Definitions

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1

1031 exchange

From Section 1031 of the Internal Revenue Code, or IRC: A real estate strategy or tool that allows investors to switch out one investment property (the relinquished property) for another (the replacement property), without paying capital gains tax on the sale

1099 form

A collection of different forms that you must file with the IRS if you receive any income throughout the year that isn’t from a typical employer. 1099s are most commonly used to report independent contractor income.

3

30-day notice

Also known as a Notice to Vacate or a Nonrenewal Notice, this is a notice given by a tenant to a landlord to inform them that they do not intend to renew the lease agreement at the end of the term. Typically, this notice must be provided at least 30 days before the lease end date.

7

70% rule

A rule that helps flippers as they search for investment opportunities stating that investors shouldn’t pay over 70% of a property’s after-repair value (ARV) minus the cost of repairs necessary to improve the property.

A

Abstract Of Title

Abstract of title is a document that summarizes everything that has happened with the title of the property. All information pertaining to a particular property is recorded and maintained by local municipalities in the form of an abstract of title. For instance, any time the deed and title changes hands or a lien is placed, there will be a written record of all these details.

Addendum

An addendum is defined as an attachment to a contract that modifies the terms and conditions of the original contract. In the context of a lease addendum, they are documents added to the original lease agreement, to provide additional information that the lease does not cover.

Affordable Housing

Affordable housing is generally defined as housing that is partly subsidized by the government, such that the renter typically spends no more than 30% of their gross income on housing costs.

Amenities

Amenities are any features of a building or space that provide comfort and convenience to the residents of that property. Some amenities are offered inside the unit; others are offered as part of the community.

Amortization

Amortization is the schedule of your periodic mortgage loan payments. An amortization schedule is a fixed table that shows how much of your monthly payment goes toward interest and principal each month for the full term of the loan.

Apartment

An apartment is a single housing unit that is part of one (or several) residential buildings. These units are self-contained, meaning they have their own entrance, kitchen, bathroom and living space.

Appraisal

An appraisal is the estimation of a home’s current market value. The valuation of the property is estimated by an authorized person that has a designation from a regulatory body. Appraisals are required by mortgage lenders to be sure that the money they are lending to a buyer is a fair amount for the home.

Appraisal contingency

A contingency is a condition that needs to be met before an offer can proceed. It is kind of like a safety net. An appraisal contingency is a clause that allows a buyer to back out if a home’s appraised value is less than the sale price.

Appraised Value

An appraised value is an evaluation of a property's value by a professional real estate appraiser. Appraisals are ordered by mortgage lenders to assess the market value of the property and to ensure the borrower isn’t trying to borrow more money than the home is worth.

Appreciation

In real estate, the term appreciation refers to the increase in the value of a property over time. The increase can occur for a number of reasons, including increased demand or weakening supply, or as a result of changes in inflation or interest rates.

ARM

An adjustable-rate mortgage or ARM is a home loan with an initial fixed interest rate, followed by a variable rate period. During the variable period, the interest rate applied on the outstanding balance resets periodically, at yearly or even monthly intervals.

As-is

If you’re in the market for a house, you’ll probably come across a few listings that include the phrase "as-is." A property marketed in “as is” condition indicates that the seller is unwilling to address any issues or problems with the property. Buyers can either take the home in its current state or look elsewhere.

Assessment

An assessment occurs when an asset's value needs to be determined for tax purposes. Assessments are conducted by a tax assessor, who is usually appointed or is an elected official. Property tax assessments are based on comparable sale prices and the level of tax set by the local or state government.

Assumable Mortgage

An assumable mortgage provides a buyer the opportunity to purchase a home by taking over the seller's mortgage loan. Buyers often choose to buy a home with an assumable mortgage to take advantage of financing with a lower interest rate, if rates have risen since the seller originally purchased the home.

B

Backup offer

When a buyer is interested in purchasing a property that is already under contract with someone else, that buyer has an opportunity to submit a “backup offer” in case the first transaction falls apart.

Balloon Mortgage

A balloon mortgage is a home loan that has an initial period of low or no monthly payments, at the end of which the borrower is required to pay off the full balance. Since balloon mortgages offer lower monthly payments, they are advantageous to buyers planning to be in the home for a short term.

Bill Of Sale

A bill of sale is commonly used when selling or buying something of value. It is a legally recognized record of a transaction. It lays out the exact terms of a real estate deal: the sale price, names of the buyer and seller, their contact information, and other important details associated with a home sale. In short, it protects both parties of the transaction should either side argue there’s an issue with the transaction.

Biweekly Mortgage

A biweekly mortgage payment is a mortgage option where, instead of making 12 monthly payments every year, you make half a month’s payment every 2 weeks. This method adds an extra month’s payment every year that is applied to your mortgage’s principal, helping you shave years off your mortgage repayment.

Blanket Mortgage

A Blanket Mortgage is a singular mortgage that covers multiple pieces of real estate. While the individual properties within the blanket mortgage may be sold without retiring the entire mortgage, these properties are held together as collateral. The groups that most commonly utilize blanket mortgages are developers, real estate investors, and house flippers.

