10 Terms All Rental Investors Should Know

Are you serious about immersing yourself in the rental investment industry? If you are, you'll find that navigating this business is easier once you learn some of the common terms. This way, you won't be clueless when you find yourself in the company of realtors discussing rental investments. You'll be able to hold yourself well during those conversations.

As a landlord, you'll also constantly meet these terms. The sooner you start familiarizing yourself with them, the better! The following below are some of the common terms that rental investors often use in the rental investment industry:

1. Short-Term Rental

A short-term rental property is also known as a vacation rental. It's typically furnished and can be a single-detached home, condo unit, or apartment. People rent it for a short time, especially for short holidays.

Some short-term rentals are seasonal, such as those near the seaside or famous city attractions. The demand is high during summers and school breaks. This kind of rental is also popular on Airbnb listings, where tourists book accommodations for a short trip.

2. Long-Term Rental

When you turn your property into a rental home and welcome tenants who stay longer, this kind of unit is considered a long-term rental. Normally, the leasing agreement is a minimum of one year. Most property owners aim for long-term rentals for more consistent earnings or quicker ROI.

3. Rental Income

Rental income is a basic term and it refers to the money paid to you by the renter staying in your property. If the tenant is also renting a storage area or a parking space, then that also refers to rental income.

All the payments you derive from having your asset rented out is considered rental income.

4. Cash Flow

Cash flow is the net amount that a property owner ends up with after paying for all operational expenses and loans. For example, your rent payment is $2,000, and you pay $100 for utility bills and $400 for your mortgage monthly payment.

You deduct these expenses and will be left with $1,500. This is your cash flow. It's positive since the deductions are lower.

On the other hand, if your mortgage monthly payment is $2,000 per month, your cash flow is negative $100. This is considered as a negative cash flow since the expenses are greater than the income you received.

5. Credit Score

A credit score is a measure of a person's creditworthiness. It can range between 300 and 850. If your credit score is high, it has a positive impact.

Lenders will easily let you borrow money. Landlords are also open to accepting your tenancy application.

On the opposite end, if your credit score is low, it will be hard to get a loan or be accepted for tenancy. The credit score is used to indicate your ability to pay off your liabilities. This is actually determined by the number of accounts, debts and repayment history you have.

6. Appreciation

A real estate property tends to rise in value over time. This is termed as appreciation. In contrast, cars and computers tend to depreciate over time. Properties generally stand a good chance of increasing in value due to inflation and strong demand.

While it's easy to manufacture cars or make computers, land is a finite resource. So, it's prone to being more expensive to buy in the long run. Rental investors purchase properties based on an estimate of its appreciation after a period of time.

7. Hard Money Loan

A hard money loan is a type of loan that uses the real estate property as a collateral. It's also known as a "last resort" loan. Individuals or companies offer a hard money loan instead of banks, given its inherent risks.

When a borrower has low finances and turns a real estate property into a collateral, it's easy to get quick funding. The period of payment is also shorter at 3 years or less. If the borrower is unable to pay back the loan, the lender can still benefit, especially if the property's value is high.

Some rental investors opt to make a hard money loan as an investment strategy. They purchase and renovate a property using a hard money loan, then sell it for a good profit.

8. Pre-Approval Letter

A pre-approval letter is documentation issued by a lender that states a pre-approved mortgage. It signifies more trust in letting one borrow money for a loan. In a pre-approval letter, one can find the following: the loan type, loan amount, interest rate and pre-approval offer period.

A pre-approval letter is not a 100% guarantee for a home loan. This depends on your financial situation assessment if there are any changes. Still, property sellers feel more confident if a buyer can secure a pre-approval letter. This means that adequate financing is readily available.

9. Single-Family Home

A single-family home is a freestanding single unit of residence. It's not attached to other homes through common walls or a single roof. It occupies its own land, with no other property sharing its space. The surrounding area is free to be used by the owner.

One of its elements is having direct private access to a street. In terms of utilities, there's no sharing of bills with other properties such as the basic water, electricity, heating and other applicable services. Single-family homes also contain a single kitchen designed for the use of one family, household or single person.

10. Multi-Family Home

A multi-family home is built for multiple house dwellings. There are different types of multi-family homes. They can either be a duplex, triplex, townhouse, apartment complex or semi-detached house.

Multi-family homes are commonly occupied by families living in separate residences. This means that each unit has its own utility meter, kitchen, bathroom, living room and entry access points.

In real estate, multi-family homes contain 4 units or less. Above that number, the property is categorized as a commercial property. Another element of a multi-family home is that each unit has its own address.

Bottom Line

By familiarizing yourself with these terms, you'll experience an easier time navigating investment-related conversations in no time. If you need further help as a rental investor, it also doesn't hurt to hire a property management team to support you and your investment goals. Contact Suncastle Property Management today and we'll help you every step of the way.

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