Real estate glossary

Learn about common real estate terminology, acronyms, & formulas that you will need to learn for flipping houses.

Glossary

#   A   B   C   D   E   F   G   H   I   J   K   L   M   N   O   P   Q   R   S   T   U   V   W   X   Y   Z

#

70% Rule - The 70% rule is a widely accepted rule among rehabbers and real estate investors as a barometer for purchasing a rehab property.  

A

After Repair Value (ARV) ‚Äď The after repair value or 're-sale value' is the estimated value of the property after renovations are made to the property. ¬†The after repair value is calculated based upon comparable sales nearby the subject property.

Learn How to Calculate the After Repair Value
Amortization - Amortization is the process of paying off debt in regular installments over a period of time typically with a mortgage.
Amortization Schedule - The Amortization Schedule is a table detailing each periodic payment of an amortized loan (typically a mortgage).
Amortized Loan- An Amortized Loan is a loan with scheduled periodic payments that include principal and interest payments.  Most Short-Term Flip Loans are Interest Only, while Long-Term Buy-And-Hold Loans are Amortized over time.
Appraisal - A real estate appraisal, is the practice of determining the value of real property.  There are 3 approaches to real estate valuation, sales comparison approach, cost approach & income approach.  For single family properties, appraisers use the sales comparison approach to evaluate comparable properties.
Asbestos - Asbestos is a natural material made up of tiny fibers used in many building materials including drywall compound, vinyl tile, siding, & building insulation.  By the 1980s and 1990s use of asbestos had been heavily restricted, phased out or outright banned due to it's connection with cancers such as asbestosis or mesothelioma.  
Assignment - An assignment is a sales transaction with the original buyer of the property ("the assignor") allows another buyer ("the assignee") to take over the buying rights to purchase the property.  Assignment is often used by wholesalers to get discounted properties under contract, with the intent to re-assign the buying rights to another buyer for a small profit.
Asking Price - The initial selling price of a property, that the seller is asking for the property.

B

Backup Status - Status of a property that is currently under contract, but is allowing backup offers be submitted. Backup status is used when the listing agent has reason to believe the current escrow may fall through for any number of reasons.  For this reason, the listing agent sets the property status to Backups to allow future buyer interest and offers.
Bird Dog - A Bird Dog is an individual that spends their time locating properties with investment potential. Usually, their intent is to find properties that are distressed or selling at a discount that can be rehabbed for a profit.
Broker -  A real estate broker has different definitions.  A broker generally has more experience and education than an agent, which allow them to work independently or manage an office of real estate agents.  In most states real estate agents who are not brokers must work under a broker or brokerage.
Brokerage - A brokerage is a company or firm that manages a group of real estate agents.
BRRRR - BRRRR is an acronym for a real estate investment strategy which stands for Buy, Rehab, Rent, Refinance & Repeat.  BRRRR is the process of buying a distressed property, rehabbing the property, renting the property & refinancing the purchase into a long term conventional loan.  Upon refinance, the investor cashes out the equity in the property, and repeats the process by using the profits to purchase another BRRRR deal.
Buyer’s Agent - The Buyer’s Agent is a real estate agent that is contractually obligated to help a buyer find a house to purchase.
Buying Costs ‚Äď Buying costs are costs associated with buying real estate, such as brokerage fees, title work, inspection costs & lending fees.

C

Closing - ‚ÄčClosing is the final step in completing a real estate transaction. ¬†On the closing date, ownership of the property is transferred from the seller to the buyer of the property.
Closing Costs - Closing costs are costs the buyer or seller must pay at the time of closing.  Closing costs can include application fees, home inspection costs, appraisals, property taxes, title insurance, attorney’s fees, escrow fees, recording fees, etc.  A buyer or seller of a property can find the itemized lists of Closing Costs on a standardized form called the Closing Disclosure which will be filled out by the settlement agent.  Typically, home buyers will pay between 2 to 5 percent of the purchase of their home in closing fees.
Commission - A commission is a fee paid to a broker or an agent for facilitating the purchase or sale of real estate. Generally, commissions are roughly 3% each (6% total) for the Buyer's Agent & Seller's Agent w/ the commissions being paid entirely by the Seller.
Contract Contingency - A contract contingency is a condition put on a offer to buy a home, such as the prospective buying making an offer contingent on his or her sale of the property.
Construction Contingency - Construction contingency is added costs that are added into your construction budget to cover unforseen budget overages and change orders on the project.  Depending on the risk of the project, a flipper may include anywhere from as little as 5% up to 25%.
Conventional Loan - Conventional Loans are not insured or guaranteed by the Federal Government (such as FHA or VA loans).  Unlike federally insured loans, the conventional loans carry no guarantees for the loan if you fail to repay the loan.  For this reason, conventional loans generally require a 20% down payment or you will be required to pay private mortgage insurance.
Counter Offer - A seller can accept, reject or counter an offer.  When the seller counters an offer, the seller can change the price, dates, contingencies, or many other terms of the purchase agreement.  
Covenants - Covenants are neighborhood rules created and enforced by Home Owner’s Associations.   Covenants can restrict the use of the property such as limitations of leasing the property, or using the property for commercial use.  Covenants can also restrict the architectural appearances allowed in the neighborhood such as exterior paint colors, fences, and landscaping, to name a few.
Crowd Funding Lender - A Crowd Funding Lender is a lender that funds real estate deals by crowd sourcing funding from a large group of investors.  

