The Ultimate Real Estate Investing Glossary
(Terminology and Definitions for Massive Success)
Did you know that having a solid grasp of real estate terminology can significantly increase your chances of success in real estate investing?
Understanding the jargon associated with this investing sphere is like having a compass in a vast ocean – a crucial tool that could steer you away from uncharted dangerous waters and guide you towards your treasure chest – financial freedom.
As you use this FREE glossary more and more, it will become a vital, indispensable tool to help you far exceed your real estate investing goals.
Enjoy the clarity.
1031 Exchange: A swap of one investment property for another that allows capital gains taxes to be deferred.
2-4 Unit Property: A residential property that contains up to four separate living units.
50% Rule: The 50% rule in real estate investing is a heuristic that suggests that, on average, the operating expenses of a rental property will be about 50% of the gross rental income, not including mortgage payments. This rule is used for quick estimation and analysis of potential rental properties, helping investors to gauge the viability of an investment swiftly.
80/10/10: A blend of two loans where the borrower has 10% down, a first mortgage of 80% of the purchase price, and a second mortgage for the remaining 10%.
A
Abatement: A reduction or an exemption of taxes granted by a government for specified purposes.
Absolute Triple Net (NNN) Lease: A lease in which the tenant is responsible for all property-related risks, including but not limited to repair and maintenance costs, insurance premiums, and real estate taxes.
Absorption Rate: The rate at which available homes are sold in a specific real estate market during a given time period.
Acceleration Clause: A contract provision that allows a lender to require a borrower to repay all or part of a loan if the borrower fails to comply with some agreed-upon conditions.
Accrued Items of Expense: Those incurred expenses which are not yet payable. The seller will pay the buyer an amount equal to the accrued items of expense from the date of the closing to the end of the month or year.
Ad Valorem: A tax based on the assessed value of real estate or personal property.
Adjustable-Rate Mortgage (ARM): A type of mortgage loan where the interest rate on the note periodically adjusts based on an index.
Adverse Possession: A principle of real estate law whereby somebody who possesses the land of another for an extended period of time may be able to claim legal title to that land.
Affordability Index: A measure of a population’s ability to afford to purchase a given product, such as houses, based on the cost of living compared to average income levels.
After Repair Value (ARV): The estimate of a property’s value after all needed repairs and renovations have been completed.
All-Inclusive Trust Deed (AITD): A type of wrap-around mortgage where the new loan is more than the balance on the old loan, and the seller carries the financing.
Amortization: The process of paying off debt in regular installments over a period of time.
Amortized Loan: A loan that is paid off with regular payments over time, with the payments being applied to both the principal amount and the interest.
Anchor Tenant: The largest, leading, or most prestigious tenant in a shopping center or strip mall.
Appraisal: The process of determining the value of a property, usually for lending purposes.
Appreciation: An increase in the value of an asset over time.
Arrears: Being “in arrears” means a payment or payments have been missed on a debt that is due.
As-Is Condition: A term used to describe a sales transaction in which the seller offers goods in their present, existing condition to prospective buyers.
Assessed Value: The dollar value assigned to a property to measure applicable taxes.
Assignment: The transfer of rights or property from one party to another.
B
Balloon Mortgage: A mortgage that does not fully amortize over the term of the loan, thus leaving a balance due at maturity.
Basis Point (BPS): One-hundredth of a percent. This term is often used in finance to describe changes in interest rates and equity indexes.
Bidding War: A situation where two or more buyers are interested in a property and each offers a higher price than the other.
Biweekly Mortgage: A mortgage that schedules payments every two weeks instead of the standard monthly payment. This results in 26 half-payments, or the equivalent of 13 full monthly payments at year’s end.
Blanket Mortgage: A mortgage that covers more than one piece of real estate.
Blended Rate: An interest rate charged on a loan that represents the combination of a previous rate and a new rate.
Bona Fide Purchaser (BFP): Someone who has purchased a piece of real estate for value, without any notice of any defects in the seller’s title.
Boot: Cash or other property added to an exchange or other transaction in order to make the value of the exchanged goods equal.
Bridge Loan: A short-term loan that is used until a person or company secures permanent financing or removes an existing obligation.
Broker Price Opinion (BPO): The estimated value of a property as determined by a real estate broker or other qualified individual or firm.
BRRRR: A strategy that involves buying a distressed property, renovating it, renting it out, refinancing, and repeating the process.
Building Classifications: Class A, B, and C properties refer to the state of a property and are primarily used to distinguish properties in terms of age, location, amenities, and quality of construction.
