September 14

Real Estate Investing Terms Every Beginner Should Know

Chief Editor

Real estate investing is an investment strategy that involves buying, selling, and renting properties. You can find great opportunities in both residential and commercial properties. While real estate investing can provide a steady stream of income for investors, it's important to understand the terms involved when investing in real estate.

At the heart of wise real estate investment is a thorough understanding of terms and key players.

Adopting a practical approach to real estate investing is the key to success. It's important for beginners to have an understanding of what terms and players are involved in the process. First, let's take a look at some of the most important terms that any beginner should know.

  • Rental Property: A rental property is any real estate that you rent out or lease to someone else. This could be your own home or an investment property you purchased with the intention of renting it out (a “buy-and-hold” strategy).

  • Short-Term Rental: If you only want to rent out your property for a period no longer than 3-12 months, then this is what you'll do with it! Short-term rentals provide more flexibility but also come with less income potential than long-term rentals do.

  • Long-Term Rental: Want to make sure your renters are around for good? Then consider going with long-term rentals instead! These typically yield higher returns over time because they involve greater commitment from both parties involved—you as owner/investor and them as tenant/renter—but also require more initial work on your part since there are many more details involved than in short-term rentals (such as securing financing).

Next up we have some key players...


Equity is the difference between the value of a property and the amount of debt against it. Equity is also known as net worth or net assets. Equity is calculated by subtracting the balance of all debts from the value of an asset. For example:

  • Joe owns a rental property that has an assessed value of $100,000 and has no mortgage on it (this means he's paid off his mortgage). The current market value for that house is $110,000.

  • His equity in this house would be $10,000 ($110k - $100k)

Rental Income

Rental income is the money you earn from renting out your property. Rental income is also called "net operating income" or "NOI." This is a key metric in real estate investing, as it represents your total monthly profit from renting out properties.

In addition to calculating rental income on a per-month basis, you can also calculate it on an annual basis. Simply divide the total amount of rent by 12 months (or 360 days) and you'll have your annualized rental income figure.

Cash Flow

Cash flow is the difference between the amount of money you bring in from your rental property and the amount it costs you to run it. Some people refer to cash flow as "positive cash flow," since this means more money is going out than coming in. If a property has negative cash flow, that means there's more money going out than coming in—and that's not good for investment.

To calculate a property's cash flow, start by figuring out how much rent it generates each month—this is called gross operating income (GOI). Then deduct all expenses related to running the home: mortgage payments; property taxes; miscellaneous repair costs; insurance premiums; etc. The resulting figure indicates net operating income (NOI). For example: if your rental generates $2,500/month but costs $2,100/month to maintain and run, then its NOI would be -$400/month ($2,500 – $2,100 = -400).

If the NOI is positive (more income than expenses), then congratulations! That means your rental business has positive cash flow. However, if it has negative cash flow (-$400) then this might not be such good news...

Pre-Approval Letter

A pre-approval letter is a document that a lender issues to a potential borrower, which states that the lender has reviewed the borrower's financial information and agrees to lend up to a certain amount to that borrower.

This document is used as proof of eligibility for financing when you make an offer on real estate.

Seller's Market

A seller's market means fewer options of homes available and higher prices because there's more demand than supply in terms of listings and inventory.

Buyer's Market

When the number of homes on the market outweighs the number of buyers, it's a good time to be a buyer. Buyer's markets are generally considered favorable for buyers in that they allow them more options.

If there are more houses than people interested in buying them, sellers can expect to receive lower offers for their properties since there is less competition from other sellers. This means that you'll get more bang for your buck!


  • Appreciation is the increase in the value of a property.

  • It's important to remember that appreciation is not guaranteed, so don't get caught up in trying to time it perfectly.

  • The amount of appreciation may vary depending on location and other factors, but there are also periods when properties have no or negative appreciation (this happens most often during economic downturns). If you're investing for appreciation alone, be prepared for your investment to lose money from time to time!

  • Appreciation can take place over the course of months or years, so keep in mind that if you're looking for short-term returns on your investment, this isn't what you should be focusing on.

Predictive Analytics

Predictive analytics is a method of forecasting future outcomes based on historical data. It is used to predict future sales, trends, and customer behavior. Predictive analytics also tries to spot patterns in the data that can be useful for making better decisions in real estate investing.

Hard Money Loan

A hard money loan is a type of real estate investment loan that gives you access to money in exchange for your property. The person who lends you the money owns the property and earns interest on it during its use as collateral. Most hard money lenders take possession of your home until they're paid back, so if you default on the loan, they'll foreclose on your house and sell it at auction to recoup their losses.

