Terms and Definitions
Here are a list of some common real estate investing definitions.
- Cash Flow – Amount of money after monthly expenses are subtracted from the rent
- Mortgage – Amount of money paid every month to a lender for a loan. Includes both principal and interest.
- Vacancy – A percentage of monthly rent that is added to expenses for the vacancy of a property over the course of a year.
- Maintenance – A percentage of the monthly rent that is added to expenses for minor repairs of a property over the course of a year.
- Return on Investment (ROI) – The return percent of money you make back a year. Ex) You need $10,000 to buy a property and cash flow $5,000 a year. Your ROI is 50%. 5,000/10,000
- Property Management – A fee paid to an outside company to manage an investment property. They usually collect rent, find tenants, take maintenance calls and other routine tasks that are required when owning an investment property.
- Property Taxes – Money paid to the municipality in which a property is located to borrow the land. Paid quarterly to the town or monthly in your mortgage escrow payment.
- Property Insurance – A payment that insures the property in the case of an emergency. Shop around to find the best rate. usually paid in full at time of getting the insurance, then monthly as part of your monthly mortgage escrow payment.
- After Repair Value (ARV) – The value of a home after repairs are completed. Many lenders will only lend up to 75% ARV on an investment property.
Having a ball park number for these values can help determine if a property is worth visiting. If you need to understand what these values may be in your area either ask around or use Google!