A
Accessory Dwelling Unit (ADU): A secondary housing unit on the same lot as a primary residence, often used as a rental property or for family members.
Absorption Rate: The rate at which available homes in a specific market are sold during a given time period. It helps measure housing demand.
Active Listing: A property that is currently for sale and listed on the market.
After Repair Value (ARV): The estimated value of a property after all repairs and improvements have been completed.
Amortization: The process of gradually paying off a loan over time through scheduled payments of principal and interest.
B
Broker: A licensed professional who negotiates and arranges real estate transactions, including sales and purchases.
BRRRR Method: A real estate investment strategy that stands for Buy, Rehab, Rent, Refinance, Repeat.
Buy-and-Hold: An investment strategy where an investor purchases a property to keep it long-term, often to generate rental income or benefit from appreciation.
C
Capitalization Rate (Cap Rate): A formula used to determine the rate of return on a real estate investment property. It is calculated by dividing the property’s net operating income by its current market value.
Cash Flow: The net income generated by a property after subtracting expenses like mortgage payments, taxes, and maintenance.
Closing Costs: Fees and expenses paid at the closing of a real estate transaction. They may include loan origination fees, title insurance, and property taxes.
Comparative Market Analysis (CMA): A report used by real estate agents to determine a property’s fair market value based on recent sales of similar properties.
Contractor: A professional responsible for building or renovating properties, often hired to complete specific tasks within a construction or repair project.
D
Debt-to-Income Ratio (DTI): A ratio lenders use to determine a borrower’s ability to repay a loan. It compares monthly debt payments to gross monthly income.
Depreciation: The decrease in a property’s value over time due to wear and tear, often used for tax purposes.
Duplex: A residential building divided into two separate units, often sharing a common wall, with each unit having its own entrance.
Due Diligence: The process of researching and analyzing a property to assess its value, condition, and potential risks before completing a transaction.
E
Earnest Money: A deposit made by a buyer to show their serious intent to purchase a property. It is typically applied toward the down payment or closing costs.
Equity: The difference between a property’s market value and the amount owed on its mortgage.
Escrow: A financial arrangement where a third party holds funds or property until specific conditions are met.
F
Fair Market Value (FMV): The price a property would sell for on the open market, based on comparable properties and current market conditions.
Fix-and-Flip: A real estate investment strategy involving purchasing a property, renovating it, and selling it for a profit.
Foreclosure: The legal process in which a lender takes ownership of a property due to the borrower’s failure to make mortgage payments.
G
Gross Rental Income: The total income generated from a rental property before deducting any expenses.
Ground Lease: A long-term lease agreement in which a tenant leases the land but owns any structures built on it.
H
Hard Money Loan: A short-term loan secured by real estate, typically used by investors to purchase and renovate properties.
Homeowners Association (HOA): An organization that manages and enforces rules for properties in a community, funded by fees paid by residents.
I
Income Property: A property purchased or developed to generate income through renting or leasing.
Inspection Contingency: A clause in a purchase agreement that allows the buyer to back out or renegotiate if the property inspection reveals significant issues.
J
Joint Venture (JV): A business arrangement in which two or more parties collaborate to develop, invest in, or manage real estate projects.
K
Key Money: A payment made to a landlord or property owner in exchange for a lease or rental agreement.
L
Lease Agreement: A legally binding contract between a landlord and tenant that outlines the terms of renting a property.
Loan-to-Value Ratio (LTV): A metric lenders use to assess risk, calculated by dividing the loan amount by the property’s appraised value.
M
Market Value: The estimated price a property would sell for on the open market under normal conditions.
Mixed-Use Development: A property that combines residential, commercial, and sometimes industrial uses within a single project.
Multi-Family Property: A building with multiple units, such as duplexes, triplexes, or quadplexes, often used for rental income.
N
Net Operating Income (NOI): The income generated by a property after operating expenses are deducted, excluding mortgage payments and taxes.
Not In My Backyard (NIMBY): A term describing opposition by residents to new developments or changes in their local area, especially those that might impact property values or community character.
Notarized Deed: A legal document that transfers property ownership, signed and verified by a notary public.
O
Option to Purchase: A contract that gives a buyer the right, but not the obligation, to purchase a property at a set price within a specific time frame.
Owner-Occupied Property: A property where the owner resides while possibly renting out additional units.
P
Pre-Approval: A lender’s conditional commitment to offer a mortgage loan based on a borrower’s financial information.
Property Management: The operation, control, and oversight of real estate properties, often by a third-party company.
Q
Quadplex: A residential building that contains four separate housing units, each with its own entrance and amenities.
Quitclaim Deed: A legal document used to transfer ownership of property with no guarantees about the title’s condition.
R
Real Estate Investment Trust (REIT): A company that owns, operates, or finances income-producing real estate, allowing investors to pool their money.
Return on Investment (ROI): A measure of profitability, calculated by dividing net profit by the total investment cost.
S
Short Sale: A real estate transaction in which a property is sold for less than the amount owed on the mortgage, often to avoid foreclosure.
Subdivision: A tract of land divided into smaller lots for development or sale.
Sweat Equity: The value added to a property through unpaid labor, such as renovations or repairs done by the owner.
T
Title Insurance: A policy that protects property buyers and lenders from financial loss due to title defects or disputes.
Triplex: A residential building divided into three separate units, each with its own entrance and amenities.
Turnkey Property: A fully renovated property ready for immediate occupancy or rental.
U
Underwriting: The process lenders use to evaluate the risk of lending money to a borrower based on financial information.
V
Vacancy Rate: The percentage of unoccupied rental units in a specific property or market.
Value-Add Property: A property that offers opportunities to increase its value through improvements or operational changes.
W
Walk-Through: A final inspection of a property by the buyer before closing to ensure it meets the agreed-upon condition.
Wholesale Real Estate: An investment strategy where an investor contracts a property and assigns the contract to another buyer for a fee.
Z
Zoning: Laws that regulate how land can be used, such as residential, commercial, or industrial purposes.
*Pro-Tip: Bookmark this page for quick and easy access to this glossary that serves as your go-to resource for understanding the most frequent used terminology that shapes the real estate industry. Whether you're an investor, homeowner, developer, or contractor, mastering these terms empowers you to make informed decisions, communicate effectively, and navigate the world of real estate with confidence. Keep this guide handy as you explore the dynamic and ever-evolving landscape of property and investment.
