully paid. It returns the title to the trustor.

Deed of trust A legal document in which the borrower transfers the title to a third party (trustee) to hold as security for the lender. When the loan is paid in full, the trustee transfers title back to the borrower. If the borrower defaults on the loan the trustee will sell the property and pay the lender the mortgage debt.

Default If a homeowner defaults on their loan, it means they have not paid the sum they agreed to. Typically, a mortgage default means the homeowner hasn’t made a home loan payment in 90 days or more.

Deferred maintenance Neglected maintenance of a property that would be required to return the property up to a desired condition.

Delinquency A mortgage is considered delinquent when a scheduled payment is not made. If a payment is more than 30 days late, a lender might begin collection or foreclosure proceedings.

Deficiency judgment A judgment obtained by a foreclosing lien holder when the proceeds of the sale are insufficient to pay off the lien. They are difficult to obtain and in some states they are not possible.

Demise The transfer of a leasehold interest.

Demographic study A study of the economic and social makeup of a population area, frequently required as part of a feasibility study.

Deposit receipt A purchase agreement or offer to purchase.

Depreciation In accounting terms, depreciation describes the decrease of a property’s value over time, attributed in part to wear and tear. For tax purposes, depreciation is treated as an expense.

Depth table Appraiser's table showing the increased value of a parcel as it gets deeper. The back portion of a commercial lot is worth less than the front portion. directional growth Development of an area primarily in one direction.

Discount loan A loan in which the interest is taken out in advance. Discount points Also known as mortgage points. They’re fees homebuyers pay directly to the lender at the time of closing in exchange for reduced interest rates which can lower monthly mortgage payments.

Disintermediation Sudden withdrawal of savings from lenders. It results in a tight money market and occurs when greater interest rates are available elsewhere.

Distressed property A property becomes distressed when a homeowner defaults on their mortgage payments, is delinquent on paying property taxes, or is condemned due to disrepair.

Diversification The process of investing in different investments to reduce a portfolio’s overall risk.

Dividend yield A ratio of annual target cash distributions per share divided by the price per share. Alternatively, it is a ratio of the total cash distributions divided by the property purchase price.

Double close Also referred to as a back-to-back closing, a double closing will witness a wholesaler purchase a property and immediately resell it to an end buyer. A double close is different from an assignment of contract because the wholesaler takes legal possession of the property for a short amount of time.

Double escrow The use of one escrow to both buy and sell a property.

Down payment The amount of cash a homebuyer pays at the time of closing. Typical home loans require a 20% down payment. Some conforming loans will accept a 5% down payment, and FHA loans will accept a 3.5% down payment.

Down payment assistance Financial assistance provided by government agencies or private organizations to help first-time homebuyers.

Down-zoning The change in zoning to a more restrictive use.

Due diligence The due diligence period is a time frame allowing a buyer to fully examine a property. This is often done by hiring specific experts to inspect and perform tests. Buyers who may want to renegotiate the contract based on the results.

Due-on-sale clause Protects lenders against below-market interest rates. It's a contract provision requiring the seller of the property to repay the mortgage in full when the property is next sold. It is also called an acceleration clause.

Earnest money deposit (EMD) An earnest money deposit is typically made by the buyer when they enter into a contract with the seller. The deposit is meant to demonstrate the buyer’s earnestness in purchasing the home. The amount deposited is deducted from the total cost of purchase.

Easement A right of ingress and egress over the land of another.

Economic life The period of tune during which real property improvements contribute to the income of a property. Economic obsolescence A decline in value due to forces outside a property itself such as a neighborhood change.

Effective age The age placed on a property by an appraiser using the replacement cost approach to value. It is based on the condition of the property and can be greater or less than chronological age.

Effective gross income (EGI) The Effective Gross Income or EGI is the measure of the potential positive monthly cash flow a rental property can produce. It is the Potential Gross Rental Income (plus any other income) minus expenses and vacancy.

Eminent domain The process whereby a government body can take private property for public use. The owner receives fair market value at the time property is taken.

Encroachment encumbrance A trespass by the placing of an improvement on or over the property of another. Anything which affects title or use, such as a lien or an easement.

Encumbrance Any claim on a property, such as a lien, mortgage or easement. Environmental impact report Report required for projects which will have a significant effect on the environment

Equity The difference between the market value of a property and the liens against it. It is the owner's interest in the property.

Escalator clause A clause in a lease allowing payments to rise or fall.

Escape clause A clause which lets a party out of a lease or contract under specified conditions.

Escrow The neutral depository representing buyers and sellers in a transaction. The escrow managers handle the mechanics of real estate closings. In some states, closing of real estate transactions are handled by brokers or attorneys rather than escrows.

Escrow Account A financial account that is funded by a homeowner’s mortgage payments, used to pay for homeowners insurance and property taxes.

Estate for years A lease for a definite period of time. It does not automatically renew itself.

Eviction The legal act of removing someone from real property. Examination of title A title examination reviews all public records tied to a property. It generally reviews all previous deeds, wills, and trusts to ensure the title has passed cleanly and legally to every new owner.

Exclusive agency listing A listing in which a broker is the owner's exclusive agent and it entitled to a commission if the agent or any other party sells the property; however, the owner can sell without an agent and pay no commission.

Exclusive right-to-sell listing The traditional kind of listing agreement under which the property owner appoints a real estate broker (known as the listing broker) as exclusive agent to sell the property on the owner’s stated terms, and agrees to pay the listing broker a commission when the property is sold, regardless of whether the buyer is found by the broker, the owner or another broker.

Exculpatory clause A clause in a lease that excuses the lessor from liability should the lessee be injured because of the condition of the premises.

Executor A person named in a will and approved by a probate court to administer the deposition of an estate in accordance with the instructions of the will.

Exit Strategy How an investor plans to cash out on an investment property. This can include strategies such as renting out a buy-and-hold property or selling a rehabbed property.

Extended coverage policy Extends the basic fire insurance policy to cover additional hazards. Extension of a lease The continuation under an old lease as opposed to a lease renewal (new lease).

Fair market value A property’s fair market value is its accurate valuation in a free and open market under the condition that buyers and sellers are knowledgeable about the asset, acting in their best interests, and free of undue pressure to complete the transaction.

Fannie Mae Federal National Mortgage Association (FNMA); a federallychartered enterprise owned by private stockholders that purchases residential mortgages and converts them into securities for sale to investors; by purchasing mortgages, Fannie Mae supplies funds that lenders may loan to potential homebuyers.

Feasibility study An economic study made to determine whether a proposed use is practical.