Blind offer

A blind offer is an offer by a buyer to buy a property that has not been seen in person. Blind offers are a quick and easy way for buyers to bid on a house. It saves buyers and sellers massive amounts of time by skipping inspections or appraisals.

Bonus depreciation

Bonus depreciation allows an investor to deduct the full cost of capital improvements with a useful life of 20 years or less in the year the cost is incurred. For example, if $5,000 is spent to upgrade kitchen appliances and flooring in a rental property, the cost can be expensed right away instead of being depreciated over a number of years.

Breach Of Contract

When the parties sign a real estate contract, they agree to all of the terms contained in the agreement. Violating one or more terms results in a breach of contract. For example - When buyer breaches by failing to obtain adequate financing before the closing date or when a buyer breaches by failing to pay on time.

Bridge Loan

A bridge loan is used to "bridge" the gap between buying a new home and selling your former home. Many people choose to buy a home before they sell their previous one, which means that there is no profit to apply to your new home's down payment. A bridge loan is a financing option that will allow you to make your new down payment before you sell your old home.

Brownstone

Brownstones are historic townhomes made from a particular dark sandstone material and are typically limitedly available and in high demand.

BRRRR

The BRRR (buy, rehab, rent, refinance, repeat) method of real estate is an investment approach in which the buyer flips a distressed property and rents it out. The buyer will then refinance on this property to fund other rental property investments.

Built-Ins

Built-ins are any items that do not leave the property but remain a part of the permanent structure of a home. This includes permanent appliances, cabinets, and furniture that is built into the home, such as shelves or benches, and other attached items.

Buy and hold

A real estate strategy where an investor buys property and holds onto it for a period of time, often renting it to long-term tenants.

Buydown

A buydown is a mortgage financing technique that allows homebuyers to obtain a lower interest rate when taking out a mortgage loan. These help homeowners save money on interest over the life of the loan. Choosing a buydown when buying a home largely depends on the interest rate for which you qualify and how long you plan to remain in the home.

C

Cap Rate

Also known as capitalization rate, this is your Net Operating Income (NOI) divided by the original price you paid for a property. Cap rate is an estimation of the return of a rental property and helps you determine approximately how quickly you can make back what you will spend on the property.

Capital Improvement

The IRS defines a capital improvement as a change made to property you own that does at least one of the following: Adds to the value of the property, prolongs the property’s life, or adapts the home to new uses. It is essentially a permanent structural alteration or repair to a property that increases its value.

Cash Out Refinance

A cash out refinance is a mortgage refinancing option that takes advantage of the equity you’ve built over time and gives you cash in exchange for taking on a larger mortgage. It gives you a new loan that's larger than your current mortgage balance.

Cash-On-Cash Return

The amount of money you earn from a property compared to the initial capital you invested in it. CoC Return serves as a reference point for how well your rental property is performing (or will perform in the future) and helps you choose the most financially promising property out of tens or hundreds of options.

Certificate of Occupancy

A certificate of occupancy is a document that certifies the building's compliance with applicable local building codes. This document is required for newly constructed buildings, or buildings that are changing in the type of usage or occupancy.

Clear Title

A clear title, also known as a “clean title,” is a term used when a property title is free from liens or additional issues that could jeopardize ownership, such as boundary disputes. With a clear title, there’s no doubt who the legal owner of the property is.

Closing costs

Closing costs are an assortment of fees at the closing of a real estate transaction, including fees charged by: the lender, title company, attorneys, insurance companies, taxing authorities, homeowner’s associations, real estate agents, and other closing settlement related companies.

CMA

A comparative market analysis or CMA, is a tool that real estate agents use to estimate the price of a specific property by evaluating similar ones that have recently sold in the same area. The analysis considers the location, age, size, construction, style, condition, and other factors for the property and comparables.

Co-applicant

In loan applications, a co-applicant is someone whose income and credit history are listed on the loan application alongside the primary borrower. Co-applicants are most commonly used when the primary borrower cannot qualify for the mortgage alone based on insufficient or poor credit.

COFI

The Federal Cost of Funds Index (COFI) is a benchmark used for some mortgage loan and securities types. The COFI is published by Freddie Mac and calculated by summing the monthly average interest rates for marketable Treasury bills and treasury notes, dividing that sum by two, and then rounding the number to three decimal places.

Color of title

An apparent claim to a property even without a valid deed or title. Color of title refers to nontraditional ownership, usually without one or more legal documents, and it can be obtained by a squatter who fulfills specific state requirements to possess and claim ownership of a property.

Common Area Maintenance

Common area maintenance, also known as CAM, are the costs associated with overhead and operating expenses for common areas that landlords pass on to their tenants. Common areas for tenants include - hallways, elevators, parking lots, lobbies, public bathrooms, and building security, etc.

Common Areas

Common areas are elements of a property available for use by all tenants. Common areas include hallways, sidewalks, parking lots, community swimming pools, and laundry facilities, though the list doesn’t end there. If people in a residential building or development are free to use a space, it is likely a common area.