Bundle of Rights: A term used to describe an owner’s legal rights in land. They include the right to possession, the right to control, the right to exclusion, the right to enjoyment, and the right to disposition.
Buy and Hold: Acquiring property with the intention of holding it for the long term to benefit from appreciation and rental income.
Buydown: A financing technique in which money is paid upfront to reduce a borrower’s interest rate for either a period of the loan or for its entirety.
C
Capital Expenditure (CapEx): Funds used by a company to acquire, upgrade, and maintain physical assets such as property, buildings, or equipment.
Capital Gain: The increase in value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price.
Capital Improvement: A significant expenditure that extends the useful life of a property, increases its value, or adapts it to new uses.
Capital Stack: The structure of all the different types of financing used in a real estate deal, which typically includes equity, preferred equity, mezzanine debt, and senior debt.
Capitalization Rate (Cap Rate): The ratio of Net Operating Income (NOI) to the property asset value.
Cash Flow: The net amount of cash and cash equivalents being transferred into and out of a business.
Cash-on-Cash Return: The rate of return often used in real estate transactions that calculates the cash income earned on the cash invested in a property.
Certificate of Occupancy (CO): A document issued by a local government agency or building department certifying a building’s compliance with applicable building codes and other laws.
Chain of Title: The history of all of the documents that transfer title to a parcel of real property, starting with the earliest existing document and ending with the most recent.
Class A Real Estate: Top-tier properties that are newly built, located in prime areas, and offer high-end amenities and rental rates.
Class B Real Estate: Good quality properties that are slightly older and situated in desirable but not prime locations, offering moderate amenities.
Class C Real Estate: Older properties in less desirable areas, often requiring significant maintenance and offering lower rental rates.
Class D Real Estate: Properties in economically distressed areas with significant maintenance issues and high vacancy rates, but potential for high returns if revitalized.
Closing Costs: Fees paid at the closing of a real estate transaction. This point in time called the closing is when the title to the property is conveyed (transferred) to the buyer.
Closing: The final step in a real estate transaction where the title is transferred from seller to buyer.
Cloud on Title: Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on the title cannot be removed except by deed, release, or court action.
Co-Borrower: An additional person who is both obligated on the loan and is on title to the property.
Collateral: An asset or property that a borrower offers as a way for a lender to secure the loan.
Collateralized Loan Obligation (CRE CLO): A financial instrument that pools together various commercial real estate loans and then sells them to investors as bonds, with the underlying loans serving as collateral.
Commercial Mortgage-Backed Securities (CMBS): A type of mortgage-backed security that is secured by mortgages on commercial properties.
Commercial Real Estate Investing: Investing in commercial properties like office buildings, retail spaces, and industrial properties.
Comparative Market Analysis (CMA): A study of how comparable local homes have sold to help determine a reasonable price for a property.
Compound Annual Growth Rate (CAGR): The Compound Annual Growth Rate (CAGR) is a measure used to express the mean annual growth rate of an investment over a specified time period longer than one year. It represents one of the most accurate ways to calculate and determine returns for anything that can rise or fall in value over time.
Conforming Loan: A mortgage that is equal to or less than the dollar amount established by the conforming loan limit set by Fannie Mae and Freddie Mac’s Federal regulator, The Office of Federal Housing Enterprise Oversight (OFHEO).
Construction Loan: A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.
Contingency: A provision in a real estate contract that specifies the contract would cease to exist upon the occurrence of a certain event.
Contract for Deed: A contract between a seller and buyer of real property in which the seller provides financing to the buyer to purchase the property for an agreed-upon purchase price.
Conventional Mortgage: A type of mortgage that is not guaranteed or insured by any government agency, including the Federal Housing Administration (FHA), the Farmers Home Administration (FmHA), and the Department of Veterans Affairs (VA).
Conveyance: The act of transferring ownership of a piece of property from one party to another.
Cost Approach: A set of procedures through which a value indication is derived for the fee simple interest in a property by estimating the current cost to construct a reproduction of (or replacement for) the existing structure, deducting the accrued depreciation as indicated by the condition and utility of the structure, and adding the estimated land value.
Covenant: A promise in a written contract or a deed of real property.
D
Debt Service Coverage Ratio (DSCR): A measurement of the cash flow available to pay current debt obligations, calculated by comparing a property’s available cash flow to its debt payments.
Debt Yield: The return a lender expects if they become the property owner, calculated by dividing the net operating income by the loan amount.