Federal reserve system The federal agency which regulates the money supply, interest rates and reserve requirements of member banks.

Fee simple The highest degree and most common type of ownership It means that the owner’s property rights can be freely transferred or inherited at the owner’s discretion.

FHA mortgage Federal Housing Administration (FHA) loans have been around since 1934 and are meant to help first-time homebuyers. The FHA insures the loan, making it easier for lenders to offer the homebuyer a better deal, including a lower down payment (as low as 3.5% of the purchase price), low closing costs, and easier credit qualifying.

Filtering down The principle that housing tends to pass down to lower and lower economic groups.

Financing statement The notice filed by a lender for a personal property loan. It gives notice of the lien.

Firm commitment A loan commitment made for a particular property and a designated borrower, as opposed to a conditional commitment.

First mortgage A mortgage that is the primary lien against a property.

First-time home buyer A person with no ownership interest in a principal residence during the three-year period preceding the purchase of the security property.

Fixed expenses Expenses such as taxes and insurance that are fixed rather than variable.

Fixed-rate mortgage One of the most common types of loans. It comes with an interest rate that stays the same for the lifetime of the loan, and provides the borrower with more stability and predictability over the lifetime of their loan. While mortgage payments can fluctuate as property taxes and homeowner’s insurance change, many consumers prefer the fixed-rate mortgage for its long-term reliability.

Fixture An item, formerly personal property, that has been so affixed to real property as to be considered real property.

Flat Residential unit all on one floor.

Flat lease A level payment where the rental remains unchanged for the lease period.

Flipping The strategy of purchasing a property, making improvements to it, and then putting it back on the market for a profit.

Flood insurance Insurance that protects homeowners against losses from a flood; if a home is located in a flood plain, the lender will require flood insurance before approving a loan.

Floor space Interior square footage.

Foreclosure When a bank repossesses a property due to the owner’s inability to make mortgage payments. If they are unable to pay off outstanding debt on the property or sell it via short sale, the property enters a foreclosure auction. If no sale is made there, the lender takes control of the property.

Forfeiture The loss of money, property, rights, or privileges due to a breach of a legal obligation.

For rent by owner (FRBO) This is a property that is being rented directly by the owner, without the involvement of a real estate management company.

For sale by owner (FSBO) Homes listed as for sale by owner (FSBO) are being sold without the help of a real estate agent. The biggest benefit to the seller is they avoid paying commission fees, but there are few benefits to the buyer.

Freddie mac Federal Home Loan Mortgage Corporation (FHLM); a federally-chartered corporation that purchases residential mortgages, securitizes them, and sells them to investors; this provides lenders with funds for new homebuyers.

Fully amortized mortgage A mortgage in which the monthly payments are designed to retire the obligation at the end of the mortgage term.

Functional obsolescence Built-in obsolescence by design and construction

Gap loan A temporary loan, usually at high-interest, obtained by a borrower who intends to obtain better financing.

Gift letter A letter that a family member writes verifying that s/he has given you a certain amount of money as a gift and that you don’t have to repay it. You can use this money towards a portion of your down payment with some mortgages.

Ginnie mae Government National Mortgage Association (GNMA); a government-owned corporation overseen by the U.S. Department of Housing and Urban Development, Ginnie Mae pools FHA-insured and VA-guaranteed loans to back securities for private investment; as With Fannie Mae and Freddie Mac, the investment income provides funding that may then be lent to eligible borrowers by lenders.

Governmental loan A loan made by a lender with a government guarantee or insurance.

Graduated lease A lease providing for rent increases based on time or changing circumstances.

Graduated payment A loan in which payments are lower at first and increase as time goes on. It makes it easier for young people to purchase property.

Grant deed A deed used in some states, usually in conjunction with title insurance. The grantor warrants that he or she has not previously conveyed the property and that there is nothing detrimental the grantor knows of that has not been disclosed to the grantee. Granting clause Clause in a deed conveying title. Gross income Total income before any deduction.

Gross multiplier An appraisal method to get an approximate value. Gross income is multiplied times the multiplier number to determine value. (The multiplier varies by type of investment The number is the number of times the gross that investors are paying for that type of property.) This method does not take into account unusual expenses.

Gross rent multiplier (GRM) The ratio of the price of a rental property to its gross rental income before expenses. The GRM is a metric that helps to calculate how many years it would take an investment to pay for itself based on the gross rental income received.

Gross rental yield The total income generated by a property divided by the price paid for the property plus any associated costs. Gross Rental Yield = (Monthly rent x 12) ÷ (Purchase price + closing costs) Ground lease The lease of land without the improvements.

Ground rent That portion of the rent which is attributable to the land alone.

Hard money loan A method to borrow money for a property without utilizing traditional lenders. Hard money lenders finance the loan based on the property not your credit score.

Hard money loans typically require a down payment and a short repayment time frame.

Head lease A master lease whereby the lessee subleases portions of the premises. Hold harmless clause A clause in a lease whereby the lessee agrees to hold the lessor harmless for any loss suffered by the lessor because of the lessee's tenancy (example, the injury of a third party on the premises).

Holdover clause A clause in a lease providing for significantly higher rent should the tenant fail to vacate the premises at the end of the lease.

Home equity conversion mortgage The Home equity conversion mortgage (HECM) is an FHA reverse mortgage program enabling homeowners to withdraw equity on their home through either a fixed monthly payment, a line of credit, or a combination of the two. 

Home equity line of credit (HELOC) A Home equity line of credit (HELOC) provides a revolving credit line that can be helpful in paying for large expenses or consolidating higher-interest rate debt on loans, like credit cards (see “second mortgage”). 

Home inspection Carried out by an objective third party to establish the condition of a property during a real estate transaction. An inspector will report on such things as a home’s heating system, the stability of the foundation, and the condition of the roof. The inspection is meant to identify major issues that might affect the value of the home and the stability of your and your lender’s investment and return. 

Homeowner’s association (HOA) Found when you purchase a condominium, townhome, or other development property. To purchase the home, you must also join the HOA and pay monthly or yearly HOA fees. These fees can cover common area maintenance, repairs, and general upkeep. The more amenities your building offers, the higher the HOA fees typically are. 

Homeowner’s insurance When you purchase a home, it's also necessary to purchase homeowner’s insurance to cover any losses or damages you might incur, such as natural disaster, theft, or damage. It also protects the homeowner from liability against any accidents in the home or on the property. Insurance payments are usually included in your monthly mortgage payments. 

Home warranty A type of contract that covers the service, repair, or replacement of major household appliances and home systems, including electrical, plumbing, heating, and air conditioning. 

