Real Estate
1031 Exchange
Absentee Landlord
Abstract of Title
Adjustable Rate Mortgage (ARM)
Adverse Possession
After Repair Value (ARV)
Amenity
Amortization
Appraisal
Appraised Value
Appraiser
Appreciation
APR
Assessed Value
Asset Protection
Bad Title
Balloon Mortgage
Bank Owned Property
Broker
Broker Price Opinion
BRRRR
Buy and Hold
Buyer’s Agent
Capital Expenditure
Capital Gains Tax
Capital Improvement
Capitalization Rate aka "Cap Rate"
Cash Flow
Cash On Cash Return (COCR or CRR)
Cash-Out Refinance
Cash Reserves
Certificate of Title
Certified Commercial Investment Member (CCIM)
Chain of Title
Clear Title
Closing
Closing Costs
Cloud on Title
Co-Borrower
Commercial Real Estate (CRE)
Comparative Market Analysis (CMA)
Consumer Price Index
Contingency Clause
Contract For Deed
Co-Tenancy Clause
Covenants, Conditions & Restrictions (CC&R)
Curb Appeal
Debt Service Ratio (DSCR)
Debt-to-Income Ratio (DTI)
Deed
Deed Book
Deed Of Trust (DOT)
Default
Deficiency Balance
Delinquent
Depreciation
Downturn
Dual Agency
Due On Sale Clause (DOS)
Earnest Money
Easement
Effective Gross Income
Egress
Ejectment
Eminent Domain
Equity
Equity Stripping
Escrow Agent
Escrow Agreement
Estate
Eviction
Fair Housing Act
Fair Market Rent (FMR)
Fair Market Value (FMV)
Federal Housing Administration (FHA)
Fee Simple
FHA Loan
First Mortgage
Fix and Flip
Fixed Price Purchase Option
Fixed Rate Mortgage
Forced Equity
Foreclosure
For Sale By Owner (FSBO)
Fractional Ownership
Freddie Mac
Gentrification
Gift Of Equity
Ginnie Mae (GNMA)
Graduated Lease
Gross Rent Multiplier (GRM)
Ground Lease
Hard Money Lender (HML)
Hard Money Loan
Hazard Insurance
HELOC
Holding Costs
Home Appraisal
Home Equity
Home Equity Loan
Home Inspection
Homeowners Association (HOA)
Home Warranty
House Hacking
Housing Starts
Individual Retirement Account (IRA)
Inflation
Ingress
Interest
Interest Only Loan (I/O)
Interim Interest
Internal Rate Of Return (IRR)
Intestate
Joint Tenancy
Joint Tenants
Joint Venture (JV)
Judicial Foreclosure
Jumbo Loan
Landlord
Land Trust
Land Value
Lease
Lease Option (L/O)
Lender
Lessee
Lessor
Leverage
Lien
Lien Waiver
Line Of Credit (LOC)
Listing
List Price
Live-in Flip
Loan Estimate
Loan Policy
Loan-To-Value (LTV)
Market Value
Maximum Allowable Offer (MAO)
Mortgage
Mortgage Broker
Multi-Family
Multiple Listing Service (MLS)
National Housing Act
Negative Equity
Net Operating Income (NOI)
Net Worth
No-Appraisal Refinancing
Note
Offer
Open House
Open Listing
Owner Occupied (OO)
Personal Use Property
PITI
Pocket Listing
Power Of Sale
Pre-Approval Letter
Private Mortgage Insurance
Probate
Proof Of Funds
Property Manager
Quiet Title
Quitclaim Deed
Real Estate
Real Estate Agent
Real Estate Broker
Real Estate Owned (REO)
Realtor
Recession
Refinance Rate
Refinancing
REIT
Rent To Own Homes (RTO)
Repair Costs
Reserve Fund
Residential Rental Property
Return On Investment (ROI)
Reverse Exchange
Reverse Mortgage
Rural Housing Service
Sales and Purchase Agreement
Security Deposit
Seller-Financed Sale
Seller-Paid Points
Shared Equity Finance Agreements
Short Refinance
Short Sale
Squatter
Sublease
Syndicate
Syndications
Tax Lien
Tenancy In Common
Tenants By Entirety
Tenement
Timeshare
Title
Title Commitment
Title Defect
Title Insurance
Title Search
Triple Net Lease (NNN)
Truth In Lending
Turnkey
Under Contract
Underwriter
Unsecured Loan
Use and Occupancy
Vacancy Rate
Voluntary Foreclosure
Waiver
Warranty Deed
Warranty Of Title
Workout Agreement
What Is Real Estate?
