47 Real Estate Terms Property Investors Should Know

Real estate is a massive $119.80 trillion global industry that encompasses everything from quaint homes to soaring office towers and industrial parks. But this world is far from static — new real estate strategies, terminologies, and technologies seem to pop up every year, keeping things interesting for those invested in the real estate sphere. In 2024, we're seeing new terms like "co-living spaces" and "rent by room".

Getting familiar with the common real estate terms gives homeowners, investors, and industry professionals a solid foundation to build off of. Here, we'll provide an overview of some of the most common and important real estate terms, serving as a primer for real estate investors.

From concepts like mortgages, appraisals, and equity to more advanced topics like 1031 exchanges, capitalization rates, and real estate investment trusts (REITs), we'll cover a diverse range of terminologies. But this is just the tip of the iceberg. For a more comprehensive guide, check out our in-depth real estate glossary as your go-to resource for all things real estate.

The real estate terms to add to your vocabulary

Step into any industry event or lender's office, and you'll quickly be inundated with many acronyms and jargon. You might hear a flipper discussing ARV (after-repair value) or a mortgage lender referencing LTV (loan-to-value ratio). These terms are the building blocks for communicating effectively about properties, transactions, and investments.

Understanding this language allows you to participate in conversations confidently and helps you to make the best decisions throughout the real estate process. Here's our list of 47 terms to get you started:

1031 exchange

A 1031 exchange, named after Section 1031 of the U.S. Internal Revenue Code, is a tax-deferral strategy that allows real estate investors to defer capital gains taxes on the sale of an investment property by reinvesting the proceeds into a similar property of equal or greater value. This process is also known as a like-kind exchange.

Amortization

Amortization describes the process of gradually reducing debt over a period of time through regular payments. Each payment includes a portion that goes toward the principal amount borrowed and a portion that covers the interest on the debt. This method spreads the cost of a large expense over several years, making it more manageable to pay off.

Appraisal

An appraisal is an evaluation process to determine the current market value of a property. A professional appraiser examines the property in detail, comparing it to similar properties in the area that have recently sold. The appraisal considers various factors, such as the property's location, condition, and features.

This property valuation comes into play when securing a mortgage, refinancing, selling, or buying a property, as it helps all parties involved verify the price is fair and accounts for true market conditions.

Appreciation

Appreciation refers to the increase in the value of a property over time. This growth can happen due to various factors, such as improvements to the property itself or changes in market conditions, such as a shift in supply and demand. Appreciation benefits property owners, as it boosts the potential profit they can earn if they decide to sell.

After repair value (ARV)

After-repair value (ARV) is an estimate of a property's future value after repairs and renovations. This figure helps investors looking to purchase fixer-upper properties to calculate the potential selling price after making the improvements. ARV assists investors with budgeting their renovation costs appropriately and determining a property's potential profit.

Capital gains

Capital gains refer to the profit earned from the sale of an asset, such as real estate, stocks, or bonds. In many jurisdictions, capital gains are subject to taxes, which can vary depending on how long you hold the asset before selling. Short-term capital gains apply to properties held for less than a year and get taxed at the same rate as normal income. If you hold real estate beyond one year, long-term capital gains apply.

Capitalization rate (Cap rate)

The capitalization rate, commonly referred to as the cap rate, is used to assess the potential return on an investment property. It is calculated by dividing the property's net operating income by its current market value or purchase price.

CapEx

CapEx, or capital expenditures, refers to the funds used to buy, upgrade, and maintain physical real estate assets. Property owners use CapEx for expenses that improve the property's value or extend its life, such as replacing a roof, installing new HVAC systems, or major renovations. These costs are typically not expensed in the period they are incurred. Instead, they're capitalized and depreciated over the life of the asset.

Cash flow

Cash flow refers to the net amount of money the property owner has left over after paying all expenses. These expenses include mortgage payments, property management fees, maintenance, and taxes.

Positive cash flow indicates that a property generates more income than it costs to maintain and operate, making it a potentially profitable investment.

Co-living

Co-living refers to a housing arrangement where individuals or unrelated people share living spaces and amenities, such as kitchens, living rooms, and sometimes bathrooms, in a communal setting. This arrangement often includes private bedrooms for each resident but emphasizes shared common areas.

Closing costs

Closing costs are the various fees and expenses that both buyers and sellers incur during the process of completing a real estate transaction. All parties pay these at the closing of the property sale, which is the final step in executing the real estate transaction.

