Investing in the Mountain View real estate market can be an incredibly lucrative venture. Strategies such as house hacking, house flipping, and long-term rental properties are a great way to get a good return on your investment quickly while also building your long-term wealth.
However, making a smart real estate investment goes beyond buying a property. To ensure a good ROI, you must conduct thorough research and due diligence.
Moreover, you must understand the local real estate market and basic investing terms. To help you, the experts at Action Properties, Inc. have written this guide. Below are the basic terms all real estate investors should know. Let’s dive in!
- 1031 Exchange: A tax-deferred exchange that allows investors to reinvest proceeds from the sale of one property if they buy another similar one, avoiding immediate capital gains taxes.
- Absorption Rate: The rate at which available properties in a market are sold or leased, often measured in months.
- Accredited Investor: An individual or entity eligible to invest in private securities offerings due to meeting certain income or net worth requirements.
- Acquisition Cost: The total expenses incurred when purchasing a property, including property price, closing fees, and other associated costs.
- Active Listing: A property currently available for sale or rent on the market.
- Adjustable-Rate Mortgage (ARM): An ARM is a mortgage with an interest rate that changes periodically based on market conditions.
- After Repair Value (ARV): The estimated value of a property after repairs or renovations have been completed.
- Agreement of Sale: A legally binding document that outlines terms and conditions for the sale of a property.
- Amenities: Additional features of a property or location that enhance its desirability or value. Examples include swimming pools, gyms, and proximity to public transportation hubs.
- Amortization: The process of gradually paying off a loan over time through regular payments.
- Appraisal: An evaluation of a property's value to determine its market worth. Typically, it’s conducted by a licensed appraiser.
- Appreciation: The increase of property values over time due to factors such as market demand, improvements, or inflation.
- BRRRR Method: A real estate strategy that consists of acquiring properties, renovating them, renting them out, refinancing to access equity, and repeating the process.
- Buyer's Market: When there are more available properties than there are buyers, giving more negotiating power to the buyers and often lowering property prices.
- Capital Gains Tax: Taxes imposed on the profits from the sale of a property and other capital assets.
- Capitalization Rate (Cap Rate): An assessment of the potential return on an investment property, found by dividing the net operating income by the property’s market value at the time.
- Cash Flow: The net income generated from a rental property. It’s calculated by deducting all expenses, such as mortgage payments, property taxes, and maintenance costs, from the total rental income.
- Cash-Out Refinance: A refinancing option where a borrower takes out a larger mortgage to receive the difference in cash.
- Closing Costs: Fees and expenses incurred during the purchase of a property, including loan origination fees, title insurance, and attorney fees.
- Comparative Market Analysis (CMA): An evaluation of similar properties in the area to determine a property's market value.
- Debt-to-Income Ratio (DTI): A ratio used by lenders to determine a borrower's ability to manage monthly payments. Comparing monthly debt payments with gross monthly income will reveal their DTI.
- Depreciation: A decrease in a property's value over time due to factors such as wear and tear, age, or economic conditions.
- Diversification: Spreading investments across different assets or types of properties to reduce risk and optimize returns.
- Due Diligence: The process of thoroughly investigating an investment opportunity before purchasing it.
- Effective Gross Income (EGI): The total income generated from a rental property, including rental income, parking fees, laundry fees, and other sources of revenue.
- Equity: A calculation of the difference between a property's current market value and the outstanding balance on any loans or mortgages.
- Fair Housing Act: A federal law prohibiting property owners from discriminating against renters or buyers based on race, color, religion, national origin, sex, familial status, or disability.
- Fixed-Rate Mortgage: A mortgage with a fixed interest rate for the entire term.
- Fix and Flip: A real estate investment strategy consisting of purchasing low-cost, heavily worn or damaged properties, renovating them, and selling them for a profit.
- Foreclosure: A foreclosure is a legal process by which a lender takes possession of a property due to the borrower's failure to make mortgage payments.
- Gross Rental Income: The total income generated from renting out a property before deducting expenses.
- Gross Rental Yield: The measure of a property's rental income as a percentage of its purchase price.
- Holdover Tenant: A tenant who continues to occupy a property after their lease has expired without signing a new lease agreement.
- Home Equity Loan: A loan that allows homeowners to borrow money using their home as collateral.
- Home Equity Line of Credit (HELOC): A line of credit that allows homeowners to borrow against their property’s equity.
- House Hacking: A real estate investment strategy where an investor lives in one unit of their multi-family property and rents out the other units.
- Implied Covenant of Quiet Enjoyment: This covenant is a legal principle that ensures tenants have the right to enjoy their rented property peacefully and undisturbed.
- Investment Property: A property purchased with the intent of generating income or appreciation, rather than for personal use.
- Lease Agreement: A legally binding contract between a landlord and tenant outlining the terms and conditions of renting a property.
- Leverage: Using borrowed funds to finance a real estate investment.
- Net Operating Income (NOI): The income generated by a rental property, including future mortgage payments and income taxes and excluding operating expenses.
- Occupancy Rate: The percentage of occupied units in a multi-unit rental property.
- Operating Expenses: The ongoing costs associated with managing a rental property, including property taxes, maintenance, insurance, and utilities.
- Refinance: Replacing an existing mortgage with a new one, often to take advantage of lower interest rates, access equity, or change loan terms.
- Rent to Own: A rental agreement with the option for the tenant to purchase the property at a specified price and within a certain time frame.
- Return on Investment (ROI): A measure of the profitability of a real estate investment. It’s calculated as the ratio of net profit to the initial investment amount.
- Seller's Market: Refers to a market with more buyers than sellers, giving sellers more negotiating power in rental transactions.
- Squatter's Rights: A series of legal protections that allow a person to gain ownership or tenancy rights to a property if they occupy it for a certain period, even without the owner's permission.
- Turnkey Property: A fully renovated or refurbished property that is ready for immediate occupancy.
- Vacancy Rates: The percentage of vacant units in a rental property.
Bottom Line
Investing in real estate can be incredibly profitable when done correctly. Investors must research the local market, conduct due diligence on the properties they’re interested in, and run the numbers to ensure they get a good return on their investment. By familiarizing yourself with the essential financial and legal terms outlined below, it’ll be easier to comply with local laws and regulations, as well as ensure that your investment is profitable in the long.
Need help navigating the Mountain View, California, real estate market? Contact Action Properties, Inc! Our team can help you find the perfect property to grow your portfolio.
Disclaimer: This blog should not be used as a substitute for legal advice from a licensed attorney in your state. Laws change, and this post might not be updated at the time of your reading. Please contact us for any questions you have in regards to this content or any other aspect of your property management needs.