Top Real Estate Investing Terms
Whether you’re just getting into property ownership or already own a few buildings, understanding real estate investing terms will put you on the path to success. If you’re just starting out in the real estate industry, take the time to review some of the most important terms used in markets with our team at NYC Apartment Management. Investing is complex, but a little bit of knowledge goes a long way.
#1: Cash Flow
Real estate investors use this term to refer to the amount of money (or net income) they have when the month ends after subtracting all operating expenses. You’ll have positive cash flow if you earn more money than you spend. On the other hand, you’ll have negative cash flow if you spend over the amount you earn.
Higher cash flow provides you with more passive income for real estate owned.
#2: Rental Income
Any payments you receive from people who use or live in your property count as rental income. In many cases, you can apply this income to your gross income as a property owner.
#3: Debt Service Coverage Ratio (DSCR)
A real estate agent may also call the DSCR the debt coverage ratio (DCR). This ratio helps you find the value of an investment property based on its return on investment (ROI) and debt service. Debt service is the amount of money you pay to the lender for your property every month.
#4: Market Value
Current market value is the amount of money you can sell an asset for in a given market. You can compare this to the appraised property value of your real estate. The government uses the appraised value to figure out your property taxes, but it may be higher or lower than the market value.
#5: Net Operating Income (NOI)
Your NOI represents how much income your rental property generates every year. NOI includes all income sources from the property, such as:
- Rent
- Storage fees
- Parking
- Laundry
Licensed real estate agents look at NOI after deducting all property expenses, including HOA fees, repair costs, property tax, and property management fees. You calculate NOI before taxes and do not add depreciation, capital expenditures, amortization, or mortgage payments.
#6: Purchase Price
This refers to the amount of money you paid for an investment property or any other type of real estate property.
#7: Gross Rental Yield
This term helps you identify the annualized return on a real estate investment. To find it, take your total income from a single property and divide it by how much you paid to buy your property and your closing costs. You do not subtract operating costs to find this number.
#8: Investment Property
One of the most important real estate investing terms, an investment property is any property that you buy or own for the purpose of earning an income. Most people do not live in these properties themselves. Both residential and commercial real estate properties can be investment properties.
Property managers also use the term “income-producing property” to refer to this kind of real estate.
#9: Rental Property
Rental properties are homes, condos, lofts, or businesses you own and then rent to someone else. A real estate broker may manage many properties, though most people get into investing with the purchase of a single rental property.
#10: Comparative Market Analysis (CMA)
A CMA report provides real estate information about a certain geographic area. Real estate agents usually create these reports, which include facts such as:
- Active listings
- Sold listings
- Listings removed from the market
- Expired listings
Agents draw information from the MLS to form these reports. This means they may be incomplete because not all properties get listed on the MLS. But they still provide a solid look at the real estate market for an area.
#11: Mortgage Balance
This is the amount of money that you have yet to pay on your real estate investments or mortgage loan. As you make more loan payments, this balance drops, and your equity goes up. Each mortgage payment lowers this balance.
#12: Capitalization Rate (Cap Rate)
A property investor uses the cap rate to assess an investment’s annual rate of return. The investor looks at the amount of profit the property may produce based on NOI and purchase price. Properties with a low cap rate are often safe investments.
#13: Fair Housing Act (FHA)
The FHA is a law that restricts the influence of landlords, lenders, agents, and rental property owners during property transactions. It aims to limit discrimination when selling or renting a property. The Federal Housing Administration supports this act.
#14: Capital Gains
Capital gains are the money you receive after you sell a residential property or commercial property. You may get more or less than the value of a property when you sell your real estate.
#15: Property Improvements
This term refers to any steps you take to improve the state of your property. A property manager often focuses on making property management improvements that increase the overall value of the property. Property prices tend to rise for properties with updates.
#16: Internal Rate of Return (IRR)
The IRR helps investors assess how profitable a property will be long-term. It takes into account changes in equity and other factors.
#17: Cash-on-Cash Return
This pre-tax calculation helps you look at the percentage of return on the cash that you invested in a property. A real estate investor may look at this number before deciding to invest or when considering private mortgage insurance.
Make Real Estate Investing Easy with the Right Property Manager
Learning real estate investing terms helps you feel more comfortable discussing your property. Once you know the lingo, you can start applying what you’ve learned with our team of property managers at NYC Apartment Management. We work with investors, managers, and landlords to simplify property investing and provide a great experience for tenants and owners.
Find out how we can help you with property management today by giving us a call at (212) 787-1214.