Hard money loans are typically used when conventional financing isn't available or affordable—for example, when buying distressed properties with cash flow problems (like a foreclosure), investing in a rental property without enough equity in it yet, or getting into a fixer-upper with big potential upside but little equity built up yet. A borrower has quite a bit more flexibility with this type of loan than he would with traditional financing: he can borrow an amount greater than his down payment; he can use 100% owner financing instead of having 25% down; he doesn't have to wait six months after closing before taking the title, and there aren't many restrictions about how long before purchase date funds need to be provided by either party (as opposed to standard mortgage rules).

Debt-to-Income Ratio

Debt-to-Income Ratio (DTI) is the ratio of your monthly debt payments to your gross income. A low DTI means you'll be able to easily qualify for a home loan, while a high DTI means it will be difficult for you to obtain a loan.

A good rule of thumb is to keep the number below 36%, but there are exceptions depending on the type of property and location, so talk with your mortgage lender about what they would recommend for your situation.

Cash on Cash Return

The cash on cash return is a basic metric used to determine the relative value of a real estate investment. In simple terms, it's the percentage return you make on your investment after accounting for all costs (taxes, maintenance, etc.).

The formula for calculating cash on cash return is:

(Gross Rent - Operating Expenses) / Purchase Price = Cash On Cash Return

For example: If you buy an investment property for $100k and rent it out for $1,200/month at 7% cap rate, then your gross monthly rental income would be $1400 and operating expenses would be about $500 (6% of purchase price). Therefore your COCR would be 1.4%. In this case, we could say that with these numbers (and assuming no other fixed expenses), we'd expect our initial investment to compound by 14% per year over time.

Cap Rate

Cap rate is the ratio of net operating income to the value of a property. In other words, it's used to determine how much money can be made on an investment property by dividing its net operating income (the amount left over after paying expenses) by its price.

Cap rates are useful ways to compare different properties and real estate investments because they don't take into account any additional factors like appreciation or depreciation. A higher cap rate means that you're getting more money back with each dollar invested, while a lower cap rate indicates that your investment isn't bringing in as much cash as others'.

For example: If you have two properties with similar prices but different monthly rents and expenses, one might have a higher cap rate than another because it has lower expenses (or vice versa). This could mean that even though one property costs more than another, it may actually be worth more when considering the overall profitability of investing in either property over time.

Credit Score

A credit score is a number between 300 and 850. It's based on your credit history, which includes any loans you have taken out or used in the past. Your credit history will affect the interest rate you get on loans. For example, if you have paid off a loan before its due date, that will improve your score. Credit scores also determine whether or not someone is a good risk to lend money to; they help lenders decide whether they should give out a loan at all.

Off-Market Property

Off-market properties are not listed on the MLS (Multiple Listing Service). Off-market properties are not advertised, and they're not listed on real estate websites.

In order to purchase an off-market property, you'll need a broker who knows what they're doing. Otherwise, you may find yourself buying a property that's overpriced or even completely worthless.

Internal Rate of Return

The internal rate of return (IRR) is the annualized rate of return on investment. It’s a measure of the profitability of a project or investment, calculated by discounting all future cash flows back to the present day at a single interest rate. It’s one way to compare different investments, and it can help you determine whether or not an investment is worth pursuing in the first place.

To calculate IRR, use this formula: (1 + IRR)/(1 – i) = 1/(1 + i), where i is the initial investment amount and IRR is your desired yield after taxes and fees are accounted for.

Real Estate Agent

A real estate agent is a professional who helps people buy, sell, or rent a property. They are also called "agents" or "brokers".

Real estate agents can be licensed by the state in which you live. They help their clients find properties that fit their needs and budget. Some real estate agents specialize in a certain type of property such as commercial or residential homes; others work with both types but have more specialized knowledge about one type than another (e.g., residential).

Real Estate Broker

A real estate broker often works for a brokerage firm or brokerage. These brokers have access to a database of properties for sale and can help you find the right home, negotiate the best deal and get into the property at an attractive price. They can also assist with paperwork, finding lenders, and even helping find a property manager.

Rental Property Calculator

There are many ways to determine how much rental property you can afford. One of the simplest methods is using a rental property calculator. This tool will help you figure out how much income your potential investment property can generate and how much it will cost to maintain and pay for other expenses.