Comparables

Comparables are similar properties that assist in finding the correct asking price for a property. The price of the home depends on its location, square footage, number of bedrooms/bathrooms, amenities offered, and the price of recent sales in that location.

Condo vs. Apartment

A condo is a property comprised of individual, separately-owned units, where each owner owns and maintains only the space within the walls of their unit. An apartment is a rental unit within a larger complex owned and operated by the same owner.

Condo vs. Townhouse

Condos and townhouses are similar in that both are comprised of individual, separately owned units within a larger complex. However, townhomes are multi-floored and share walls with an adjacent property, with each unit having its own entrance.

Condominium

A condominium, also known as a condo, is a residential complex comprised of individual, separately owned units. A condo owner usually owns the interior of their unit and the structural components of exterior walls. However, all condo owners of a complex will typically share certain common areas and amenities with their neighbors.

Construction loan

A construction loan is a short-term loan (usually one year in duration) that provides funds to cover the cost of building or rehabilitating a home. Because they are considered riskier, construction loans typically have higher interest rates.

Conventional sale

A conventional sale is a real estate transaction in which the seller owns the property outright or owes less on their mortgage than what the market indicates they could sell their property for. This kind of sale is typically the smoothest form of real estate transaction.

Cost segregation

Cost segregation is a tax strategy that allows real estate owners to utilize accelerated depreciation deductions to increase cash flow and reduce the federal and state income taxes they pay on their rental income. Cost segregation can reduce taxes and greatly increase the cash flow of a property, especially in its early years of operation.

Covenants, conditions & restrictions (CC&Rs)

Covenants, conditions & restrictions or CC&Rs are the rules and regulations placed on real property by a homeowner’s association (HOA), a neighborhood association, a developer, or a builder that sets forth any requirements and limitations of what a homeowner is allowed to do with the property. It may also include monthly and/or annual fees or special assessments.

Criminal trespasser

A person who knowingly enters and/or remains on someone else's private property without the legal right or permission from the owner.

Curb appeal

Curb appeal is subjective appreciation for a physical asset in its simplest form. It is a term used by realtors to describe the general attractiveness of a house or other piece of property from the sidewalk to a prospective buyer.

D

Days on market (DOM)

DOM is a common real estate abbreviation for ‘Days On Market’. DOM refers to the number of days between the day a house is listed on the market and the day it is sold. The days on the market can be a factor in the price that the buyer is willing to pay.

Debt-to-income ratio

Debt-to-income ratio or DTI a percentage that tells lenders how much money you spend on paying off debts versus how much money you have coming into your household. You can calculate your DTI by adding up your monthly minimum debt payments and dividing it by your monthly pre-tax income.

Deed

A deed is a legal document that once signed, transfers ownership of an asset to a new owner. In real estate terms, property deeds are legal documents that transfer ownership of real property from a seller to a buyer.

Deed Of Reconveyance

A deed of reconveyance is a document that indicates that the owner has fully paid off their mortgage. The deed formally transfers the title of the property to the borrower from the bank.

Depreciation

Depreciation is the decrease in the value of your property over time. It is a process used to deduct the costs of buying and improving a rental property. Instead of taking one large deduction in the year you buy or improve the property, depreciation distributes the deduction across the useful life of the property.

Depreciation recapture

Depreciation recapture is a process that allows the IRS to collect taxes on the financial gain a taxpayer earns from the sale of an asset. Capital assets might include rental properties, equipment, furniture or other assets. Once an asset’s term has ended, the IRS requires taxpayers to report any gain from the disposal or sale of that asset as ordinary income.

Distressed property

A distressed property is a home that is either already owned by the bank or will soon be foreclosed on.

Down payment

A down payment is a sum of money paid up front in a financial transaction, for example, the purchase of a home. It represents a portion of the total purchase price, and the buyer will often take out a loan to finance the remainder.

Driving For Dollars

"Driving for dollars" is a real estate investment strategy often used by house flippers that involves driving through neighborhoods to find properties that appear to be distressed or in need of repair.

Dual Agency

Dual agency occurs when a single real estate agent works on behalf of both the home buyer and seller in a real estate transaction. In most real estate transactions, it is very common to have separate agents representing each party, as this helps avoid any conflict of interest that can arise when an agent negotiates for both sides.

Duplex

A duplex is a type of multifamily property with two separate residential units that have separate entrances on a single property. Most commonly, a duplex has units that can be situated side by side or stacked one on top of the other (with one apartment upstairs, and the other downstairs).

E

Earnest money

Earnest money is a deposit made to a seller before closing on a house to show you're serious about purchasing. It's also known as a good faith deposit. This money gives the buyer extra time to get financing and conduct the title search, property appraisal, and inspections before closing on the property.

Easement

An easement is a legal term for the right to access, cross, or use another person's property for a specific reason. This nonpossessory property interest is only allowed for a specified purpose or time. For example, easements are often granted for access to sewage and water pipes when they are installed on private property.

Economic Obsolescence

Economic obsolescence is the loss of value of real estate caused by factors that are external to the property. Common causes of economic obsolescence include increased crime rates, construction of a busy highway, construction of a landfill nearby, etc.

