As newcomers get their footing in real estate investing, one of the most important yet challenging tasks is learning the new terminology that is often tossed around. If you feel like you do not understand everything, it’s essential not to be intimidated. Learning the new terms and acronyms can be easier than you think. Below are standard real estate terms with easy-to-follow definitions.
A common term that most people already know about is a rental property. While it’s very common, it’s also essential to fully understand it if you’re diving into real estate investing. A rental property is a residential or commercial property in which tenants give the owner a monthly payment for using or occupying the property.
There are two types of rental properties: short-term and long-term. A short-term rental is usually a vacation home that is a furnished and self-contained property. This can be a home, condominium, or apartment, which is then rented out to one or more occupants for short periods. An excellent example of a short-term rental is Airbnb. Long-term rentals are more traditional types of rentals and the most common. Also referred to as an investment property, the purpose of buying a residence is to rent out for an extended period of time.
Another common term is equity, but not many understand what it is exactly. Equity describes a property’s difference between the present market value and the owner’s amount owed on the property’s mortgage. When an investment property sells, the equity would be the money received after paying off the mortgage in full. As the mortgage balance reduces and the property’s market value appreciates, the property’s value gradually increases.
As mentioned above, the property’s value will gradually increase when a mortgage balance reduces, and the property’s market value appreciates. Appreciation is another term that’s important for new real estate investors to know and understand. The term refers to the increase in the value of a real estate property over time, which can be due to several reasons such as inflation, increased demand, or weakening supply.
Seller’s Market vs. Buyer’s Market
Two key terms essential to understanding are the “seller’s market” and “buyer’s market.” The seller’s market is when the real estate market has a higher demand from property buyers than the supply of property for sale. When this occurs, property prices rise and are more beneficial to sellers. A buyer’s market is when the real estate market displays a lower demand for properties than the supply, which usually lowers property prices and makes it ideal for buyers.