Random Real Estate Investing Glossary

Like any field, the field of real estate has its own terminology. And just as in any other field, newcomers can easily become adrift in a sea of wording and acronyms if they haven't learned the lingo.

It's no fun to pore through reams of paper chock-full of black ink detailing the

definitions of these words, so we're just going to go with a sort of "grab bag" approach. You know those words you've heard and told yourself, "Hey self? Remember to look that up!" Well, hopefully you'll see one or two of those words in our funky little real estate investing glossary here. Not to fear if you don't, though -- there are a lot of definitions you need to learn, so there is a very good chance that this first installment of the Memphis Invest real estate investing dictionary won't be the last.

Bird Dog

This is a term that aptly describes a person who "sniffs out" deals for investors. It is the bird dog's job to hunt down properties with strong investment potential, which they then inform an investor about for a fee.

Gift Letter

A gift letter is a letter from a family member of a buyer to a lender stating that the family member is gifting a certain amount of money to be used towards a property's down payment. It's important for it to be made clear that the money in question is truly a gift, as opposed to a loan.

PITI

This is an acronym that stands for principle, interest, tax, and insurance (PITI), which are the four primary parts of a monthly mortgage payment. (And it's also pronounced the same as the feeling one feels for oneself when he sees his mortgage payment for the first time.)

REIT

And the acronyms just keep coming! REIT stands for Real Estate Investment Trust. Want to invest in real estate, but not deal with the hassle of actually directly owning the property? A REIT may be just what you're looking for. Investing in a REIT, simply put, is real estate's equivalent of buying stock. That's the simple definition; for a more complex -- and complete one -- check out this Investopedia article. 

Closing Costs

These are any costs above and beyond the actual purchase price of the property (taxes, insurance, etc.) Think of closing costs as all that stuff you pay when you're buying a car that's not included in the sticker price. Of course, most homes are bigger than a car, so...yep, you guessed it: the costs are significantly more substantial. Who pays what percentage of which closing costs is often a point of negotiation between the buyer and seller.

Hard Money Loan

Hard money loans are backed by the value of the property, as opposed to the credit worthiness of the borrower. Hard money loans carry high interest rates. Hard money loans come not from traditional lenders (banks, etc.), but from entities that see value in a more inherently risky loan. A few situations in which a hard money loan might be seen as a viable option:

- Short-term financing

- Flips

- The buyer has poor credit but substantial equity and is trying to avoid foreclosure.

Home Inspection

Going back to our car analogy from earlier: Think of a home inspection as kicking the tires. Or, more accurately, getting a trained tire-kicker to kick the tires. A home inspection is a thorough inspection performed by a professional to assess the structural and mechanical condition of the home. The buyer wants to make sure that wonderful bargain of a property doesn't have any serious foundation issues, isn't infested by termites, and isn't trying to rid itself of the owners, courtesy of being unfortunately built on an ancient burial ground, so he gets a home inspection done.

Short Sale

This is a real estate sale that generates proceeds that are less than what is owed on the property. While this isn't ideal, it is often preferable to other alternatives--the borrower defaulting on her loan, for instance. With a short sale, the borrower avoids what could be a damaging hit to her credit, and the lender recoups some of his money and avoids costs associated with foreclosure.

See? That wasn't too painful, now was it? It's amazing how much better things stick with you when you learn them in small chunks!

Are there any terms you'd like to see addressed in our next installment of our real estate investing glossary? If so, tell us in the comments!