Effective Rent

Effective rent is the actual rent rate that the landlord achieves after deducting concessions given to the tenant (free rent, a moving allowance, etc.) Calculate effective rent by multiplying the gross rent amount by the length of the lease, then subtract the discounted months you give the tenant.

Eminent Domain

The government has the ability to exercise the power of eminent domain under the Fifth Amendment. This term refers to the power of the government to take private property and change it into space for public usage. They must, however, provide compensation to the owners of the property.

Encroachment

Encroachment in real estate occurs when one property owner violates their neighbor’s rights by building or extending some feature and crosses into their neighbor’s property lines. This often happens when homeowners make do-it-yourself improvements without any legal building permits or hired professionals.

Equal Credit Opportunity Act (ECOA)

The Equal Credit Opportunity Act (ECOA) is federal civil rights law that prevents lenders from discriminating against credit applicants based on factors unrelated to their ability to repay. It is designed to stop credit discrimination on the basis of age, marital status, receipt of public assistance, sex, national origin, religion, color, or race.

Equity

Equity is the investment a homeowner has in their home. To calculate equity, take the market value of the home and subtract any mortgages or liens against the property. The amount leftover is the amount of equity you have in the home. Bulding equity is important as homeowners can leverage this financial asset to obtain loans to help finance items such as home repairs, or to pay off higher interest debt.

Escalation Clause

An escalation clause, also known as an escalator, is an aspect of a real estate contract that acknowledges that the prospective buyer could raise their offer if the seller of the home recieves a higher offer from a competitor.

Escrow

Escrow is the use of a third party, which holds an asset or funds before they are transferred from one party to another. In real estate, placing funds in escrow allows the buyer to perform due diligence, for example a property inspection, before purchasing the property from the seller.

Escrow holder

An escrow account is important because specific instructions must be followed in order to ensure that funds, deeds or property are released at the appropriate time and to the rightful owners. The party overseeing the escrow account is called the escrow holder. As holder of the account, this person or entity is charged with safeguarding all documents and money, and releasing them when required conditions are met.

Estoppel Certificate

An estoppel certificate is an agreement signed by a tenant acknowledging and indicating the present status of their lease. The estoppel legal principle prevents someone from claiming a change in the agreement later on.

Eviction

Eviction is the process by which a landlord can legally remove a tenant from their rental property. Eviction usually occurs due to non-payment of rent, if the terms of the lease agreement were breached, or due to any other situations as permitted by law.

Eviction complaint

A formal lawsuit filed to begin a legal case for eviction.

Exclusive Listing

An exclusive listing is a method of selling a property by working directly with one real estate agent rather than publicly listing your home, giving the real estate agent exclusive rights to sell that property.

Expired Listing

Each listing agreement between a homeowner and an agent has an expiration date. When the expiration date has passed without the property being sold or the homeowner renewing the listing contract with the agent, the listing becomes expired.

F

Fair Market Rent

Fair Market Rent, or FMR, is a statistic used by the HUD and local affordable housing organizations to determine rent rates for the different assistance programs, like the Housing Choice Voucher Program (Section 8). Put simply, FMR is a measure of what a fair rate (slightly below the median) would be for a rental property in a particular area.

Fair Market Value

Fair market value also known as FMV, in real estate is the price that a property will sell for in an open market assuming that both buyer and seller are reasonably knowledgeable about the property, are behaving in their own best interests, are free of undue pressure, and are given a reasonable period of time to complete the transaction.

Fannie Mae

Fannie Mae (the Federal National Mortgage Association) is a government-sponsored enterprise (GSE) that expandes the liquidity of home mortgages by purchasing mortgages on the secondary mortgage market. FNMA provides capital to lenders like banks, credit unions, etc. through purchasing and guaranteeing their mortgages, allowing those lenders access to capital to create more mortgages. When Fannie Mae-backed mortgages enter foreclosure, Fannie Mae will try to sell the properties quickly so the overall impact on the community is minimal.

FHA

The Federal Housing Administration or FHA, is a government agency that promotes affordable, easy-to-qualify-for home loans. FHA loans are only available through approved lenders. If you're a first-time homebuyer without a substantial credit history, an FHA loan could be an attractive option for you.

FHA 203k rehab loan

An FHA 203(k) loan is a type of government-insured mortgage that allows the borrower to take out one loan for two purposes: home purchase and home renovation. These loans are intended to support homeownership among lower-income households, allowing them to improve and update older properties as their primary residence, to bring them up to FHA standards.

FHA loan

An FHA loan is a government-backed mortgage loan that requires a lower minimum down payment than many conventional loans. These applicants may have lower credit scores than is usually required. These loans are insured by the FHA, meaning that your mortgage is protected against loss if you default on your loan.

FICO Score

A FICO score is a credit score created by the Fair Isaac Corporation (FICO). Credit scores are a three-digit number ranging from 300 to 850 that serve as a method of quantifying and evaluating an individual’s creditworthiness. Lenders use the score to determine how risky it would be to loan you money. FICO scores are used in 90% of mortgage application decisions in the United States.