For buyers, closing costs may include fees for loan origination, credit checks, title searches, title insurance, surveys, taxes, deed recording, and escrow. For sellers, these costs might involve real estate commission fees and potential repairs required by the contract.

Commercial real estate

Commercial real estate refers to properties used primarily for business purposes, such as office spaces, retail locations, warehouses, and industrial sites.

Investing in commercial real estate often involves larger initial investments and more complex transactions compared to residential real estate. The returns can be potentially higher, driven by longer lease agreements and generally more stable rental income streams.

Comparative market analysis

Comparative market analysis (CMA) is a tool for determining a property's value by comparing it to similar properties in the same area that have recently been sold, are currently on the market, or were on the market but did not sell. This analysis helps to determine competitive market prices and establish an accurate listing price for a property.

Real estate agents typically perform a CMA when they list a new property for sale. The process involves selecting properties that are similar in size, location, condition, and amenities. The agent may make adjustments to account for differences between the properties to confirm that the comparison is as accurate as possible.

Construction loan

A construction loan is a short-term, high-interest loan that provides financing for the building or significant renovation of a home or other real estate project. This loan type is typically disbursed in stages as the construction progresses. Each disbursement coincides with a specific phase of the project, such as laying the foundation, framing, or completing the interior.

Credit history

Credit history is a record of a person's or company's past borrowing and repaying behavior, including information about late payments and bankruptcy. It includes details about how much credit you have available, how much of that credit you're using, and whether you're paying your bills on time. Mortgage lenders and landlords review this history to assess how responsible and reliable you are when it comes to financial commitments.

Debt service

Debt service refers to the cash needed to keep a loan in good standing and avoid default. In real estate, debt service directly impacts cash flow. Investors often use the Debt Service Coverage Ratio (DSCR), which compares a property's annual net operating income to its annual debt service to assess whether the income generated is sufficient to comfortably cover the debt.

Depreciation

Depreciation refers to the gradual reduction in the value of a property over time due to wear and tear or obsolescence. For investment properties, depreciation allows investors to deduct the cost of the property over its useful life, effectively reducing taxable income. This tax deduction acknowledges that the property loses value as it ages, even if the market value appreciates.

Down payment

A down payment is the initial, upfront portion of the total purchase price paid when buying property. The down payment is typically a percentage of the home's purchase price and is paid at closing. The size of the down payment affects the amount of the loan needed. A larger down payment can also lead to more favorable loan terms, such as lower interest rates or reduced lender fees.

Due diligence

Due diligence is the detailed investigation and assessment of a property before finalizing a real estate transaction. This process involves verifying all financial, legal, and operational details to make sure there are no surprises after the purchase. For property investments, due diligence might include reviewing the title, inspecting the physical condition of the property, and analyzing existing leases.

Due on sale clause

A due on sale clause is a provision in a mortgage or deed of trust that requires the borrower to pay off the entire remaining loan balance upon transferring the property. This clause prevents the new buyer from taking over the existing mortgage under the original terms. When a property is sold or conveyed, the lender typically has the right to demand immediate repayment of the loan, which often prompts the new buyer to get their own financing.

Earnest money

Earnest money is a deposit made by a buyer as a show of good faith when entering into a contract to buy a home. It demonstrates the buyer's commitment to the transaction and stays in an escrow account until closing. The amount can vary but often ranges from 1% to 3% of the purchase price. If the sale goes through, the earnest money deposit gets applied toward the down payment or closing costs.

If the buyer backs out of the deal for reasons not stipulated in the contract, the seller may keep the earnest money as compensation for the time the property was off the market.

Equal Credit Opportunity Act (ECOA)

The Equal Credit Opportunity Act (ECOA) is a U.S. law that prohibits discrimination in credit transactions based on race, color, religion, national origin, sex, marital status, age, or because someone receives public assistance.

Equity

Equity is the difference between a property's market value and the amount owed on any mortgages or loans secured against it. It represents a homeowner's ownership interest in their property.

As you pay down your mortgage and as the property value increases, your equity grows. Homeowners can leverage their equity for various purposes, such as taking out home equity loans or lines of credit or as a down payment when purchasing another property.