Deed in Lieu: A deed in which a borrower transfers property ownership to the lender to satisfy a defaulted loan and avoid foreclosure.
Deed: A legal document that conveys ownership of property from one person to another.
Depreciation: An accounting method that allocates the cost of a tangible asset over its useful life.
Discount Point: A prepaid fee that lowers the interest rate on a mortgage loan.
Disposition: The process of selling or liquidating a real estate investment to realize profit, reduce risk, or free up capital.
Distressed Property: Property that is under a foreclosure order or in poor financial or physical condition.
Down Payment: The portion of a property’s purchase price paid upfront in cash by the buyer, not financed by a mortgage.
Due Diligence: The careful investigation or assessment conducted before entering into a contract or agreement.
E
Earnest Money: A deposit made to a seller showing the buyer’s good faith in a transaction.
Easement: A right to cross or otherwise use someone else’s land for a specified purpose.
Effective Gross Income (EGI): The potential income from a rental property after factoring in vacancy rates and rent collection losses, plus other income sources such as coin-operated laundry facilities.
Eminent Domain: The right of a government or its agent to expropriate private property for public use, with payment of compensation.
Encroachment: An improvement that intrudes illegally on another’s property.
Encumbrance: A claim against, limitation on, or liability against real estate.
Equity: The difference between the fair market value of the property and the amount still owed on its mortgage and other liens.
Escrow: A legal concept in which a financial instrument or an asset is held by a third party on behalf of two other parties that are in the process of completing a transaction.
Estate: The degree, quantity, nature, and extent of interest which a person has in real and personal property.
Exclusive Listing: A legal agreement that gives a licensed real estate agent the right to sell a property for a specified time.
Exculpatory Clause: A contract provision that relieves one party of liability if damages are caused during the execution of the contract.
Exit Strategy: A preplanned approach to dispose of an investment property in a way that will maximize the investor’s return on investment.
F
Fair Market Rent (FMR): The estimated amount of rent that a given property would likely command in the open market.
Fair Market Value (FMV): An estimate of the market value of a property, based on what a knowledgeable, willing, and unpressured buyer would probably pay to a knowledgeable, willing, and unpressured seller in the market.
Fannie Mae: A government-sponsored enterprise that buys and pools mortgages for investment.
Federal Housing Administration (FHA): A federal agency that provides mortgage insurance to lenders.
Fee Simple: The greatest possible interest a person can have in real estate.
Fix and Flip: Purchasing distressed properties, renovating them, and selling them quickly for a profit.
Fixed-Rate Mortgage: A mortgage that has a fixed interest rate for the entire term of the loan.
Flip: A type of real estate investment strategy in which an investor purchases properties with the goal of reselling them for a profit.
Foreclosure: A legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the lender by forcing the sale of the asset used as the collateral for the loan.
Fractional Real Estate Investing: A method where multiple investors pool their resources to collectively purchase and own a property, each holding a fractional share of the investment proportional to their contribution.
Freddie Mac: A government agency that buys and pools mortgages for investment.
G
Gap Financing: An interim loan used between the end of loans, or floor loans, and the start of permanent loans, including loans created for construction or permanent structures.
General Contractor: A person or company that oversees a construction project and handles aspects such as communication, permits, and materials.
Good Faith Estimate (GFE): An estimate by a mortgage lender showing the prospective borrower the total costs of obtaining a mortgage.
Gross Lease: A type of commercial lease where the landlord pays for the building’s property taxes, insurance, and maintenance.
Gross Rent Multiplier (GRM): A rough measure of the value of an investment property that is obtained by dividing the property’s sale price by its gross annual rental income.
Gross Scheduled Income (GSI): The maximum potential income from a rental property without factoring in vacancies or non-payment of rent.
Ground Lease: A lease of the land only, on which the tenant usually owns a building or is required to build as specified in the lease.
H
Hard Money Loan: A loan secured by real estate, typically issued by private investors or companies. Interest rates are typically higher than conventional commercial or residential property loans.
Hedge Fund: an investment partnership that pools capital from accredited investors to employ diverse strategies, aiming for high returns, often by taking on greater risk and utilizing complex financial instruments.
Holdover Tenant: A tenant who remains in possession of leased property after the expiration of the lease term.
Home Equity Line of Credit (HELOC): A line of credit extended to a homeowner that uses the borrower’s home as collateral.
Homeowners Association (HOA): An organization in a subdivision, planned community, or condominium that makes and enforces rules for the properties and their residents.
Housing and Urban Development (HUD): A U.S. government agency created to support community development and homeownership.