Fixed-rate mortgage

A fixed-rate mortgage is essentially a home loan with a fixed interest rate for the entire term of the loan. This means that the mortgage carries a constant interest rate from beginning to end. Once locked in, the interest rate does not fluctuate with market conditions.

Floor Area Ratio

Floor area ratio is the building's floor area in relation to the lot that the property is placed on. This floor area ratio (FAR) can be found by dividing the total area of the building by the area of the lot. This number is expressed as a decimal.

Foreclosure

Foreclosure is a legal process that begins when a borrower fails to make their mortgage payments to their lender. The lender attempts to recover the amount owed on a defaulted loan by repossessing the mortgaged property and selling it. Since the home is collateral, it can legally be seized by the lender.

Freddie Mac

Freddie Mac, or the Federal Home Loan Mortgage Corp (FHLMC), is a government-sponsored, stockholder-owned enterprise that primarily buys loans from smaller banks or credit unions to support middle-income homeownership for Americans. In comparison to Fannie Mae, Freddie Mac buys loans from smaller banks and credit unions while Fannie Mae tends to buy loans from larger banks or lenders.

FSBO

For sale by owner or FSBO homes are sold by the homeowner without the help of a listing agent or broker. People typically choose to sell their home FSBO to avoid having to pay the real estate agent the commission fee on the sale of the home. FSBO sales do, however, still require a commission for the buyer’s agent.

Functional Obsolescence

Functional obsolescence is when a home doesn’t meet market expectations on a functional level. Some features of the home might be outdated and might not be easily improved. This reduces the desirability of the property and, in turn, its value. For example, an old house with one bathroom in a neighborhood filled with new homes that have at least three bathrooms.

G

Good Bones

Homes with "good bones" have systems that are in good shape, like strong plumbing, heating, ventilation, and electrical systems.

Good Faith Estimate

A Good Faith Estimate, also known as a GFE, is a document that a lender must give you when you apply for a reverse mortgage. It lists basic information about the terms and outlines the estimated costs and terms of a reverse mortgage loan offer. It also enables borrowers to comparison shop among different lenders and choose the deal that best fits their needs.

Gross lease

In a gross (or full-service) lease, the tenant makes one negotiable lump sum rent payment. The landlord uses what they’ve collected from this payment to cover all of the building’s expenses (utilities, taxes, insurance, maintenance, etc.).

Gross Rent

The total amount of rental income you receive (or plan to receive) from a property, before making any subtractions for utilities, maintenance, or other operating expenses.

Gross rent multiplier

A metric used to evaluate and compare potential real estate investments. GRM is the ratio of a property’s market value to its yearly gross rental income. It functions as a numerical instantiation of one property’s potential over another when they have different market values, starting costs, and potential rental income.

Gross Yield

Gross yield is the return on an investment before you take out deductions for expenses and taxes.

Ground Lease

A ground lease is a long-term lease of land where the occupant or tenant of the land will make improvements at their own expense. Ground leases are sometimes the only way to gain access to real estate that is especially valuable. Ground leases could lead to possibility property loss, tax drawbacks, or other unexpected losses.

Guarantor

An individual, usually someone with good credit history and reilable income, who promises to pay a borrower's debt in the event that the borrower defaults on their loan obligation. The guarantor can guarentee a loan or by pledging their assets as collateral. In rental agreements, a guarentor promises to fulfill the primary renter's financial responsibility if that person defaults on their rent payments.

H

HAP contract

An agreement between a Section 8 landlord and the local PHA that establishes the rent rate and each party’s responsibilities (i.e., the landlord agrees to keep the property in habitable condition compliant with the HUD’s housing quality standards, and the PHA agrees to send the voucher amount every month).

Hard money loan

A hard money loan is a type of loan that is secured by real property. These loans are primarily used in real estate transactions, with the lender generally being individuals or companies and not banks.

HOA

HOA stands for Homeowners Association. It is a self-governing organization for a planned community or condominium building that makes and enforces rules for the properties and its residents. If you purchase a property within an HOA, you automatically become a member and are required to pay any HOA fees.

HOI

Homeowner's/Property Insurance (HOI) provides financial protection for homeowners. Homeowner's Insurance will protect against certain types of home damage and damage to the belongings within the home.

holdover tenant

A "holdover tenant" is a tenant who stays in a property after their lease has expired.

Home Equity Line of Credit (HELOC)

A home equity line of credit, or HELOC, is a second mortgage that gives you access to cash based on the value of your home. Here, you borrow against your equity, which is the home’s value minus the amount you owe on the primary mortgage. You can draw from a home equity line of credit and repay all or some of it monthly.

Home inspection

A home inspection is an examination of the condition of a real estate property, usually when it is on the market to be sold. They are generally conducted by a home inspector who has a certification to perform such inspections. The inspector creates a report and assesses any repairs, issues or concerns.