House hacking A way of generating rental income from your home, either through buying a multifamily property and renting out the units you don’t live in or renting out bedrooms, garages, attics, etc., in a house you already own.

Housing market recession A state of economic downturn in the real estate and housing market, which typically occurs when home prices drop for an extended period. 

HUD The U.S. Department of Housing and Urban Development; established in 1965, HUD works to create a decent home and suitable living environment for all Americans; it does this by addressing housing needs, improving and developing American communities, and enforcing fair housing laws.

HUD1 statement Also known as the “settlement sheet,” it itemizes all closing costs; must be given to the borrower at or before closing.

HVAC Heating, Ventilation and Air Conditioning; a home’s heating and cooling system. Hybrid loan An adjustable-rate mortgage (ARM) that offers a fixed rate for an initial period, typically three to ten years, and then adjusts every six months, annually, or at another specified period, for the remainder of the term.

Illiquid assets Assets not readily convertible to cash such as land. Impound account A reserve for taxes and insurance kept by the lender. The borrower pays one-twelfth of the estimated taxes and insurance with each monthly payment.

Income-producing assets Also referred to as “income property.” Real estate investments that create passive income for the property owner.

Incurable depreciation Depreciation for which the cost of correction is prohibitive. Independent living Designed for seniors who require little or no assistance. These properties often cater to residents who are 55+ with a variety of on-site amenities and social programming for active seniors.

Index lease A lease in which increases are tied to an index such as the Consumer Price Index.

Index method A method to determine replacement cost by taking the original cost to build and applying the increase in the construction cost index since actual construction.

Individual retirement account (IRA) A retirement account designed to encourage people to save for retirement.

Inflation Simply the rate at which the price of goods and services rises over a period of time. As inflation increases, if your money is in cash or an asset that doesn’t increase with the inflation rate, your purchasing power decreases. Real estate investments are a great way to protect against inflation.

Inquiry A request for a copy of your credit report by a lender or other business, often when you fill out a credit application and/or request more credit. Too many inquiries on a credit report can hurt your credit score; however, most credit scores are not affected by multiple inquiries from auto or mortgage lenders within a short period of time.

Inspection An examination through which the condition of a property is determined. Inspections can help interested buyers estimate the costs of making repairs and renovations.

Inspection contingency An inspection contingency is a clause put in the agreement to allow the buyer to have the home inspected and negotiate costs or terminate the agreement with the seller based on the results of the inspection.

Installment The regular periodic payment that a borrower agrees to make to a lender.

Installment debt A loan that is repaid in accordance with a schedule of payments for a specified term (such as an automobile loan).

Interest The cost of borrowing money over time, and is ultimately the responsibility of the lender to set. A monthly mortgage is typically composed of interest and principal payments on a loan.

Interest rate The amount of interest charged on a monthly loan payment; usually expressed as a percentage.

Interest rate ceiling For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.

Interest rate floor For an adjustable rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.

Internal rate of return This is the best measure of a property’s performance, used to measure an asset’s long-term profitability. It is defined as the point where the net value of the expenses equals the gross rental income.

Joint tenancy An undivided interest shared by more than one tenant with the right of survivorship. Upon death of a joint tenant, his or her interests immediately go to the surviving joint tenants.

Joint venture (JV) A partnership for a particular undertaking.

Judgment A legal decision; when requiring debt repayment, a judgment may include a property lien that secures the creditor’s claim by providing a collateral source.

Judicial foreclosure Mandatory in some but not all states. They require all foreclosures go through the court system to confirm the debt is in default before putting the property up for auction. The goal of judicial foreclosures is to protect property owners from corrupt lenders. 

Jumbo loan Conforming loan limits cap the dollar value that can be backed by government-sponsored programs. A jumbo mortgage exceeds these conforming loan limits, which are tied to local median home values. Qualifications for these loans are more stringent and the loans themselves are manually underwritten to mitigate risk to the lender.

Junior lien A subordinate lien. The priority of liens is determined by time of recording. Land contract A financing agreement whereby the seller finances the buyer. The seller keeps legal title and the buyer is given possession. The buyer does not get a deed until the property is paid for.

Land lease When you pay rent to the landowner for the land even while owning the home. Lease A tenancy agreement.

Lease purchase option Also see “rent-to-own.” It gives the lessee the ability to lease property with the option to buy. It includes a legal agreement with a monthly rental amount due, while also including an option to buy the property for a predetermined price at any time during the length of the agreement. 

Leasehold interest The interests of a tenant under a lease. 

Lender Refers to the individual, financial institution, or private group lending money to a buyer to purchase property with the expectation the loan will be repaid with interest, in agreed upon increments, by a certain date.

Leverage Use of other people's money to make money, for example, by purchasing property with a low down payment. 

Lien A property lien is unpaid debt on a piece of property. It's a legal notice and denotes legal action taken by a lender to recover the debt they are owed. It can come from unpaid taxes, a court judgement, or unpaid bills and can slow down the homebuying process when unattended.

Life cap Refers to the maximum amount an interest rate on an adjustable rate loan can increase over the lifetime of the loan. A life cap is also known as an absolute interest rate or interest rate ceiling and keeps interest rates from ballooning too high over the term of the loan.

Life estate A life interest which cannot be willed or encumbered beyond the life of the life tenant

Like for like A trade of property held for business or investment purposes. It allows a tax-free exchange. 

Limited partner An inactive partner who contributes money only and whose liability does not extend beyond his or her investment. 

Liquidated damages Damages agreed on in advance in the event a contract is breached. Purchase agreements often call for the forfeiture of the earnest money deposit as liquidated damages should the buyer default.

Listing The agency agreement whereby a broker agrees to attempt to find a buyer, and the owner agrees to pay a commission should the broker be successful. 

Livable floor space Interior space measurement of each room, excluding walls and closets. 

Loan Money borrowed that is usually repaid with interest. Loan fraud Purposely giving incorrect information on a loan application in order to better qualify for a loan; may result in civil liability or criminal penalties.

Loan officer Also known as “mortgage loan officers,” assist the homebuyer with purchasing or refinancing a home. Loan officers are often employed by larger financial institutions and help borrowers choose the right type of loan, compile their loan application, and communicate with appraisers.

Loan origination The process during which a borrower submits a loan application and a financial institution or lender processes that application. There is usually an origination fee associated with this process.

Loan servicing The administrative aspects of maintaining your loan, from the dispersal of the loan to the time it’s paid in full. Loan servicing includes sending the borrower monthly statements, maintaining payment and balance records, and paying taxes and insurance. Servicing is usually carried out by the lender of the loan, typically a bank or financial institution.