Indexed Rent: Rent that is linked to a specific price index, such as the Consumer Price Index (CPI), and adjusted accordingly on an annual basis.
I
Interest-Only Loan: A type of loan where the borrower only pays the interest on the loan for a set period and does not repay any of the principal balance.
Investment Property: A property that is not occupied by the owner and is typically bought in order to generate profit through rental income and/or capital gains.
IRA (Gold): A Gold IRA is a self-directed individual retirement account that allows investors to hold physical gold or other approved precious metals as part of their retirement portfolio, providing a hedge against inflation and economic instability.
IRA (Traditional): A retirement account where contributions are tax-deductible, but withdrawals during retirement are taxed as ordinary income.
IRA (Roth): A retirement account where contributions are made with after-tax dollars, and qualified withdrawals during retirement are tax-free.
IRA (Self-directed): A self-directed IRA is a type of individual retirement account that allows investors to hold a broader range of investments, including real estate, private equity, and other alternative assets, beyond traditional stocks and bonds while retaining the same tax advantages as other IRAs.
IRA (SEP): A Simplified Employee Pension plan for self-employed individuals and small business owners, allowing tax-deductible contributions for both employees and employers.
IRA (SIMPLE): A Savings Incentive Match Plan for Employees, designed for small businesses, where both employer and employee can contribute, with contributions being tax-deferred until withdrawal.
J
Joint Tenancy: An equal undivided ownership of property by two or more persons. Upon the death of any owner, the survivors take the decedent’s interest in the property.
Joint Venture (JV): A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task.
K
Knockdown Clause: A provision in a lease or other contract that provides for the demolition of the existing structure and the construction of a new one.
L
Land Contract: A contract between a seller and buyer of real property in which the seller provides financing to buy the property for an agreed-upon purchase price.
Land Contract: A contract used to document a real estate loan provided by the seller to the buyer. It can be useful when a buyer is unable to secure a loan from a financial institution.
Landlord: The owner of a property that is leased or rented to another.
Lease Option: An agreement that gives a renter the choice to purchase a property during or at the end of the rental period.
Leasehold Improvement: Changes made to a rental property by a tenant to meet their specific needs.
Leverage: The use of borrowed funds to increase the potential return on investment by controlling more properties with less personal capital.
Leverage Ratio: The proportion of borrowed funds to the total value of a property, indicating the degree to which an investment is financed by debt.
Lien: A claim against a property by the bank or other party to secure repayment of a debt,
Listing Agent: The real estate agent who represents the seller of a property.
Loan Estimate (LE): A document that provides important information including the estimated interest rate, monthly payment, and total closing costs for a mortgage.
Loan-to-Cost (LTC): A ratio used in commercial real estate construction to compare the financing of a project (as offered by a loan) with the cost of building the project.
Loan-to-Value (LTV): A financial term used by lenders to express the ratio of a loan to the value of the purchased asset.
Q
Qualified Personal Residence Trust (QPRT): an estate planning tool that allows homeowners to transfer their primary or secondary residence into a trust, reducing the taxable value of the property for gift and estate tax purposes while retaining the right to live in the home for a specified period.
Quiet Enjoyment: The right of an owner or any other legally entitled person to the use of the property without interference.
Quitclaim Deed: A document by which a person disclaims any interest in a piece of property and grants that interest to another person.
R
Rate of Return (RoR): The gain or loss made on an investment relative to the amount of money invested.
Real Estate Investing: The act of purchasing, owning, managing, renting, and/or selling real estate for profit. Investors typically acquire properties for long-term rental income, appreciation, or both, leveraging the property’s value to generate returns over time.
Real Estate Investment Fund (REIF): A pooled investment vehicle that collects capital from multiple investors to purchase and manage income-generating real estate properties or real estate-related assets.
Real Estate Investment Group (REIG): An organization that focuses on investing in real estate.
Real Estate Investment Trust (REIT): A company that owns, operates, or finances income-generating real estate.
Real Estate Owned (REO): Property owned by a lender—usually a bank—after an unsuccessful sale at a foreclosure auction.
Real Property: Land and anything permanently affixed to it, including buildings, fences, and even trees.
Refinance: The process of getting a new mortgage in an effort to reduce monthly payments, lower interest rates, take cash out of your home for large purchases, or change mortgage companies.
Rent-to-Own: A contract that allows potential buyers to live in a property before deciding whether to buy it.
Rental Yield: A measure of how much cash (or rent) a rental property produces each year, as a percentage of the property’s value.