Home sale contingency

A home sale contingency is a clause frequently included in a real estate sales contracts or when there is an offer to purchase real estate. With a home sale contingency in place, the transaction is contingent on the sale of the buyer’s home. If the buyer’s house sells by the specified date, the contract moves forward. But if it doesn’t, the contract is terminated.

Home Warranty

A home warranty is a service contract that covers the repair or replacement of major home systems and appliances due to normal wear and tear for a specified period.

Housing and Community Development Act

The Housing and Community Development Act is a U.S. federal law that addresses housing and community development needs. It provides funding and support for affordable housing programs like Section 8 and other community development initiatives. The act also establishes regulations for fair housing practices and encourages partnerships between government agencies, private organizations, and local communities to improve housing quality and access to services.

Housing Choice Voucher

A Housing Choice Voucher (HCV) is a subsidy provided by the government to low-income individuals and families through the Section 8 program, allowing them to choose and rent housing in the private market while paying a reduced portion of their income towards rent.

HUD

HUD is an acronym for the Department of Housing and Urban Development, a government agency that was established in 1965. President Lyndon B. Johnson established HUD as part of an effort to combat poverty. Through its federal policies and programs, the agency ensures that all individuals in urban areas have access to quality housing that is inclusive and affordable.

I

iBuyer

An iBuyer is a company that uses technology and algorithms to buy, sell, and value homes. iBuyers take on the burden of owning, marketing, and reselling your home. Depending on the service you choose, the benefit is the certainty of an all-cash offer and more control over when you move.

IDX

IDX, or Internet Data Exchange, refers to the agreement for listing agents to display Multiple Listing Service (MLS) properties online.

Inspection contingency

An inspection contingency, also called a ‘due diligence contingency,’ gives the buyer the right to have the home inspected in a specified time period. If the home inspection uncovers unexpected problems, the potential home buyer can negotiate the repairs, sale price, or even walk away from the home with their earnest money fully refunded.

Involuntary Lien

An involuntary lien is a lien that is placed on a property without authority from the owner. Involuntary liens are placed by an outside authority or creditor.

L

Land lease

Traditionally, when you purchase a home, you own the home and the land the property is built on. A land lease is when you purchase a home or development rights on a property while leasing the land it sits on, which is owned by an individual or company.

Landlord

The landlord is the owner of the property that is then leased or rented to the tenant.

Landlord Insurance

Landlord insurance is homeowner's insurance that protects investment properties that landlords rent out to tenants. It provides financial protection to landlords if their rental property is damaged (such as after a catastrophic event such as a fire or a storm) or sustains other losses. Landlord insurance typically provides three types of coverage: property damage, liability protection and loss of rental income.

Latent Defect

A latent defect is damage that is discovered after an initial property inspection. Usually, this defect is not discovered until the property or project has been turned over to its new homeowners.

Lease Agreement

A lease agreement is a legal, binding contract between a landlord and a tenant that gives the tenant a right to live in a property while guaranteeing the landlord regular payments for a fixed period of time, typically covering a 6- or 12-month rental period.

Leasehold Estate

A "leasehold estate" is the legal term for a rental property lease. It is an arrangement that does not grant ownership to the lessee/renter, but does grant certain rights for them to occupy and utilize the property for an agreed-upon amount of time in exchange for payment (rent) made to the property owner.

Lessee

The lessee is a person who temporarily possesses the lessor's property. This relationship is legally binding through a lease.

Lessor

A lessor is essentially someone who is the owner of the property that grants a lease to someone else. In real estate, the lessor is referred to as the landlord and the person they rent the property out to is termed as a lessee.

Lien

A lien is a claim or legal right against a property that can be used as collateral to repay a debt. It is used as a guarantee for some sort of obligation such as loan repayment. In other words, a lien ensures that a creditor obtains the right to the property if a borrower fails to meet his legal and/or financial obligations.

Listing Agent

A listing agent also known as a seller’s agent, is a licensed real estate professional whose job is to help the seller sell their home by ascertaining the asking price of their home, staging their home and marketing the property on platforms like the MLS.

Listing agreement

A listing agreement is an employment contract between a property owner and a real estate broker. It allows the broker to act as a listing agent and find a buyer for the property on the seller’s terms. Basically, a listing agreement grants your real estate agent permission to find a buyer for your home.

Listing Presentation

A listing presentation is the set of slides or other presentation tactics utilized by listing agents to explain how they will prepare your property for sale, including marketing, showings, and pricing. A listing presentation is a "pitch" to a seller explaining why they should hire that agent to represent them during the sales process.

Listing syndication

Listing syndication is the process of sharing a single rental listing for a vacant unit on multiple non-MLS sites to advertise it and generate rental applicants. Listing syndication software can automate this process.

Loan-to-value ratio

Loan-to-value ratio is a measure that compares the amount of your mortgage to the market value of your property. It helps lenders determine how much risk they're taking on with a secured loan. The higher your down payment, the lower your LTV ratio.

Loss Mitigation

Loss mitigation is when borrowers and mortgage lenders work together to create a plan that will hopefully allow the borrower to avoid foreclosure. Some methods of doing this include repayment plans, loan modification, forbearance, and other avenues.