Loan-to-value ratio (LTV) A ratio utilized by lenders to measure the amount of the loan relative to the value of a property. Lenders often show preference to properties with lower LTVs ratios by offering lower interest rates. Buyers can lower the ratio by making a larger down payment.

Lock-in clause A clause which, while allowing prepayment, requires that interest be paid as if the loan had gone to maturity.

Lock-in period The period of time in which a borrower cannot repay their loan in full without incurring a penalty fine by the lender.

Long-Term Rental A type of rental property where the tenant signs a lease for a longer-term period, typically a year. Loss mitigation A process to avoid foreclosure; the lender tries to help a borrower who has been unable to make loan payments and is in danger of defaulting on his or her loan.

Management Fee An operating expense paid to the operator to cover costs of managing the property operations, like annual accounting, audit, and tax filings.

Manufactured housing Homes that are built entirely in a factory in accordance with a federal building code administered by the U.S. Department of Housing and Urban Development (HUD). Manufactured homes may be singleor multi-section and are transported from the factory to a site and installed. Homes that are permanently affixed to a foundation often may be classified as real property under applicable state law, and may be financed with a mortgage. Homes that are not permanently affixed to a foundation generally are classified as personal property, and are financed with a retail installment sales agreement.

Margin of security The lender's security, which is the difference between the mortgage and the property value. Market comparison Appraisal method whereby value is determined by recent sales prices of similar property.

Market price Price actually paid. Market value The price a willing buyer would pay to a willing seller.

Marketable title A title clear of objectionable liens and encumbrances and therefore acceptable to a buyer.

Maturity date The date on which a mortgage loan is scheduled to be paid in full, as stated in the note.

Memory care The long-term care facilities are designed for people with a level of mental impairment, such as dementia, that makes it unsafe for them to continue to stay at home but who do not require the intensive care of a skilled nursing facility.

Mixed-use building A mixed-use building is a property that’s been zoned for both personal and commercial purposes, such as a family home where the ground floor is a convenience store.

Mortgage The agreement between a borrower and a lender giving the lender the right to the borrower’s property if the borrower is unable to make loan payments (with interest) within an agreed upon timeline. Mortgage banker Also called “mortgage lender.” Works directly with a lending institution to provide mortgage funds to a borrower. They can only obtain funds from a specific institution and are responsible for each part of the mortgage process, including property evaluation, financial due diligence, and overseeing the application process.

Mortgage broker Shops several lenders, acting as a middle man between lending institutions and the borrower. A broker can compare mortgages from several different institutions, giving the borrower a better deal.

Mortgagee The institution or individual to whom a mortgage is given.

Mortgage guarantee insurance Private mortgage insurance (PMI) guaranteeing the lender against loss by buyer's default.

Mortgage loan correspondent Individual or firm that arranges the sale of existing mortgages in the secondary mortgage market.

Mortgage Modification A loss mitigation option that allows a borrower to refinance and/or extend the term of the mortgage loan and thus reduce the monthly payments.

Mortgage note The note reflecting the mortgage debt. The mortgage is security for the note. Mortgagor The owner of real estate who pledges property as security for the repayment of a debt; the borrower.

Mortgage pay off Mortgage warehousing Interim financing whereby lender or loan correspondent borrows on an inventory of mortgages.

Mortgagee The lender or the seller of a property who receives the mortgage.

Mortgagor The owner or buyer of a property who gives the mortgage.

Motivated sellers Investors are attracted to homeowners who are motivated to sell, as it presents the opportunity for negotiating a favorable purchase price. Homeowners might become motivated to sell if they are pressed for time, are nearing foreclosure, or own property out of state.

Multi-family home A multi-family home is a type of residential property, such as an apartment complex, condominium, or a duplex, that has more than one residential unit.

Multiple listing service (MLS) A suite of around 700 regional databases containing their own listings. Each database has its own listings, requires agents to pay dues for access, and allows agents to share listings across regions - without paying dues to each one. It is widely considered the most comprehensive listing service available.

Narratives report A comprehensive and complete appraisal. National association of realtors (NAR) is the largest trade union in American with about 1.4 million members working in all fields of the residential and commercial real estate industries. There are around 1,200 local associations/boards, and 54 state and territory associations of REALTORS®

Negative amortization Amortization refers to the process of paying off a loan with regular payments so the amount you owe on the loan gradually decreases. Negative amortization happens when the amount you owe continues to rise, regardless of regular payments, because you’re not paying enough to cover the interest.

Negative cash flow An investment situation in which the income is not sufficient to make the necessary cash outlays.

Net asset value The value of a fund’s assets minus the value of its liabilities.

Net cash flow This is the Target Cash Flow that will be available to distribute to investors through dividend payments. Net Cash Flow = Rent Payments – Operating Expenses.

Net listing A listing where the broker receives as commission everything over a net sales price.

Net-net lease Lease by which tenant pays all expenses except taxes and insurance.

Net-net-net lease Lease by which tenant pays all expenses including taxes and insurance, also called a triple net lease or simply a net lease.

Net operating income (NOI) Net Operating Income (NOI) is the gross profit of a rental property. It’s calculated as gross rents – all expenses other than interest. Net profit Also called “net income.” Your take-home pay after taxes. It is the amount of money that you actually receive in your paycheck.

Net spendable Same a cashflow. Actual cash left from income after all cash expenses.

Net worth The total difference between a person's assets and liabilities.

Net Yield The net yield is the annual profit (income minus costs) generated by any asset divided by its price. In real estate terms, the net yield provides an assessment of the return that you’ll get from a property after all expenses have been deducted.

No cash-out refinance A type of loan used to improve the rate the borrower pays on the loan. It might also shorten the lifetime of a loan to benefit the borrower. In a no cash-out refinance, the borrower refinances an existing mortgage for equal to or less than the outstanding loan balance. The goal is to lower interest rates on the loan or change certain terms of the mortgage.

No-cost mortgage A type of refinancing in which the lender pays the borrower’s loan settlement costs and extends a new loan, usually in exchange for the borrower paying higher interest rates. The mortgage lender then sells the mortgage to a secondary mortgage market for a higher price because of the high interest rate.

Non-institutional Lender Lenders others than banks, savings and loan institutions and insurance companies. Examples would be pension funds and private lenders.

Non-liquid asset An asset that cannot easily be converted into cash.

Nursing homes Properties are generally licensed and provide 24-hour skilled care for chronic and short-term conditions that require medical and nursing care.

Obligatory advance Loan advances made under a construction loan by a lender as work progresses.

Observed condition method Determining the effective age of a structure by its condition.