Real estate encompasses land and property—plus any buildings, structures, mineral deposits, or natural resources. When you purchase real estate, you’re buying any and all improvements and the legal right to use and improve the land. There are four key types of real estate: residential, commercial, industrial, and land.
Types of Real Estate
- Residential: Homes, multifamily property, and condos
- Commercial: Office and retail buildings
- Industrial: Factories and farms
- Land: Vacant, undeveloped property
Residential includes any property where people can live, such as single-family homes or multifamily structures—i.e. apartments, condominiums, and duplexes. Commercial includes such structures as office buildings, shopping malls, and retail space.
Industrial includes farms, mines, factories, and manufacturing facilities. It also includes larger pieces of real estate that might be found near key transportation hubs, such as railways and sea harbors.
Land, such as vacant or undeveloped lots, can offer the greatest potential because it offers the potential for construction and development to increase value.
What Is Real Property?
Real estate is different from real property. Real estate is a tangible asset, but real property can be tangible or intangible, such as an investment. Here’s the main difference: Real estate implies ownership of the land and structures, but real property might include a right to live in a house without actual ownership.
Real Estate Investing
Homeownership is the most common way to own real estate. However, there are ways to invest without actually owning properties, including real estate investment trusts (REITs), mortgage-backed securities (MBSs), and online real estate investment platforms, such as crowdfunding real estate sites.
REITs are a unique investment vehicle that allows investment in a portfolio of income-producing properties. With these investments, the owners sell shares and then pay at least 90 percent of the income to investors. REITs can be specialized, such as focusing on retail or shopping centers.
MBSs are an investment in a pool of mortgages where investors collect the principal and interest payments. These investments, like REITs, trade like stocks.
In terms of outright ownership, buying residential real estate tends to be less expensive and more feasible for individuals. Commercial real estate is pricier but more stable—overall, it’s more valuable per square foot than residential and offers longer lease terms. However, it does come with more regulations.
When buying real estate for investment purposes, there are two key investing strategies—flipping and rentals. In addition to standard property rentals, this category also includes royalties, which are payments for the extraction of natural resources (for example, if there is oil on your property).
One of the key draws to real estate investing is the steady appreciation of value. Appreciation is when the value of the property rises, which can happen because of neighborhood improvements, such as gentrification.
REITs are a unique investment vehicle that allows investment in a portfolio of income-producing properties. With these investments, the owners sell shares and then pay at least 90 percent of the income to investors. REITs can be specialized, such as focusing on retail or shopping centers.
MBSs are an investment in a pool of mortgages where investors collect the principal and interest payments. These investments, like REITs, trade like stocks.
In terms of outright ownership, buying residential real estate tends to be less expensive and more feasible for individuals. Commercial real estate is pricier but more stable—overall, it’s more valuable per square foot than residential and offers longer lease terms. However, it does come with more regulations.
When buying real estate for investment purposes, there are two key investing strategies—flipping and rentals. In addition to standard property rentals, this category also includes royalties, which are payments for the extraction of natural resources (for example, if there is oil on your property).
One of the key draws to real estate investing is the steady appreciation of value. Appreciation is when the value of the property rises, which can happen because of neighborhood improvements, such as gentrification.
What Is the Real Estate Industry?
