Terms Every Beginner Real Estate Investor Should Know Part 1
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This is part one of my four-part series covering Real Estate Terms and Acronyms
Many years ago, when I started investing in real estate I was confused by the terms and the acronyms the brokers were mentioning. I had never heard of things such as “Cap Rate” or “Cash on Cash” also known as “CoC.” I searched everywhere for a list of real estate terms but did not find any. Additionally, you must learn how to calculate these metrics as they are important to understand and measure if you are to make money investing in real estate. Therefore, I have decided to publish a list of real estate terms and metrics explaining how to calculate them.
Combined together, all four parts of this series present a comprehensive list of terms, acronyms and metrics. I have added explanations where necessary and shown how to calculate the metrics. So, let’s dive in…
Basic Real Estate Terms
- SFR: Single Family Residence
- MF: Multifamily property. This applies to any single building that contains 2 or more residences.
- Duplex: A 2-unit multifamily property
- Triplex: A 3-unit multifamily property
- Quadruplex: This is a 4-unit multifamily property. It is also called a Quad or 4-plex.
- Condo (Condominium): Is one unit of a group of units where the residents own their individual unit, and all the units share ownership of common use areas. The homeowners are responsible for maintaining the interior of their unit. Usually, there is an HOA (see below) that is responsible for maintaining the common areas. Condos can be residential or offices or retails units. Real estate investors can purchase a condo and rent it out. Both the owner and the tenants should be aware of and will have to abide by the association’s Conditions, Covenants, and Restrictions (see CCR below).
- HOA: This is the Home Owners Association that is responsible for maintaining the common area in residential sub-divisions and condominium buildings. The HOA has board members who are reside in the community. The board is responsible for establishing rules for the community. These rules usually address landscaping, external property changes, parking, pets, etc. If you purchase a SFR or a Condo in a HOA, you should be aware of and will have to abide by the association’s Conditions, Covenants, and Restrictions (see CCR below).
- CCR: This refers to Conditions, Covenants, and Restrictions. These are usually found in HOA; however, these terms can be included in rental agreements, contracts and deeds as well. In layman’s terms, these can be considered community rules that most of the property owners have agreed to. As a new owner, both you and your tenants will have to agree to perform, or not perform, certain actions.
- Residential Properties: This classification is applied to SFR and properties containing up to 4 units. Many new investors get started by House Hacking. Even though 2-4 units are multifamily properties, these are classified as residential properties and qualify for residential mortgages.
- Commercial Properties (also known as commercial real estate): Your first thought is that office buildings, medical centers, hotels, malls, retail stores, farm land, and warehouses fall into this category. However, any residential property containing 5 or more units is also consider a commercial property. This is an important distinction since commercial properties are valued using different methods. These properties are financed with commercial loans that have very different terms and rates compared to residential mortgages.
Every investment, including real estate, contains some form of risk. My hope is that you will use these terms to help you make better decisions and mitigate some of the risks. This is part one of a comprehensive list; it just covers the basic terms needed to get started in real estate investing. Look for parts two, three, and four coming soon. There are many more terms and acronyms that you will come across as you advance in your journey. Wikipedia has a detailed index of real estate related terms.
I wish you good luck!