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Market Rent

The expected amount of rent a rental property can generate each month. Market rent is based on factors like location, condition, amenities, economic trends, jobs, and the amount of rent being charged by comparable properties in the area, known as comps.

Master Association

Master Associations are types of homeowners associations (HOAs) that are responsible for managing a large community. A master association is often needed when a large community has smaller subdivisions within it.

Modified Gross Lease

Modified gross leases are a type of lease commonly used in multi-tenant commercial properties that act as hybrids between tenant-favoring gross leases and landlord-favoring net leases. The tenant still makes a single lump rent payment, but the landlord does not cover every major expense, often passing off janitorial or electrical costs to tenants.

Monthly adjusted gross income

A person’s total monthly income (wages, dividends, capital gains, business income, and other income) minus any adjustments (educator expenses, student loan interest, alimony payments, etc.)

Mortgage

A mortgage refers to a loan used to purchase or maintain a home, land, or other types of real estate. It is an agreement between you and a lender that gives the lender the right to take your property if you fail to repay the money you've borrowed plus interest.

Mortgage Commitment Letter

A mortgage commitment letter is a formal document from your lender stating that you’re approved for a loan. Lenders issue a mortgage commitment letter after an applicant successfully completes the preapproval process. The letter serves as proof that you’re preapproved and are on the path, to being able to close the deal.

Mortgage Delinquency

Mortgage delinquency occurs when a homeowner is at least 30 days overdue in making a mortgage payment.

Mortgage Loan Originator

A mortgage loan originator (MLO) is a person or institution that helps someone looking to get a mortgage, a borrower, get the best mortgage for that real estate transaction. An MLO typically will negotiate the terms of the mortgage loan for some type of compensation.

Mortgage note

Also known as a promissory or mortgage promissory note, a mortgage note is a legal agreement between a buyer and a lender describing the terms and conditions of a mortgage loan. It’s the document that specifies the monthly mortgage payment, the rate of interest, and any other terms of the agreement. Mortgage notes can be bought by investors who invest in debt, usually at a discount, and used to generate a profitable return later.

Mortgage pre-approval letter

A mortgage pre-approval letter is a document from a lender indicating that you have the financial means to qualify for a certain mortgage amount - how much money you can borrow, how much you could pay per month, and what your interest rate will be. Getting pre-approved for a mortgage shows that you're serious about buying a home and that you can afford it.

Move-out inspection

A move out inspection is a walk-through you conduct to assess the condition of the property after a tenant has moved out. Its purpose is twofold: Firstly, it gives you a chance to assess the property and plan the necessary repairs before the next tenant moves in; secondly, it allows you to document damages from the previous tenant, itemize them, and make deductions from their security deposit accordingly.

Multiple listing service

A Multiple Listing Service, also called MLS, is a database that allows real estate agents and brokers to access and add information about properties for sale in an area. When a home is listed for sale, it gets logged into the local MLS by a listing agent.

Mutual Acceptance

Mutual acceptance is when both buyer and seller agree to enter into a binding contract after discussing the price and terms of the deal.

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NAR

NAR stands for the National Association of Realtors, which is a U.S. trade organization for realtors and other professionals in the real estate industry.

Natural hazards disclosure (NHD) report

NHD Report stands for Natural Hazard Disclosure Report. The natural hazard disclosure report (NHD) is a report that home sellers must obtain for their buyers in order to sell a home in a natural hazard zone (an area prone to earthquakes, hurricanes or wildfires, etc.)

Net operating income (NOI)

Net Operating Income, or NOI for short, is a formula used to quickly calculate profitability of a particular investment. It tells real estate investors how much money they can make from a given investment property on a weekly, monthly, or yearly basis. TOTAL INCOME — TOTAL OPERATING EXPENSES = NET OPERATING INCOME (NOI)

Notice of Abandonment

A formal letter from a landlord to a tenant who has appeared to abandon a rental property. It explains that the landlord has reasonable evidence of abandonment and asks the tenant to either reach out by a certain date or their lease will be terminated. A Notice of Abandonment of Property also explains what will happen to the tenant's belongings if they do not come to claim them.

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Occupancy

Occupancy is defined as the act of taking possession. In real estate terms, it is the act of owning, renting, or taking possession of a unit. When a tenant moves into a new house, they are taking occupancy of that home.

Operating expenses

Operating expenses include all of the regular monthly costs associated with operating a rental property. They are the recurring costs to maintain a rental property in good condition. Common rental property operating expenses include property management fees, marketing and advertising, insurance, utilities, property taxes, repairs, and maintenance. Keep in mind that the IRS has strict definitions for what constitutes an operating expense for tax purposes.

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Passive Loss Rules (PAL)

Passive Activity Loss (PAL) Rules are a set of IRS rules stating that passive losses can be used only to offset passive income. Enacted in 1986, these rules were designed curb abuse from those using real estate and businesses to generate huge losses to offset income taxes. Passive activity loss rules prevent investors from using losses incurred from income-producing activities in which they are not materially involved.