D

Debt to Income Ratio - Debt to Income Ratio is a ratio that lenders evaluate when qualifying a buyer to purchase a property.  Most lenders will like to see a debt-to-income ratio of 45% or lower.
Disclosures - Disclosures are any material facts or defects that a Seller must disclose on a document called the Sellers Disclosure.
Double Closing - A double closing is a strategy used by wholesalers to purchase and sell property for a quick profit.  The wholesaler purchases a property from a seller at a discounted price and then resells the property to a buyer for a small profit.  It is called a double closing because the wholesaler participates in two closings (the purchase & the sale).  

E

Earnest Money Deposit - Earnest Money Deposit is money that is provided by the buyer to a seller to show good faith that they are serious about purchasing the property.  Earnest Money is generally between $500 to $1,000, but a buyer can offer a larger earnest money deposit to entice the seller to accept their offer.
Easement - An easement gives an individual or entity the right to cross or use someone else's property.  Easements are generally established for public access right-of-ways or utility company easements to allow utilities to pass through an individual's property.
Escrow - Funds for a real estate transaction are 'held in escrow' in which a third-party, generally a Title  Company receives and distributes the funds of the transaction.

F

FHA -  The Federal Housing Administration is a US agency that offers mortgage insurance for federally qualified lenders.
FHA Loan - An FHA loan is a loan that is provided by federally qualified lenders and insured by the Federal Housing Administration.   Since FHA loans are federally insured by the FHA, it allows lenders to provide less stringent and more flexible qualification requirements, including down payments as little as 3.5%.  An FHA 203k loan can be utilized to finance both the purchase and the repairs of the property.
Financing Costs - Financing Costs are costs incurred for utilizing outside funding to fund your flip project.  A typical lender will charge financing a loan origination fee/points upfront to originate the loan and process the paperwork of 2 to 3%.  The lender will also charge monthly or the length of the loan period.
‚ÄčFixed Rate Loan - A fixed interest rate loan is a loan where the interest rate is fixed & does not change or fluctuate over the life of the loan. ¬† This allows a borrower to accurately predict future loan payments. ¬†In contrast, variable rate loans fluctuate based upon the underlying benchmark rate or prime rate.

H

Hard Money Lender - A hard money lender is generally a lender that provides short term (6 to 12 month), interest-only financing for fix-and-flip projects, with relatively high interest rates (10 to 15%).
Holding Costs ‚Äď Holding costs are costs associated with holding real estate, such as loan payments, taxes, utilities and maintenance expenses. ¬†
Homeowner's Insurance - Homeowner's Insurance protects against damage to your property, content's of your property, as well as liability for accident's that may happen on your property.  Lender's will require that you insure your home in order to protect your and their investment in the property.  For a flip project, you will likely need a Vacant Home policy, as well as Builder's Risk policy.  You may also want to consider an Umbrella General Liability policy as well.
HOA (Home Owner's Association) - A Home Owner's Association is a private association formed by a neighborhood, subdivision or condominium that creates and enforces rules (covenants) for the association.  HOA's will also manage/maintain common areas, pool facilities, landscaping, utilities, trash collection, etc for the association.
HOA Dues - Home Owner's Association Dues are generally monthly or annual fees that are paid to your Home Owner's Association to  manage/maintain common areas, pool facilities, landscaping, utilities, trash collection, etc for the association.
HUD Home - A HUD Home is a foreclosed property that is owned and being sold by Federal Housing & Urban Development (HUD).  If a property that was originally financed through a government-insured loan (FHA) falls into foreclosure, HUD pays-off the defaulted loan, takes possession of the property and sells the property on HUD Home Store.