Obsolescence The loss in value of a structure because of design (functional obsolescence) or forces outside the property itself (economic obsolescence).

Occupancy Rate The ratio of space rented out or used to the total amount of available space.

Offer An offer is the initial purchase price point submitted by a buyer to a seller. The seller then has the choice to accept, reject, or make a counter to the offer.

One hundred percent location An idiom for the best commercial location in a community.

Open-end loan A loan which can be increased up to an agreed-upon limit.

Open listings option A nonexclusive right to sell. The broker earns a commission only if he or she is successful.

Open house When the seller’s real estate agent opens the seller’s house to the public. You don’t need a real estate agent to attend an open house.

Operating expenses Operating Expenses include all of the anticipated costs for operating the rental property. Some expenses include Insurance, Property Tax, Vacancy, Maintenance, and Property Management.

Opportunity zone: The IRS defines a qualified opportunity zone (QOZ) as “an economically distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment.”

Option Optionee A right given by an optionor to an optionee whereby the optionee can buy or lease the property of the optionor. To be valid, the optionee must have actually given consideration to the optionor.

Optionor The party who has the right to exercise an option. The owner who has given an option.

Orientation The placement of a building on a lot with special regard for view or other environmental factors. For example, a builder might place a house on a lot so that the morning sun lights up the kitchen.

Origination The process of preparing, submitting, and evaluating a loan application; generally includes a credit check, verification of employment, and a property appraisal.

Origination fee A fee paid to a lender by a borrower for the privilege of obtaining the loan.

Over improvement An improvement costing more than the income or increase in value will justify.

Owner financing Also known as “seller financing.” Takes place when a borrower finances the purchase of a home through the seller, bypassing conventional mortgage lenders and financial institutions.

Packaged loan A loan that covers personal property as well as real property, such as a loan covering a motel building as well as the furniture.

Paper Promissory notes given by the purchaser to sellers or lenders to finance a purchase. The term is generally used to include mortgages, trust deeds and notes.

Partial claim A loss mitigation option offered by the FHA that allows a borrower, with help from a lender, to get an interest-free loan from HUD to bring their mortgage payments up to date.

Participation loan A loan agreement in which the lender takes an equity position (usually as a limited partner) in addition to the loan interest

Party wall A common wall on a property line maintained by both owners.

Pass-through taxation The process in which a company that does not pay a corporate income tax passes all of its earnings to its owners. The owners then pay taxes on the company income. This is also called single taxation.

Payback period The period of time it will take for the income from an investment to return the down payment to the investor.

Pending A sales is considered “pending” if all contingencies have been met and the buyer and seller are moving toward closing. At this point, it’s unlikely the sale will fall through, and the buyer or seller risk losing the earnest money if they walk out on the deal at this point.

Percentage lease A lease in which rent is a percentage of gross income. Percolation The ability of soil to absorb water, important for septic systems.

Per Diem Also known as “Per day” fees are charged if a loan isn’t approved by the date the loan was scheduled to be completed. These charges are payable to the lender during closing.

Periodic tenancy A tenancy from period to period, automatically renewing itself unless a notice is given. An example is a month-to-month lease.

Personal guarantee Pledges the private assets of an individual borrower to secure a mortgage. This unsecured written promise is not tied to a specific asset, such as a house, so any part of the borrower's assets can be used to repay the debt.

Personal property Property other than real property, usually regarded as movable.

Physical deterioration Depreciation caused by age and the wear and tear of use.

Pitch The slope of a roof. Generally, the greater the pitch, the longer the life of the roof.

PITI Stands for principal, interest, taxes, and insurance, and refers to the sum of each of these charges, typically quoted on a monthly basis. These costs are calculated and compared to the borrower’s monthly gross income when approving a mortgage loan. A borrowers PITI should generally be less than or equal to 28% of their gross monthly income.

Planned unit development A planned unit development (PUD) is a housing community made up of single family residences, townhomes, and condominiums, as well as commercial units. PUDs offer many common areas owned by the HOA and amenities beyond what normal apartment buildings or townhomes offer, including tennis courts and outdoor playgrounds.

Pledge The giving possession of personal property as security for a loan. See also “personal guarantee.”

Plot A map of a subdivision showing individual lots and streets. Plot plan The map of a lot showing the placement of a structure.

Plottage increment The increase in value when a number of small parcels are brought together to form a larger parcel.

Points A fee charged by a lender to give a loan. The points make up for a below-market interest rate. Each point is 1 percent of the loan amount. Lenders consider eight points paid in advance to be equivalent to an additional 1 percent in the interest rate.

Portfolio A variety of investments and assets.

Power of attorney A legal document that authorizes another person to act on one’s behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.

Pre-approval letter Before submitting an offer on a home (or even engaging with a real estate agent) you’ll likely be required to get preapproval. This means a lender has checked your credit, verified your information, and approved you for up to a specific loan amount for a period of up to 90 days.

Predatory lending Abusive lending practices that include making mortgage loans to people who do not have the income to repay them or repeatedly refinancing loans, charging high points and fees each time and “packing” credit insurance onto a loan.

Prepayment penalty A penalty charged by a lender for paying a loan in advance.

Prescription Obtaining an easement over property by open, notorious and hostile use for a period of time prescribed by statute.

Pre-foreclosure sale Allows a defaulting borrower to sell the mortgaged property to satisfy the loan and avoid foreclosure.

Premium An amount paid on a regular schedule by a policyholder that maintains insurance coverage.

Prepayment Payment of the mortgage loan before the scheduled due date; may be Subject to a prepayment penalty.

Pre-qualification Unlike pre-approval, pre-qualification is more of an estimate of how much you can afford to spend on a home.

Primary financing First mortgages.

Primary mortgage market The actual granting of a loan directly by the lender to the borrower.

Prime interest rate Typically awarded to a U.S. bank’s best customers. It’s the best-available loan rate and is usually three points above the federal funds rate: the rate banks charge each other for overnight loans.

Principal The amount of money owed on a loan. As you make monthly mortgage payments, your principal goes down. The amount of interest you pay on a monthly loan will affect how much of your monthly mortgage payment goes to paying down the principal. A high interest rate means you’ll pay less on the principal, meaning you’ll pay more on your loan over time.

Principal reduction A principal reduction is a decrease in the amount owed on a mortgage. It’s an alternative to a home foreclosure, sometimes offered by lenders as financial relief to homeowners who can no longer afford their mortgage.

Principle of change The idea that values do not remain constant.

Principle of competition When extraordinary profits are being made in an area of investment, competition will enter the market and profits will drop.