Rental property calculators take into consideration several factors, including:

  • Gross Rent Multiplier (GRM): The GRM is an estimate of what the income from your rental property can cover in terms of mortgage payments, taxes, and insurance each month. For example, a GRM of 1.5 means that for every dollar in gross rents received by the landlord per month, he or she pays 50 cents toward mortgages and taxes on the building itself (and any other debt). A higher GRM means there's more money available after paying off those expenses; conversely, lower GRMs mean less surplus cash when all is said and done with paying off loans against real estate holdings.* Net Operating Income (NOI): NOI refers specifically to income from a single unit within a larger building—which may include apartments as well as retail stores or offices leased by commercial tenants—and does not include any leases signed by individual occupants within those units.* Capitalization Rate: The capitalization rate expresses what percentage return an investor would receive if he/she put down $1 million ($1M) into buying this particular piece of real estate today; this calculation takes into account both appreciation (how much more value could be added) as well as sinking funds needed over time because certain repairs need fixing again before resale becomes possible

Single-Family Home

Single-family homes are usually smaller than multi-family homes. They are also often cheaper than multi-family homes. The major difference between single-family and multifamily real estate is that single-family homes are owned by one family, whereas multifamily properties can be owned by several families.

Single-family homes tend to be more affordable for first-time investors because of their lower price tag compared to apartment buildings or condo complexes. However, there are also some disadvantages: For example, you’ll need additional skills when it comes to maintaining your property if you want to avoid costly repairs (e.g., repairing leaks in the roof). In addition, buying a home usually requires a down payment of 20%–30%.

Multi-Family Home

A multi-family home is a house that has more than one unit. The units can be apartments, condos, or townhomes. Each of these individual units has its own kitchen, bathroom, and living space. This means that the property owner will have to maintain the property (including lawn care) as well as share utility costs for each unit.

When purchasing a multi-family home for investment purposes, it’s important for you to make sure that your tenants are credit-worthy and responsible people who will pay on time every month without fail. If you are looking into buying this type of real estate investment property then make sure you have a good inspection done first before making an offer so that there won’t be any surprises later down the line when buying something sight unseen online where pictures aren't always accurate, either due to lighting conditions or camera resolution limitations which may not show issues such as if there are cracks in walls, etc.


This is the real estate world, you need to know the terms and understand them. As a beginner, this list of basic real estate terms will get you started on your journey as an investor in no time!

Seller Leads in Real Estate

Unlocking Success in Rental Property Investments: A Comprehensive Guide to Evaluating Potential Properties

Investing in rental properties can be a lucrative venture, providing a stable income stream and long-term wealth accumulation. However, to maximize your potential returns and make informed investment decisions, it is crucial to carefully evaluate potential rental properties.

Read Story
Seller Leads in Real Estate

Real Estate Investing Mastery: Expert Tips to Supercharge Your Portfolio Growth

Investing in real estate, particularly rental properties, can be a lucrative way to grow your wealth over time. However, it requires careful planning, analysis, and execution to build a successful real estate portfolio.

Read Story
Seller Leads in Real Estate

Mastering Real Estate Investing: Navigating the Pitfalls of New Investors

Investing in real estate can be an exciting and potentially lucrative venture. The promise of passive income, wealth creation, and financial freedom often lures new investors into the realm of real estate. However, navigating this complex and dynamic industry requires knowledge, careful planning, and avoiding common pitfalls.

Read Story
Seller Leads in Real Estate

"The Tenant's Wishlist: A Comprehensive Guide for Property Investors to Meet Tenant Demands and Maximize Rental Success"

Investing in rental properties can be a lucrative venture, but understanding what tenants truly desire is crucial for success. This guide aims to provide property investors with a comprehensive understanding of tenant preferences, enabling them to make informed decisions when acquiring and managing rental properties.

Read Story
Seller Leads in Real Estate

Decoding Rental Property Depreciation: A Complete Guide for Financial Success

Owning a rental property can be a lucrative investment, but it also comes with various financial responsibilities. One of the essential aspects of managing rental properties is understanding how to handle depreciation. Depreciation allows you to deduct the cost of wear and tear on your property over time, reducing your taxable income and increasing your potential for long-term financial gains.

Read Story
Seller Leads in Real Estate

What Is House Hacking and Would It Work for Me?

House hacking can come in several forms. It could mean you have a single-family dwelling and you rent out a guest bedroom. Or maybe you own a duplex and rent out one side to someone else. Either way, that’s what house hacking is.