Developers are one of the most important components in the United States real estate industry. Development includes purchasing undeveloped land and improving the property. Improvements come in the form of rezoning, construction, and renovating buildings, with the ultimate goal of selling or leasing the finalized units.
Sales and marketing includes agents, who help facilitate the buying and selling of properties. Agents work alongside brokers, who have more stringent licensing requirements. A Realtor is a member of the National Association of Realtors (NAR).
Lenders help finance properties, including developments.
Property managers help owners rent and maintain their properties. For a percentage of rent, property managers handle core rental functions, such as finding and vetting tenants, collecting rent, and handling maintenance and repairs.
Sales and marketing includes agents, who help facilitate the buying and selling of properties. Agents work alongside brokers, who have more stringent licensing requirements. A Realtor is a member of the National Association of Realtors (NAR).
Lenders help finance properties, including developments.
Property managers help owners rent and maintain their properties. For a percentage of rent, property managers handle core rental functions, such as finding and vetting tenants, collecting rent, and handling maintenance and repairs.
What Is the Housing Market?
When you hear someone mention the “housing market,” they’re typically referring to the local residential real estate market. This market directly affects other markets, such as commercial. For example, shopping centers will open in proximity to highly populated residential areas.
Supply and demand drives real estate prices. Demand is affected by a number of economic factors, such as unemployment and interest rates. If people don’t have jobs or the cost of financing is too high, they won’t buy. That a lack of demand can push home values down.
Supply and demand drives real estate prices. Demand is affected by a number of economic factors, such as unemployment and interest rates. If people don’t have jobs or the cost of financing is too high, they won’t buy. That a lack of demand can push home values down.
How to Finance Property
If you can’t pay cash for a property, you might consider financing, which can be provided by government institutions, private lenders, or banks. When a bank loans money to purchase real estate, it’s called a mortgage.
These loans will have either fixed or variable interest rates. Fixed-rate loans charge a set interest rate for the life of a loan. Variable-rate loans have a rate that changes when an underlying interest rate changes, such as the prime rate. Loans may also require balloon payments, where a sizable payment or the entire balance is due at a certain time, such as at the five-year anniversary date of the loan. This is particularly common with home equity lines of credit.
These loans will have either fixed or variable interest rates. Fixed-rate loans charge a set interest rate for the life of a loan. Variable-rate loans have a rate that changes when an underlying interest rate changes, such as the prime rate. Loans may also require balloon payments, where a sizable payment or the entire balance is due at a certain time, such as at the five-year anniversary date of the loan. This is particularly common with home equity lines of credit.
Advantages and Disadvantages
Real estate can help diversify a portfolio, adding value outside of stocks, bonds and other assets. Rental properties also offer steady income, and rent increases can hedge against inflation. Properties may also appreciate—meaning their value steadily rises over time.
Buying real estate also allows you to leverage your cash, which means you only pay a portion of the purchase price and borrow the rest. FHA loans allow you to take out a mortgage with as little as a 3.5 percent down payment. Property owners can also leverage their properties by tapping into equity, which can be used to buy more properties or refinance debt. It’s also worth noting that mortgage interest, as well as maintenance costs for rentals, is tax-deductible.
But real estate does have downsides. It’s illiquid—which means properties can take time to sell. They can also be expensive and require active management. Dealing with difficult tenants can be a headache. There’s also the chance that real estate values fall or a natural disaster damages or destroys the property.
Buying real estate also allows you to leverage your cash, which means you only pay a portion of the purchase price and borrow the rest. FHA loans allow you to take out a mortgage with as little as a 3.5 percent down payment. Property owners can also leverage their properties by tapping into equity, which can be used to buy more properties or refinance debt. It’s also worth noting that mortgage interest, as well as maintenance costs for rentals, is tax-deductible.
But real estate does have downsides. It’s illiquid—which means properties can take time to sell. They can also be expensive and require active management. Dealing with difficult tenants can be a headache. There’s also the chance that real estate values fall or a natural disaster damages or destroys the property.