Principle of conformity A property will achieve its maximum value in a homogeneous area of like property.

Principle of dependency The value of a parcel will be affected by changes in the use of surrounding property.

Principle of diminishing returns As demand is met; new units will result in reduced profit.

Principle of integration & disintegration Property goes through three stages: integration, equilibrium and disintegration (growth, stability and decline).

Principle of substitution A buyer will not pay more for a property than the price of a property having equal desirability.

Principle of supply & demand An increase in supply without an increase in demand will lower prices, while an increase in demand without a supply increase will raise prices.

Private money loan Borrowing money from an individual investor. Real estate investors use private lenders to finance deals that either won’t qualify for a traditional loan or can’t wait the usual 30 days or so that a conventional mortgage loan needs for approval.

Private mortgage insurance When a buyer makes a down payment of less than twenty percent on a home, they are typically required to pay a private mortgage insurance (PMI) fee. PMI is typically assessed as a percentage of the mortgage loan, and can be satisfied once the homeowner reaches twenty percent equity.

Probate sale A probate sale is the death of a homeowner occurs before writing a will or giving the property to someone. Consequently, the probate court authorizes an estate attorney or representative to hire a real estate agent to sell the home. Projected annual appreciation This is a projection of the potential increase in value for the property typically based on 3rd party valuation tools.

Profit & loss statement Operational statement showing income and expenses during a period of time.

Pro-forma statement An estimate of operating costs and revenue based on anticipated returns and expenses. It is used when there is no actual experience or when use is to be changed.

Progression An increase in value because a property is in a neighborhood of more expensive property.

Progressive tax Income tax whereby tax rates increase as income increases. Promissory note A written promise to repay a specified amount over a specified period of time. See also “note.”

Proof of funds A statement from a financial institution verifying that the buyer has enough funds available to proceed with a purchase offer.

Property management Individuals or entities that oversee the operations of a rental property. Activities include screening and selecting tenants, collecting rents and deposits, handling maintenance issues, and even responding to tenant disputes or complaints.

Property taxes Taxes based on the value of the home that are paid monthly by the homeowner, as part of a mortgage payment.

Prorate To apportion costs at closing based on benefits received or to be received.

Psychic income The value of the feeling of pride in ownership. Puffing A statement of opinion made by a seller. It is not a warranty.

Purchase and sale agreement A buyer’s intent to purchase a piece of property and a seller’s intent to sell that property. The document outlines the terms and conditions of a sale and holds each party legally accountable to meeting their agreement. Purchase leaseback Sale of real property by an owner to obtain capital with either, a lease or purchase agreement from the lender.

Purchase money The mortgage given by the seller to finance the buyer.

Purchase-money mortgage Also known as owner or seller financing, is issued to the buyer by the seller of a home during the purchase transaction. It is done to bypass a typical mortgage broker or lending channel and allows the buyer to assume the seller’s mortgage.

Purchase saleback Sale of real property by an owner to obtain capital with either, a lease or purchase agreement from the lender.

Qualified business income (QBI) The IRS defines this as “the net amount of qualified items of income, gain, deduction, and loss from any qualified trade or business, including income from partnerships, S corporations, sole proprietorships, and certain trusts.”

Quantity survey A method of determining replacement cost in which each element of construction is separately priced.

Quiet Title Quitclaim deed A deed giving all interests a person has in a property. If the grantor has good title, good title is conveyed; if the grantor does not have good title, then good title is not conveyed.

Radon A radioactive gas found in some homes that, if occurring in strong enough concentrations, can cause health problems.

Rate lock Allows borrowers to lock in an advantageous interest rate before a real estate transaction closes. A rate lock allows the borrower to lock in that interest rate for a specific period of time protecting them from market fluctuations.

Real estate agent Licensed to negotiate and coordinate the buying and selling of real estate transactions. Most real estate agents must work for a realtor or broker with additional training and certification.

Real estate investment trust (REIT) Unincorporated group of 100 or more investors with limited liability under federal law. The investment trust is taxed on retained earnings only.

Real estate owned (REO) Refers to property owned by a bank, government agency, or other lender. Homes typically become real estate owned after an unsuccessful foreclosure auction or short sale.

Real property Land and that which goes with the land. REALTOR A real estate agent or broker who is a member of the NATIONAL ASSOCIATION OF REALTORS (NAR), and its local and state associations. Recapture rate The rate at which invested principal is returned.

Recession A period of economic activity decline that occurs when the gross domestic product (GDP) falls for two consecutive quarters or more.

Recorder The public official who keeps records of transactions that affect real property in the area. Sometimes known as a “Registrar of Deeds” or “County Clerk.”

Recording Filing a document for public record. Recording gives the public notice of an interest or transfer. Redlining Practice of lenders of refusing to lend within designated (redlined) areas. This practice is illegal in some states.

Refinance Replaces an existing loan with a new one. Debt is not eliminated when a borrower refinances. Instead, it typically offers better terms, including a lower interest rate, lower monthly mortgage payments, or a faster loan term.

Reformation A court action to correct a mistake in a deed. Regression A loss in value when a property is in an area of properties of lesser value. Rehabilitation Repairing a property without design change.

Rehabilitation mortgage A mortgage that covers the costs of rehabilitating (repairing or Improving) a property; some rehabilitation mortgages – like the FHA’s 203(k) – allow a borrower to roll the costs of rehabilitation and home purchase into one mortgage loan.

Release clause A clause in a blanket mortgage allowing a property to be released from the mortgage upon the payment of a stated amount.

Remainder depreciation The depreciation an owner has yet to take.

Remodeling The changing of a structure (interior or exterior).

Remote Investing A type of real investment in which investors buy properties outside of their immediate geographical area. These properties are often managed by a property management company. Renewal of a lease Replacing an old lease with a new one. (An extension continues an old lease). Rental income Income generated from leasing out a property to tenants who pay to live in it for the term of the lease.

Rent to own (RTO) Rent to own is a combination of a rental and purchase agreement. With an RTO, the tenant’s monthly payment to the landlord is divided up in a way that part of it goes towards the monthly rent and the remainder towards the purchase price of the house as set out in the agreement. See also “lease oprion.”

Replacement cost Cost to build a substitute structure having the same utility value.

Rescission The cancellation or annulment of a transaction or contract by operation of law or by mutual consent. Borrowers have a right to cancel certain mortgage refinance and home equity transactions within three business days after closing, or for up to three years in certain instances.

RESPA Real Estate Settlement Procedures Act; a law protecting consumers from abuses during the residential real estate purchase and loan process by requiring lenders to disclose all settlement costs, practices, and relationships.