Escrow account

Escrow accounts serve two purposes: temporarily holding funds during a real estate transaction and managing payments over the life of a mortgage. During a real estate transaction, the buyer deposits earnest money into an escrow account until the transaction closes. This confirms that a neutral third party safely holds the funds until all parties meet the conditions of the sale.

Mortgage lenders also use an escrow account to collect and hold funds for property taxes, property insurance, and sometimes other expenses. The lender then uses the funds in the escrow account to pay these bills on behalf of the homeowner. This helps property owners manage their annual tax and insurance costs by spreading the payments out throughout the year.

Fair Credit Reporting Act

The Fair Credit Reporting Act (FCRA) is a federal law that promotes accuracy, fairness, and privacy in consumer credit reporting. It regulates how credit reporting agencies collect, disseminate, and use consumer credit information.

The FCRA grants consumers several rights, including access to credit reports, the ability to dispute inaccurate or incomplete information, and the ability to learn if anyone has used information in their credit report against them. It also places obligations on credit reporting agencies and those who provide information to these agencies to make sure the information is accurate and used appropriately.

Fair Housing Act

The Fair Housing Act (FHA) is a U.S. law passed in 1968 that aims to eliminate discrimination in housing based on race, color, religion, sex, national origin, disability, or familial status. The act prohibits such discrimination in the sale, rental, and financing of property, as well as in other housing-related transactions.

Fair market value (FMV)

This number is the estimated price at which a property would sell on the open market between a willing buyer and a willing seller.

FMV applies to real estate transactions, taxation, insurance claims, and legal disputes. Assessing fair market value involves considering factors like recent sale prices of comparable properties, the property's condition, location, and market trends.

Foreclosure

Foreclosure is a legal process in which a lender takes possession of a property from a borrower who has failed to make mortgage payments. This process allows the lender to recover the outstanding loan balance by selling the property.

Gross rent multiplier (GRM)

Gross rent multiplier (GRM) is a simple metric used by real estate investors to evaluate the potential profitability of an income-producing property. Calculate it by dividing the property's purchase price by its annual gross rental income.

A lower GRM indicates a potentially better investment, as it suggests the property generates higher rental income relative to its price. While GRM is a useful initial screening tool, it doesn't account for expenses, vacancies, or other factors affecting net income, so use it in conjunction with more detailed financial analyses.

Hard money loan

A hard money loan is a type of short-term, high-interest loan that is outside of a traditional financial institution. Private lenders or investor groups provide these loans and determine approval by assessing the property's value and potential, not the borrower's credit history.

Investors use these loans when traditional financing is not available or practical due to the urgent nature of the investment opportunity.

HOA fees

These fees are regular payments made by homeowners to a homeowners association (HOA) for the upkeep and maintenance of common areas and amenities in a residential community. Paying these fees is mandatory for community property owners, and failure to pay can result in penalties or liens on the property.

Home equity line of credit (HELOC)

A home equity line of credit (HELOC) is a revolving line of credit that allows homeowners to borrow against the equity in their home. It functions similarly to a credit card, providing flexibility to borrow, repay, and borrow again up to a certain limit.

Interest rates

Interest rates are the cost of borrowing money, expressed as a percentage of the loan amount. They determine how much a borrower will pay in addition to the principal over the life of a loan.

Interest rates can be fixed or variable. Fixed rates remain constant for the entire term of the loan, providing predictable payments. Variable rates can fluctuate based on market conditions, which can result in changing monthly payments.

Loan to value (LTV)

Loan to value is a financial metric used to assess the risk associated with lending. It compares the amount of a loan to the appraised value or purchase price of the property securing the loan, expressed as a percentage.

LTV is a factor in determining loan terms, including interest rates, down payment requirements, and eligibility for mortgage insurance.

Mortgage loan

A mortgage loan is used to purchase real estate, with the property serving as collateral. Repayment typically stretches 15 to 30 years. Borrowers may encounter loan origination fees charged by the mortgage broker for processing the loan application, covering underwriting, processing, and administrative services.

A fixed-rate mortgage offers an interest rate that remains constant throughout the loan term. An adjustable-rate mortgage (ARM) has an interest rate that changes periodically based on an index.

Types of mortgages include conventional mortgages, FHA loans, and VA loans.

Multiple Listing Service

A Multiple Listing Service (MLS) is a database used by real estate brokers to share information about properties for sale. The service provides detailed information and facilitates cooperation and compensation among the real estate broker community.