I

Interest Rate - The interest rate is the annual interest rate a lender charges for loaning money for your property.  
Inspection - A property inspection is the process of inspecting the condition of a property which can be performed by the buyer or by a professional inspection company.  Generally, real estate contracts allow a 10 to 14 day window to allow the buyer of a property to inspect the property.
Interest Only Loan - An Interest Only Loan is a loan in which the borrower only pays interest and does not pay any principal.  Most Short-Term Flip Loans are Interest Only, while Long-Term Buy-And-Hold Loans are Amortized over time.

L

Lead Based Paint - Lead Based Paint was utilized throughout the United States up until 1978, when it was outlawed by the Federal Government.  If you are buying a property that was built before 1978, there is a good chance your property has lead based paint.  In properties with lead-based paint, the EPA requires certified contractors/renovators to follow-lead safe work practices.
Lease - A Lease is a contractual agreement between the Lessor (landlord) and the Lessee (tenant) to rent a property for a specified amount of months or years.
Lender - A lender is a person or entity that provides funding for your flip project.  As a flipper/investor you will have lender several options for your rehab projects:  Conventional Lender, Portfolio Lender, Private Money Lender, Hard Money Lender, Crowd Funding Lender.
Listing - A real estate listing is a home that is 'listed' on the MLS (Multiple Listing Service).
Loan Term - The Loan Term is the amount of time a borrower makes payments on loan.  A loan can be a Short-Term Loan ranging from only 6 to 12 months or be a long term loan from 10 years up to 30 years.  Most financing for flip projects will be short term, interest-only loans for 6 to 12 months.

M

Maximum Purchase Price - The Maximum Purchase Price is the maximum price you can offer for a flip property to earn your desired profit.  The Maximum Purchase Price is calculated as follows:

MPP =  After Repair Value - Repairs - Buying Costs - Holding Costs - Selling Costs - Financing Costs - Profit

Learn About the House Flipping Formulas
MLS (Multiple Listing Service) - The MLS is a data service provided by a group of cooperating Real Estate Brokers that hosts & lists real estate properties for sale in a consolidated online database.  The participating Real Estate Brokers share this information in a common local/regional MLS system, which is then provided to consumers on the broker's websites.  
Mortgage - A mortgage is a type of loan used to purchase real estate with the real estate itself being the collateral for the loan.  The mortgagee (the borrower) is required to make monthly payments, with principal and interest until the borrower eventually pays off the loan balance.  If the borrower stops making payments, the lender can foreclose and take possession of the property.
Mortgage Broker - A mortgage broker is a 3rd-party that shops loans from different banks and lending institutions to find the best mortgage deals, interest rates & terms for their borrowers.
Multi-Family Property - A multi-family property is a property that has more than one living-unit on the same property.  Examples of a multi-family property are duplexes, triplexes, quadplexes, or apartment buildings/apartment complexes.

N

New Construction - New Construction refers to the construction/development process of building an entirely new residential/commercial building from the ground-up.  New Construction includes Site Preparation, Foundations, Utilities & Structural Framing, and Exterior Siding Work, which is typically not included in a Rehab Project.

O

OPM (Other People's Money) - Other People's Money is a term commonly used to describe the strategy to utilized other people's money to fund your rehab projects, which will decrease your risk and increase your ROI.
Origination Fee - A loan origination fee is a fee that a lender charges upfront for entering into a loan agreement and processing the loan application/documents.  Loan origination fees can generally be around 0.5% to 1% of the loan value.

P

Pending Status - Pending status is the status of a property once an offer has been accepted on a property, and the seller no longer wants to accept back-up offers.
Points - Loan points are fees paid to the lender upfront at closing.  Generally, a Hard Money Lender will charge 2 to 3% of the loan value upfront.
Pre-Qualification - Loan Pre-qualification is the process of getting pre-qualified for a loan by submitting proof of income, assets and liabilities to your lender.
Principal - An Amortized Loan has both Principal and Interest payments.  The Principal is the portion of a mortgage payment that is used to pay-off the loan balance.
Property Taxes - Property Tax is tax assessed on real estate by the local government, which is usually based upon a property's assessed value.  Generally, your property's tax amount can be found by searching the local county assessors website.
Private Money Lender - A Private Money Lender is a non-institutional individual or company that lends money for purchasing real estate.   A Private Money Lender can be a family-member, friend, colleague or local passive investor that has money to invest in your rehab projects.
Profit ‚Äď The profit is the amount of gross profit you want to make on the project. ¬†Rehab profit is calculated by multiplying the profit % by the After Repair Value.