Restoration Returning a structure to its original condition.

Retail investors Individuals or small investors who invest in property for their personal accounts as opposed to institutional investors, who generally invest significantly larger amounts on behalf of institutions, for instance, fund managers or private equity firms. See also “private money loan.”

Return on investment (ROI) the measurement of the net profit of an investment property, relative to its total cost. A high ROI indicates favorable yields for the investor. Reverse mortgage A mortgage whereby the mortgagor receives a monthly amount like an annuity from the mortgagee. The loan is not repaid until the mortgagor's death or until the property is sold.

Revolving debt Credit that is extended by a creditor under a plan in which (1) the creditor contemplates repeated transactions; (2) the creditor may impose a finance charge from time to time on an outstanding unpaid balance; and (3) the amount of credit that may be extended to the consumer during the term of the plan is generally made available to the extent that any outstanding balance is repaid.

Rezoning An actual change in the zoning.

Right of first refusal If a third party buyer offers to buy or lease a property owner's asset, the right of first refusal ensures the property holder is allowed a chance to buy or lease the asset under the same terms offered by the third party before the property owner accepts the third-party offer.

Right of ingress or egress The right of egress is a person’s legal right to exit a property. The right of ingress is the right to enter a property. It is generally used in rental or easement situations in which the tenant or person to which easement has been granted needs access to a shared driveway, a private road to the property, etc.

Right of survivorship Used most often when there is joint ownership or tenancy of a property. It ensures that the surviving owner automatically receives the deceased owner’s share of the property becoming the sole owner of the property.

Rollover mortgage A short-term mortgage amortized over a long period but due in only a few years. When due, it is rewritten at the then current interest rate.

Roth IRA A retirement account used as a savings option for retirement, particularly by people who expect to be in higher tax brackets during their later years.

Sale-leaseback Occurs when a buyer closes on a home and then leases back tenancy to the seller. This usually occurs when the seller needs more time to vacate the home, in which case, the buyer becomes a sort of landlord and receives payment from the seller for every day they remain in the home.

Salvage value Estimated scrap value of an improvement after it has exceeded its economic life. The salvage value is deducted from the cost of the structure prior to depreciating it, so when fully depreciated, the salvage value will be left.

SAM Sharing appreciation mortgage. Mortgage in which the mortgagee reduces the interest rate for an agreement to share in the profit when the property is sold.

Satisfaction of mortgage Statement given by the mortgagee to the mortgagor when the mortgage has been paid in full. When the statement is recorded, the lien is removed.

Seasoned loan A loan with a payment history. A seasoned loan is desirable on the secondary mortgage market.

Second mortgage When a property owner borrows against the value of their home. They are also commonly referred to as HELOCs and draw on the market value of the home to provide the borrower with funds to use however they wish. They are granted in a lump sum or a line of credit that can be paid back using rate choices that help plan payments. Secondary financing Junior or second mortgages.

Secondary mortgage market The buying and selling of existing loans. Section A parcel of land one mile square containing 640 acres.

Section 8 A federal government housing program that allows lowincome families and disabled and elderly individuals to rent housing in the private market based on eligibility criteria such as income and family size.

Secured loan Backed by the borrower's assets, including cars, a second home, or other large items that can be used as payment to a lender if the borrower is unable to pay back the loan.

Security interest A lender's interest in property that secures a loan.

Self-directed IRA (SDIRA) A Self-Directed IRA or retirement account is similar to a traditional IRA with one key difference: in addition to stocks and bonds, an SDIRA can also be used to invest in the real estate industry. Any returns from this type of investment are tax-deferred and must be deposited back into the IRA.

Self storage Self-storage is a segment of the real estate market that has continued to evolve in the past decade. The traditional rural and suburban properties with gravel driveways and roll-up metal doors are being replaced with modern facilities and sophisticated operators.

Seller-carry-back Financing in which the seller acts as a bank or financial institution financing some or all of the transaction. The buyer will sign a promissory note agreeing to pay a specific amount to the seller, and the seller transfers the title to the new owner. If the buyer is unable to make their monthly payments at any time, the seller can legally foreclose and take back the property.

Seller concessions Closing costs that the seller has agreed to pay.

Seller’s market A market where there are few sellers and many buyers. Prices tend to rise in such a market.

Senior housing Senior housing properties aim to provide both housing and services to seniors and are generally split up into categories based on the level of care provided. (see also “independent living,” “assisted living,” nursing homes,” memory care”)

Series LLC Refers to the specific offering that is being put up for sale and that owns the property. Each property is purchased and placed in an LLC for liability and tax purposes.

Servicer A mortgage servicer manages the daily administrative work around a loan, including processing loan payments, responding to borrower inquiries, and tracking principal and interest paid.

Setback The distance a structure must be placed from a property line. Settlement See also “closing.”

Short sale When a homeowner’s outstanding mortgage exceeds the home’s current value, they can obtain approval from their lender to list the property at a lower price. This type of sale is referred to as a short sale.

Short-term rental Also known as a vacation rental, this is a type of property that is leased out for very short periods of time, typically through marketplaces such as Airbnb. Often used by vacationers, the properties are furnished with listed amenities.

Single-family home (SFH) A type of rental property that is designed for just 1 family to live in. This can be a typical house or townhouse. Duplexes and apartment buildings are considered to be “multi-family” housing because the property can house multiple families.

Sinking fund A fund whereby an amount is set aside each year so that the sum plus the interest it earns will be sufficient to replace an asset.

Special assessment A tax assessment for improvements such as streets or sewers. Special forbearance A loss mitigation option where the lender arranges a revised repayment plan for the borrower that may include a temporary reduction or suspension of monthly loan payments. Split-rate interest A loan in which one interest rate is charged for the land and another rate for the improvements.

Spot zoning Small areas of zoning change that do not fit the general use in the area. Square footage Exterior dimensions of a structure. A garage is excluded.

Squatter One who unilaterally decides to occupy a structure or a parcel of land without the owner’s permission or an unauthorized occupant.

Squatters’ rights Laws that allow a squatter to use or inhabit another person’s property. Stagflation A period of time when the economy shows inflation but no economic growth.

Step lease A lease with graduated increases. See graduated lease. Stock cooperative A cooperative in which each owner owns stock in the corporation and has the right to occupy one unit.

Straight-line depreciation A method of depreciation in which an equal amount is deducted each year as depreciation over the life of the asset.

Straight loan A loan in which interest only is paid and the entire principal must be repaid on the due date.

Subdivision A land division in accordance with state subdivision laws.

