Real Estate Investing - Beginner Jargon & Numbers

Real estate investing can seem intimidating to get started in, but it doesn't have to be. When you break things down to the basics and understand the economics, risk, and history of the market, it's pretty simple.

Here are some of the basic numbers and jargon you should know when getting started:

After Repair Value (ARV)

The projected market value of a property following specific renovations and repairs. House flippers frequently utilize ARV to determine the value of a property that needs work, including how much it can cost to purchase and then resell after repairs.

Cap Rate (Capitalization Rate)

A key metric investors employ to project a property's ROI. This figure is determined by dividing the net operating income generated by your property and the original cost or its current value.

Cash Flow

When talking about real estate cash flows, you're referring to both the funds that the property generates (such as rental income) and the funds that are spent in connection with the property. When a property has a positive cash flow, its revenue outpaces its costs. Inversely, when there is a negative cash flow, expenses outweigh revenues.

Rate of Return (RoR)

An investment's net gain or loss over a given time period represented as a % of the investment's original cost.

Return on Investment (ROI)

A way to calculate the profit you made on an investment as a percentage of the total cost.

Net Operating Income (NOI)

A formula used to evaluate the financial viability of real estate investments that produce income. NOI is the sum of all property revenues minus the operating costs that are deemed to be necessary.

1031 Exchange

A method of investing in real estate that enables investors to exchange one investment property for another while deferring capital gains or losses or capital gains tax that would otherwise need to be paid at the time of sale. Investors who want to upgrade properties without having to pay taxes on the profits frequently use this technique.

Comps (Comparable Sales)

Recently sold properties that, in terms of location, size, condition, and characteristics, are similar to the one you're looking to purchase or sell. Comps, short for "comparable sales," are used to calculate a home's fair market value.

Equity

The difference between your mortgage's total balance and the market value of your home. Simply put, it's the sum of money you'd get if you sold your house after paying off the mortgage.

Our team has a lot of experience guiding people through the process of buying investment properties and would be more than happy to help you start or continue your journey of real estate investing.

Contact us through the form below or give us a call, and we will help you understand all of your options.