Real estate can be a lucrative investment, but it can also be confusing. There are a lot of real estate terms that new investors should know. This article will define some of the most important ones according to Nelson Partners.
Equity is the difference between how much a property is worth and how much you owe on it. It’s what you would get if you sold the property.
A mortgage is a loan that you take out to buy a property. The mortgage is secured by the property, which means that the lender can seize the property if you don’t repay the loan.
Interest is what you pay to borrow money. It’s usually expressed as a percentage of the amount that you borrow.
The principal is the amount of money that you borrow. It’s the initial capital sum that you agree to pay back, plus interest.
The term is the length of time that you have to repay a loan. It’s usually expressed in terms of years or months.
Amortization is the process of repaying a loan in installments. Each installment consists of both principal and interest.
A balloon payment is a large payment that you have to make at the end of a loan term. It’s usually much larger than the regular monthly payments.
Refinancing is when you take out a new mortgage to pay off your old one. This can be useful if interest rates have fallen since you took out your original mortgage.
Foreclosure is when the lender seizes your property because you’ve failed to repay the mortgage. It’s a last resort for the lender, and it can result in significant financial problems for the borrower.
ARV stands for after-repair value. It’s the value of a property once it’s been fixed up and ready to be sold or rented out.
An appraisal is an estimate of the true market value of a property made by an experienced professional appraiser. Many lenders will only lend you money on properties that are worth more than what you owe on them, so they require that you have this done before offering you a loan.
A comparable market analysis is another way of estimating how much your house would sell for if it were put up for sale on the open market. It involves looking at similar properties that have recently sold in your area.
The title is the legal ownership of a property. It’s evidenced by a title deed, which is a document that proves who owns the property and how much they own it for.
Closing costs are the fees and expenses you have to pay when buying or selling a property. They usually amount to several thousand dollars.
An escrow is an account into which both the buyer and seller put money to be used for closing costs. A third party holds it until the transaction is complete, at which point it’s released to the appropriate party.
Rent-to-own is a type of contract whereby the tenant agrees to rent a property for a set period of time, with an option to buy it at the end of the term. This can be a good way to get into the property market if you can’t afford to buy outright.
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