Subject to Buying real estate without agreeing to pay the existing mortgage. When a buyer takes subject to a mortgage, he or she is not personally liable, but must make the payments if he or she wishes to retain the property.

Subjective value The use value of a property to the owner.

Sublease A lease between an original lessee (sublessor) and a sublessee. The sublessee is the tenant of the sublessor and not of the owner (original lessor).

Subordination An agreement in which an owner agrees that his or her lien shall be secondary to another mortgage that is to be given.

Surrender possession The agreement between a lessor and lessee whereby the lessee returns of the premises to the lessor and the obligations of the parties are terminated.

Survey A property diagram that indicates legal boundaries, easements, encroachments, rights of way, improvement locations, etc.

Sweat equity Equity in a property based on owner's actual labor on the property.

Swing loan A short-term loan usually made when a borrower has purchased a new home but has not yet sold his or her old home.

Syndicate A group of investors who pool their capital to buy or build property. Take-out loan The permanent financing that replaces the construction loan.

Tax deed sale A legal document that grants ownership of a property to the government when taxes on the property are unpaid for a certain period of time.

Tax lien A legal claim against your property when you don’t pay your taxes to the government.

Tax shelter A means of sheltering regular income from income taxes through depreciation.

Tenancy at sufferance A tenant holding over at the end of a lease without permission. The tenant is generally regarded as a trespasser and action can be started to eject the tenant.

Tenancy by the entirety A form of joint tenancy for husband and wife in some states. Neither spouse can separately convey the property.

Tenancy in common An undivided ownership by two or more joint owner. Upon the death of any owner his or her interest passes to the heirs.

Tenant screening The process of interviewing and vetting candidates for a rental unit in order to find the best possible tenant. Screening activities include running background and credit checks, as well as calling references.

Termination statement A statement filed to remove a personal property lien.

Thin market A market with very few buyers and sellers. Three-day notice A notice given in many states to a tenant to quit or pay rent (some states it may be 7 days). Time is of the essence A statement in an offer or option that acceptance must be made by a stated date or the right terminates. Time-share ownership A joint ownership whereby various owners own block of time for which they have exclusive possession of the same property.

Title A home’s title represents the rights to the property. Those rights are transferred from the seller to the buyer during a real estate transaction and give the buyer legal rights to the property upon closing.

Title insurance Typically required as a part of the closing process, title insurance protects buyers in case there are any outstanding liens on a property.

Title search A check of public records to be sure that the seller is the recognized owner of the real estate and that there are no unsettled liens or other claims against the property.

Total return An annualized return for equity investments that includes cash distributions, appreciation, financing percent, and overall expenses.

Townhouse Usually a two-story residential unit with side walls common with other units. Township An area six miles square containing thirty-six square miles. It is formed by government survey.

Trade fixture Personal property installed by a tenant. Regardless of method of attachment, the tenant can remove the trade fixture prior to the end of the lease. The tenant must, however, repair damage caused by the removal.

Trading on equity Borrowing money on equity in a property to invest in another property so that a greater return will be realized.

Transfer of ownership Refers to transfer of a property’s deed and title from the seller to the buyer at closing.

Transfer tax A transaction fee charged upon the transfer of a property’s title. It is imposed by the state, county, and municipal authority where the transaction is taking place and is based on the property’s value and classification. Typically, the seller is responsible for paying real estate transfer tax, unless otherwise agreed upon during the transaction.

Treasury index The treasury index is published by the Federal Reserve Board and based on the average yield of Treasury securities. Financial institutions often use this index as the basis for mortgage notes.

Trust deed A financing agreement for real property in which the borrower (trustor) gives a note to a lender (beneficiary) and the title (trust deed) to a trustee to hold as security.

Truth-in-lending A federal law obligating a lender to give full written disclosure of all fees, terms, and conditions associated with the loan initial period and then adjusts to another rate that lasts for the term of the loan.

Trustee The third party to a trust deed who holds the trust deed.

Trustor The buyer or borrower under a trust deed.

Turnkey investing A real estate investor who wishes to acquire incomeproducing property yet does not wish to make any repairs or renovations to a property may turn to turnkey investing. Turnkey describes a property that has already been repaired and updated to current market standards.

Under contract When a seller has accepted an offer from a buyer but the transaction has not yet closed. See also “active under contract.”

Underwriting The process of analyzing a loan application to determine the amount of risk involved in making the loan; it includes a review of the potential borrower’s credit history and a judgment of the property value.

Unit-in-place method A method to determine replacement costs based on units such as a price per motel room or per electrical outlet. Unlawful detainer The actual court eviction proceeding.

USDA home loan A loan offered by the United States Department of Agriculture (USDA) that helps low and moderate-income households purchase homes in eligible rural areas.

Vacancy provision Money that’s put aside by an investor to cover expenses in the event that a rental property sits vacant for a period of time.

Vacancy rate A vacancy rate expresses the percentage of unoccupied units in a rental property at a given time. Because vacant units are not generating any income, rental property owners are incentivized to lower their vacancy rates as much as possible. Vacation rental See “short-term rental.”

Valuation The process of determining the current worth of an asset or a company.

Value-add Properties are considered “value-add” when they have some level of management or operational problems, require some physical improvements, and/or suffer from capital constraints.

VA mortgage Service members, veterans, and eligible surviving spouses can receive home loan guarantees provided by private lenders. The Department of Veteran’s Affairs guarantees a portion of the loan, which leads to more favorable terms for the borrower. Variable expenses Expenses of a business or investment which can be adjusted or deferred as opposed to fixed expenses such as taxes.

Variance An exception to zoning. Vendee Buyer. Vendor Seller. Walkup A multistory apartment building without an elevator.

Walk-through A common clause in a sales contract that allows the buyer to examine the property being purchased at a specified time immediately before the closing, for example, within the 24 hours before closing.

Wholesaling A real estate investment strategy where a wholesaler gets a contract with a distressed property owner then assigns his contract to another investor. Also see “assignment of contract.”

Wrap-around mortgage Also known as an all-inclusive loan. A new mortgage, the wrap-around loan, is written for the amount of the first mortgage and the seller's equity. The seller collects on the wrap- around loan and then makes the payments on the first mortgage. Zoning Public restriction on use.

1% rule The 1% rule is the rent to expense ratio a property must have in order to produce positive cash flow.

2% rule Suggests that a rental property is a good investment if the money from rent each month is equal to or greater than 2% of the purchase price

1031 exchange In order to defer paying taxes on capital gains, investors can reinvest any proceeds from an investment property into a similar investment. In the tax code, this process is referred to as a 1031 exchange.

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