What comes to your mind when you hear the word real estate? Money, house, land, rent, mortgage and people in suits. These real estate terms and ideas could have sprung in your mind. Good job! You aren’t far from the target.
If we dissect the term real estate, real means actual or authentic while estate means property. In other words, it is a bona fide and tangible property, above/below land, and the land itself. Samples could be houses, vacant lots, buildings etc. Real Estate may also refer to the actual production, buying and selling of properties.
It may look like an opulent realm that only very few have access to but it is actually not the case. If you want to sell, buy, rent, renovate or invest in a property then it is best to get seasoned experts to assist you along the way for best results, the doors to the world of real estate warmly welcomes you.
We can discuss the knit and gritty parts of it later but for now we can start with the simple real estate terms that you will usually encounter in this exciting journey! These real estate terms may be foreign to most of us but in due time you will pick it up with ease!
Let us use John for example as he just bought a house in old town Brisbane, Australia.
His dream home’s original value is $400,000 but since he worked with an experienced realtor, he was able to purchase it at $380,000. His cash on hand is limited so the bank will now come into the scene and here’s how our real estate terms list starts!
This is a legal agreement with a bank that can be used if you can’t or don’t want to pay for the entire value of the property that you are interested with up front. In John’s case, the bank will lend him money with some interest on top so he could pay for it in a monthly installment plan such as a 25 or 30-year mortgage.
The bank would like you to give a deposit so an initial payment is required. John is asked to pay 10% of the sale price so he paid $ 38,000 as down payment. How much does he owe the bank now? Correct, $342,000.
The bank would like to earn from the loan that they gave John so they applied interest on top of it. It is expressed as a percentage of the principal. Typically, John’s 30-year mortgage has an interest rate of almost 5%. Try to do the math and check what John’s monthly will be for his house.
The difference between what John owed to the bank versus the actual value of the house is called equity. In his case, it is $58,000. This is good news as equity is a part of his net worth.
Net worth is simply the value of everything that you own minus expenses and debts. A constant growth in net worth means great financial health. John’s net worth is looking great!
What if John finds a new home and decides to let Paul rent his house at a certain price per month? His house becomes a rental property.
Since John turned his home into a rental property, he is now called a landlord. He will have a contract with Paul which includes their rights and responsibilities with respect to each other.
A person who occupies a residential or a commercial property is called a tenant. He pays a certain amount every month in return of utilizing the property. Paul is John’s tenant.
Paul’s payment to John is called cash flow. John’s monthly payment for his home is around $1000. He decided to let Paul pay $1,300 every month. John now has almost $300 income from his rental property! Literally, cash continuously flows into John’s account on a monthly basis.
Doesn’t it sounds good when you get paid whether you work or not? That is what passive income is. It is also called as residual income as you continuously earn it every month on an ongoing basis. John’s income from his rental property is an example. Kaching kaching!
Rent and lease may be similar in nature but has major differences when it comes to the agreement. Lease agreement usually lasts longer (12 months or more) and provides more specific details when it comes to the obligations of both parties. One of the basic real estate terms that you would want to remember.
What if John decided to sell his home after a year? That is called flip. It is usually based on the “buy low, sell high” strategy or buying houses which needs repairs and then reselling it at a profit.
Listed above are 12 basic real estate terms that you would want to familiarize yourself with as we further discuss real estate and the benefits of working with a realtor in the long run. These will help you understand the language of real estate.
Did you learn and enjoy doing the math for John’s real estate? I hope you did!