Read Story
Seller Leads in Real Estate

Here’s How to Snag Unlisted Properties

The best deals aren't published. As any smart investor knows, you have to go below the surface to find off-market opportunities that make it possible to close without competition. What is an off-market listing? Off-market real estate refers to any property that is being sold outside of the conventional "listing" process.

Read Story
Seller Leads in Real Estate

Real Estate Investor FAQs

This Real Estate Investor FAQ blog covers questions on How to: get started in real estate investing, Types of real estate investors, Real estate wholesaler, short-term rental income, reducing your tax liability, types of financing, and hard money loan.

Read Story
Seller Leads in Real Estate

Start Your House Flipping Business the Right Way

Many who are interested in real estate investing want to get into the house-flipping business. It looks fun, and if you watch all the flipping shows on television, you might even think that it’s easy.

Read Story
Seller Leads in Real Estate

What You Need to Know About Short-Term Rentals

Are you considering turning a property you already own into a short-term rental? Perhaps you are a real estate investor actively looking for properties that would fit well in this niche. Regardless, you will need to make sure you know the ins and outs of these types of rental properties before getting started.

Read Story
Seller Leads in Real Estate

What Is Wholesaling in Real Estate and Is It Right for Me?

Anyone interested in real estate investment has probably come across multiple ways to get started. Some people flip houses, while others rent out properties. Another method to make money with real estate is through wholesaling.

Read Story
Seller Leads in Real Estate

Maximizing Your Potential: 10 Effective Strategies for Real Estate Lead Generation and Conversion to Reach 6 Figures

Real estate lead generation and conversion is a crucial aspect of building a successful real estate business. In today's competitive market, it is essential to have a strategic plan to generate and convert leads effectively.

Read Story
Seller Leads in Real Estate

Revolutionizing Real Estate Marketing: How SmartZip's Predictive Platform Gives Agents and Teams a Competitive Edge

Real estate is a highly competitive industry, and it can be challenging for agents and teams to stand out from the crowd. That's why many real estate professionals turn to SmartZip, a leading provider of predictive marketing solutions, to help them boost their visibility, generate more leads, and close more deals.

Read Story
Seller Leads in Real Estate

Boosting Your Real Estate Business with Reach150: The Benefits of Online Reviews and Testimonials

Real estate agents face a challenging and highly competitive market. With so many options available to homebuyers and sellers, it can be difficult for agents to differentiate themselves from the crowd. One way to do this is by leveraging online reviews and testimonials. This is where Reach150 comes in.

Read Story
Seller Leads in Real Estate

Maximizing Email Response Rates in Real Estate: Tips and Best Practices

The real estate industry is highly competitive, and it can be challenging to capture the attention of potential clients. However, email marketing is a cost-effective and efficient way to reach out to prospects, establish relationships, and promote your business.

Read Story
Seller Leads in Real Estate

10 Powerful Real Estate Marketing Ideas to Attract More Clients

Real estate marketing is a vital component of any successful real estate business. The industry is constantly evolving, so it's important to stay up-to-date with the latest marketing strategies to ensure you're reaching potential clients effectively.

Read Story
Seller Leads in Real Estate

5 Steps to Nurturing Your Past Clients and Sphere of Influence in Real Estate

Real estate is a highly competitive industry, and building long-term relationships with past clients and sphere of influence can help you stand out from the competition.

Read Story
Seller Leads in Real Estate

Unlocking Real Estate Lead Generation: Proven Strategies for Success

Real estate lead generation is the process of finding potential buyers or sellers who may be interested in your services. As a real estate agent or broker, it is essential to generate leads consistently to keep your business thriving.

Read Story
Seller Leads in Real Estate

Sphere of Influence Real Estate Marketing: Building Relationships for Lasting Success

Sphere of Influence (SOI) real estate marketing is a strategy used by real estate agents to grow their business by tapping into their existing networks. The SOI refers to the people in an agent's personal and professional circles, such as friends, family, colleagues, and past clients.

Read Story
Seller Leads in Real Estate

Digital Trust: How Real Estate Agents Can Build a Positive Reputation Online

The real estate industry has undergone significant changes in the past decade, particularly with the advent of digital technology. The internet has provided agents with a wealth of information and tools to streamline their work and reach a wider audience.

Read Story
Seller Leads in Real Estate

Maximizing Your LinkedIn Presence: Best Practices for Real Estate Agents

LinkedIn is a valuable social media platform for real estate agents to connect with potential clients, build their personal brand, and showcase their expertise. With over 700 million users, LinkedIn offers a vast network of professionals that can help agents grow their business.

Read Story