Pretty much every time you learn something new, you also learn a whole new vocabulary to go along with it.<\/p>\n
Real estate investing is no different.<\/p>\n
As a real estate investor, we must learn the real estate investing terms and investment vocabulary, and understand what they mean. Here are definitions of some of the real estate acronyms you might come across:<\/p>\n
This is an acronym for Principal (P), Interest (I), property taxes (T) and insurance (I).<\/p>\n
This is basically the \u201cbottom line\u201d or the minimum of what you need to calculate when thinking about purchasing an investment property with a loan. Usually it is calculated \u201coverall\u201d and for a month to month basis.<\/p>\n
The \u201coverall\u201d number is what you would potentially spend on the property over the lifetime of the loan. The month-to-month is what portion of the PITI you have to pay each month to stay in good standing. This information can help you determine how much rent you should charge.<\/p>\n
Related:<\/strong> Trying to Choose The Right Loan? Stop Looking at Just The Rates!<\/a><\/em><\/p>\n This stands for Loan-to-Value.<\/p>\n This is also an important one to know if you\u2019re taking out a loan for your investment property. This ratio is calculated by evaluating the value of the property, versus the sum of the loan.<\/p>\n For example, if the loan is $200,000 and the value of the property is $250,000, the LTV is 80%. Lower LTVs can be especially helpful if you ever need to sell the property.<\/p>\n Gross Operating Income is the annual rental income collected from the property. This includes rent paid on all occupied units as well as income from other sources, like coin-operated laundry facilities.<\/p>\n Net Operating Income is the income you receive after rent has been paid to you and after you\u2019ve finished paying out all your monthly operating expenses.<\/p>\n Subtracting your expenses from your GOI should give you the NOI for the property. For example, if you are paid $10,000 for rent on all the units, and you spent $8,000 on maintenance, janitorial duties, supplies, accounting, insurance, taxes, and utilities, your NOI for the month was $2,000.<\/p>\n This is short for Debt Coverage Ratio.<\/p>\n This real estate investing term is commonly used by lenders, as this ratio is used in underwriting loans for income generating properties. It is calculated by dividing the NOI by total debt to be serviced. Ratios of 1.20 and higher are considered normal or average.<\/p>\n2. LTV<\/h3>\n
3. GOI<\/h3>\n
4. NOI<\/h3>\n
5. DCR<\/h3>\n