R

Radon - Radon is a naturally occurring radioactive gas that comes from the ground that can can cause cancer.  Radon can only be detected by testing and can be mitigate by installing a radon mitigation system.  Radon mitigation systems generally costs around $750 to $1,000 to install.
Real Estate Agent - A real estate agent is a licensed real estate professional who represents buyers and sellers in a real estate transaction.  Most agents work for a real estate brokerage firm that manages a group of agents.  Agents, generally charge a commission for selling the property of 3% each for the buyer's & seller's agent (6% total).
Realtor - A realtor is a real estate professional who is a member of the NAR (National Association of Realtors).  Realtors include real estate agents for residential and commercial properties, as well as salespeople, property managers & appraisers.
Recording Fees - Recording fees are fees that are charged by your local County Recorder's Office for registering and filing the property purchase or sale records at a matter of public record.  Recording fees are generally only $50 to $100.
REI - REI is a commonly used acronym that stands for Real Estate Investing.
‚ÄčRent-to-Own - Rent-to-Own is an alternative buying strategy in which a buyer leases the property for a set period of time, with the option to purchase the property when or before the lease expires.
‚ÄčREO - REO is a commonly used acronym that stands for Real Estate Owned. ¬†REO properties are properties that are owned by a bank or lender that were generally acquired through the foreclosure process.

S

Selling Costs- Selling costs are costs associated with selling real estate, such as realtor commissions, seller assisted closing costs & home warranties.  Generally, selling costs on a typical rehab project will be around 7 to 10% of the After Repair Value.
‚ÄčSeptic System - A Septic System is an on-site waste water treatment system that are utilized in areas that do not have public wastewater treatments drainage systems.
SFR - SFR is a commonly used acronym that stands for Single Family Residence.  A single family residence is a property that is zoned for one family.  
‚ÄčShort Sale - A Short Sale is a sale of a property in which the net proceeds of the sale will fall short of the balance owed on the property. ¬†In a Short Sale, the lender allows a homeowner to sell the property for less than the amount that is owed to the lender. ¬†
‚ÄčStaging - Staging is the process of preparing a property to sell by 'staging' the property with furniture and furnishings to make the property as appealing as possible to potential buyers.
Survey - A Survey is the process of measuring/laying-out property boundaries, easements and encroachments for a parcel of land as described in a deed.

T

Tax Lien - A Tax Lien is a lien imposed on a property to secure the payment of taxes.  A Tax Lien can be placed on a property if a homeowner fails to pay their personal property taxes or income taxes.
Tenant - A Tenant is an individual or entity that leases a property from a property owner.
Title Company - A Title Company is a company that performs a title search and provides title insurance for a property.  Title Companies also provide closing and escrow services for real estate transactions.
‚ÄčTitle Insurance - Title Insurance is insurance provided by a Title Company that insures the property has no debts, liens or judgements and the title is free-and-clear.
Title Search - A Title Search is an examination of public records performed by a Title Company to determine and confirm a property's legal ownership, and check for any outstanding debts, liens, or judgments against the property.
Total Investment ‚Äď The total investment is the total investment needed to fund the project which includes the purchase costs, fixed costs, & repair costs.
‚ÄčTransactional Funding - Transaction Funding is a form of Short-Term funding in which a wholesaler uses the funding to purchase of a wholesale deal, and wholesale the property to an end buyer, usually within 3 to 7 days.

U

Under Contract - A property is under contract when a buyer and a seller accept a contract for the property.  
Utilities - Utilities are holding costs that you will incur when you are rehabbing a property or holding a property long-term that include public services such as electric utilities, gas utilities, water supply/waste water services.  

W

Warranty - A Home Warranty is generally a one-year service agreement that is provided by a third-party service company to repair or replace any major home system components or appliances.  Generally, a Home Warranty will cost around $400 to $500 for one year coverage.
Wholesaler - A wholesaler is a real estate investor that 'wholesales' properties -  see wholesaling below...
Wholesaling - Wholesaling is the process of finding deals at a discount, getting the property under contract and re-assigning the contract to an end buyer for a small profit of $5,000 to $10,000.
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