Return on Investment (ROI): A performance measure used to evaluate the efficiency of an investment or compare the efficiency of a number of different investments.
Revenue Per Available Room (RevPAR): A key performance metric in the hospitality industry that calculates the average revenue generated per available room over a specific time period.
Right of First Refusal (ROFR): A contractual right to enter into a business transaction with a person or company before anyone else can.
S
Sale-Leaseback: A transaction in which the seller of a property leases back the property from the buyer.
Section 8: A federal program providing rental assistance to low-income families.
Seller Financing: A real estate agreement in which the seller handles the mortgage process instead of a financial institution.
Short Sale: A sale of real estate in which the net proceeds from selling the property will fall short of the debts secured by liens against the property.
Short-term Rental: Renting out properties on a short-term basis, often through platforms like Airbnb or VRBO.
Sovereign Wealth Fund (SWF): A state-owned investment fund comprised of money generated by the government, often derived from surplus reserves or revenues from natural resources. These funds are invested globally in various financial assets to achieve long-term returns and economic stability for the nation.
Stigmatized Property: Property that buyers or tenants may shun for reasons that are unrelated to its physical condition or features.
Sublet: A lease or rental agreement in which the lessee rents the rental property to another, and the lessee becomes the sublessor or landlord.
Syndication: A way that multiple real estate investors pool their financial resources to invest in properties and projects much bigger than they could afford or manage on their own.
T
Tenant Improvement Allowance (TIA): An amount of money set aside by the landlord to improve commercial premises to fit the needs of a tenant.
Tenant: A person who rents land or property from a landlord.
Title Company: A company that specializes in examining and insuring titles to real estate.
Title Insurance: A type of insurance that protects the buyer and lender if the seller is unable to transfer the title of a property.
Title: The legal evidence of a person’s right to or the extent of his or her interest in a property.
Triple Net Lease (NNN): A lease agreement on a property where the tenant or lessee agrees to pay all real estate taxes, building insurance, and maintenance (the three ‘nets’) on the property.
Turnkey Property: A fully renovated home or apartment building that an investor can purchase and immediately rent out.
U
Underwriting: The process of evaluating a loan application to determine the risk involved for the lender. It involves an analysis of the borrower’s creditworthiness and the quality of the property itself.
Unimproved Land: Land that has received no development, construction, or site preparation (trees are not cut, and no roads have been built).
Unrealized Gain: The increase in value of an asset that has not yet been sold, meaning the profit exists only on paper and has not been converted into actual cash.
Usury: The illegal action or practice of lending money at unreasonably high rates of interest.
V
Vacancy Rate: The percentage of all available units in a rental property, such as a hotel or apartment complex, that are vacant or unoccupied at a particular time.
Valuation: The analytical process of determining the current (or projected) worth of an asset or a company.
Variable Rate Mortgage: A type of home loan in which the interest rate is not fixed.
Vendor: The seller, especially in the context of a real estate deal.
Veterans Administration (VA) Loan: A type of home loan available to veterans and active service members, offering a variety of benefits such as less stringent credit requirements and no down payment.
Voluntary Lien: A claim against a property that the property owner knowingly allows, such as a mortgage.
W
Walkthrough: A buyer’s final inspection of a home before closing.
Warranty Deed: A deed that guarantees a clear title to the buyer of real property.
Wholesale Real Estate: The process of buying a property at a low price and selling it at a higher price.
Wholesaling: Contracting to buy a property and then reselling the contract to another investor before closing.
Wraparound Mortgage: A type of loan that allows a borrower who has an existing loan to get another mortgage from a new lender without paying off the first loan.
X
X-Efficiency: A measure of efficiency that takes into account the degree to which a number of inputs are used to achieve an outcome or result. It’s not commonly used in real estate, but can theoretically apply to the efficiency of property usage.
Y
Yield Spread Premium (YSP): The difference between the interest rate charged to a borrower and the interest rate for which the borrower could have qualified. This difference is then paid to the loan originator.
Z
Zombie Second Mortgage: A zombie second mortgage refers to mortgage debt from a second mortgage that homeowners believed was resolved—through forgiveness, satisfaction, or consolidation—but that remains active and legally binding. Often unnoticed for years, this dormant debt can resurface when debt collectors seek repayment, potentially leading to unexpected financial burdens and even foreclosure actions.
Zoning Ordinance: A law passed by a local government regulating the size, type, structure, nature, and use of buildings.
Zoning: Municipal or local government laws that dictate how real property can and cannot be used in certain areas.
