Real estate basically comes with its own language. When you first start your real estate investing journey, you will hear many words and phrases, often times acronyms, thrown around. Instead of being left in the dark, read up on some of the most commonly used real estate terms.
REO: Real Estate Owned
Bigger Pockets explains that REOs, or real estate owned, is a term used for property that was foreclosed on by a bank that held a mortgage on the property. Typically, this means that the owner has no emotional connection to the property and is most likely not local so they have not seen its condition.
A short sale is the term used for a house sold for less than what is owed on it by the lenders who have liens on it. Short sales are lengthy and paperwork-intensive transactions, sometimes taking up to an entire year to process. However, short sales are not as detrimental to a homeowner’s credit rating as a foreclosure would be. A short sale looks better to possible future lenders and creditors. It shows you took action before the bank had to repossess your home. Homeowners who go through a short sale are often able to purchase a home immediately afterwards.
Most mortgages don’t get paid down evenly over time. Most mortgages are amortized, meaning that each month, a little more of the money you pay goes towards principal and less towards interest. At first the principal portion is not much at all. Over time, the principal side goes up and up, to the point where you build a big snowball of debt pay down each month.
Time Magazine explains that PITI stands for “Principal (P), Interest (I), property Taxes (T) and Insurance (I). This is the “bottom line” or the minimum you need to calculate when thinking about purchasing an investment property with a loan. Usually, this amount is calculated on a monthly basis so investors can calculate their expenses and the overall profit they need to bring in or leverage in order to pay for the property. By understanding these costs, you can better gauge the loan you might need or the price you need to charge for rent each month.
Now that you are familiarized with some of the most common real estate investment terms, you are one step further in your journey to being a successful investor!