NOI (net operating income)

This key financial metric helps assess a property's profitability. Calculate it by subtracting all operating expenses from the total revenue generated by the property.

NOI does not include mortgage payments, capital expenditures, depreciation, or income taxes.

Operating expenses (OpEx)

Operating expenses, commonly referred to as OpEx, are the costs associated with the day-to-day operations of a property. This includes expenses such as property management fees, utilities, maintenance, repairs, and property taxes. These expenses support the ongoing functionality and administration of the property and are expensed in the period they are incurred, affecting the property's net operating income.

Private mortgage insurance (PMI)

This is a type of insurance that lenders require from borrowers who make a down payment of less than 20% on a conventional loan. PMI protects the lender in case the borrower defaults on the loan.

The cost of PMI is typically added to the monthly mortgage payment and can vary based on the size of the down payment, loan amount, and the borrower’s credit score. The mortgage company can cancel PMI once the borrower has built up enough equity in the home, usually when the loan-to-value ratio drops to 80%.

Property management

Property management involves overseeing and managing real estate properties on behalf of the owner. This includes a range of responsibilities such as finding and screening tenants, collecting rent, handling maintenance and repairs, and confirming compliance with local laws and regulations.

Property taxes

Property taxes are levies imposed by local governments on real estate properties. They are a primary source of revenue for municipalities and fund public services. The amount of property tax depends on the property's assessed value, which a local assessor determines.

Purchase agreement

A purchase agreement is a legally binding contract between a buyer and a seller outlining the terms and conditions for the sale of real estate. This document specifies important details such as the purchase price, closing date, contingencies, and any other conditions agreed upon by both parties.

Real property

Real property refers to land and any permanent structures attached to it, such as buildings, homes, and other improvements. This is distinct from personal property, which includes movable items like furniture, vehicles, and equipment.

Rent by room

Rent by room refers to a rental arrangement in which individual rooms within a property are leased separately to different tenants. Each tenant typically has a private bedroom and shares common areas such as the kitchen, living room, and bathroom with other tenants.

Residential property

Residential property refers to real estate in which people live, including single-family homes, condominiums, townhouses, duplexes, and multi-family residences such as apartment buildings. These properties are for private living spaces rather than commercial or industrial purposes.

REIT (real estate investment trust)

A real estate investment trust (REIT) is a company that owns, operates, or finances income-producing real estate across a range of property sectors. This type of real estate investing allows individual investors to invest in large-scale, income-producing real estate without buying, managing, or financing properties themselves. REITs are traded on major stock exchanges, making them highly liquid assets.

ROI (return on investment)

This financial metric helps investors evaluate an investment's profitability. It measures the gain or loss generated by an investment relative to its cost. ROI is expressed as a percentage, and you can calculate it by dividing the net profit from the investment by the initial cost of the investment, then multiplying by 100.

Title

Title in real estate refers to the legal property ownership and the rights that come with it. The title gets documented in a deed that records the transfer of ownership from one party to another.

Before purchasing a property, the title company performs a title search to review public records and confirm the seller's clear ownership of the property. Buyers and lenders also purchase title insurance to protect against any future claims or disputes over the property.

Vacancy rate

The vacancy rate is a measure of the percentage of all available rental units in a property. It is a key indicator of the rental market's health and the property's performance.

To calculate the vacancy rate, divide the number of vacant units by the total number of units, then multiply by 100 to get a percentage.

Adding real estate terms to your vocabulary

The real estate market is constantly shifting, with new investment vehicles, property types, and transaction models emerging regularly. This guide is an overview of some of the most common and important real estate terminologies, but it's just a start. For more in-depth break downs of real estate terminologies, check out Azibo's real estate glossary.

Investors should maintain a dedicated approach to ongoing education to succeed in real estate. Seek out reputable resources, attend industry events, and network with experienced peers to expand your understanding. Building a solid foundation with these key terms and layering on advanced concepts over time can help you identify opportunities and reduce risks.

Real estate vocabulary FAQs

What are real estate buzz words?

Real estate buzz words change all the time, but in 2024, they include smart home, sustainable building, remote work-friendly, co-living, micro-apartments, and adaptive reuse.

What are conventional listing terms?

Conventional listing terms include the property's asking price, description, address, square footage, number of bedrooms and bathrooms. Most listings also include contact information for the real estate agent, photos, virtual tours, and details about any special features or amenities.