Per Diem

Per diem is latin for per day. In real estate terms, a per diem penalty is usually charged to a buyer in the event escrow does not close by the date set forth in the contract. Buyers can also request a per diem from the seller, in the case they’re holding up the deal.

Percentage Rent

A percentage lease refers to a type of lease where the tenant will pay a base amount of rent, then an additional percentage of any revenue they earn while doing business in the rental property.

Pet Deposit

A one-time, refundable charge paid by a tenant to protect against any damage caused by a pet, like soiled carpet or scratched flooring.

PITI

PITI is an acronym that stands for principal, interest, taxes and insurance - the sum components of a mortgage payment. It’s best to calculate your PITI before you start looking for properties. PITI helps determine which homes fit in your price range so that you don’t sign a mortgage that you struggle to pay back.

Pocket Listing

An off-market listing that is marketed privately rather than on the MLS

Post-Closing Liquidity

Post-closing liquidity is the liquid funds a buyer has after paying a down payment and all closing costs. It is typically used to calculate the number of months' worth of mortgage and maintenance payments you have in liquid funds for NYC co-ops.

Pre-approval

A pre-approval is a preliminary evaluation by a lender to determine whether a borrower is qualified to take our a loan. It is a fast way to see how much a lender is willing to extend to you when you’re ready to start house hunting, and it is recommended that your pre-approval is complete before you make an offer on a house.

Private Mortgage Insurance

Private mortgage insurance, also called PMI, is a type of insurance that is often required for conventional mortgage loan borrowers. Most mortgage lenders require PMI when a homebuyer makes a down payment of less than 20% of the home's purchase price. Like other kinds of mortgage insurance, PMI protects the lender, not you, if you stop making payments on your loan.

Probate sale

A probate sale happens when a homeowner dies without writing a will or leaving a property to someone. In such situations, the probate court will authorize an estate attorney, or other representative, to hire a real estate agent to sell the home.

Project-Based Voucher Program

The Project-Based Voucher Program, or PBV, is a component of the Section 8 program that is unit-based rather than tenant-based. Vouchers are assigned to specific rental units, and tenants only receive the rent subsidy in this program if they live in a particular unit designated as part of the PBV program.

Promissory Note

A promissory note is a legal document that proclaims that the borrower promises to pay the lender back in full (including the principal and interest rate) for their loan, by the specified due date. A mortgage promissory note will describe what you're agreeing to and also provide relevant details about your mortgage.

Proof Of Funds

Landlords often require proof of funds to verify that the tenant has sufficient income to pay their rent. Examples of proof of funds documentation include a bank statement, paystub, or a W2 form.

Property Maintenance

Tasks involved in the general upkeep of a property, such as repairing damage, remedying code violations, and treating pest infestations or environmental hazards.

Property Surveyor

A property surveyor will take measurements that identify the boundaries of a parcel of land. They will then use those measurements to prepare maps, reports, deeds, or other legal documents.

Prorated rent

A rental amount charged based on the number of days in a month the tenant occupied the property. Prorated rent is usually used when a tenant moves in or out in the middle of the month.

Public Housing Agency (PHA)

A PHA is a local agency/office responsible for administrating the Section 8 housing program. Local PHAs are located across the country, receive funds from the federal government, and distribute them to eligible low-income tenants and families.

Purchase agreement

A real estate purchase agreement is a legally binding document that governs the purchase and sale of a property. It contain critical information, including the purchase price, mortgage contingency provisions, down payment requirements, and many other terms that summarize the conditions of the transfer of title or sale.

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Qualified Opportunity Zones

Qualified Opportunity Zones, or QOZs, are economically distressed areas that have been selected by the government for the Opportunity Zone program.

Quiet enjoyment

The covenant of quiet enjoyment is an implied right that all tenants have. It means that landlords and property owners are legally obligated to guarantee their tenants full access, use, and enjoyment of the property they’re renting. Every person has the right to live peacefully in their home.

Quiet title

A motion to decide legal ownership of a property.

Quitclaim deed

A quitclaim deed releases a person's interest in a property - publicly and legally that, if they do have any ownership of the property, they are passing it to another individual. They are typically used to transfer property in non-sale situations, such as transfers of property between family members.

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Rate lock

In real estate terms, rate lock refers to an agreement between a borrower and a lender that allows the borrower to lock in the interest rate on a mortgage for a specified time period at the prevailing market interest rate.

Real Estate Settlement Procedures Act

This law was passed by Congress in 1974 and requires lenders, mortgage brokers, or servicers of home lones to provide pertinent disclosures to the borrower regarding the costs of the real estate process. This act also places limitates upon the use of escrow accounts and prohibits other real estate practices.

Real Estate Underwriting

In real estate, underwriting is the process performed by a lender to evaluate the risk of extending a mortgage loan to someone, usually including income verification, a credit check, and a review of the applicant’s assets and debts.

Recovery period

The recovery period of an asset is the length of time over which the Internal Revenue Service requires you to depreciate it for tax purposes. These periods theoretically track the actual useful life of an asset; for instance, an office building has a much longer useful life than a computer. The Internal Revenue Service has its own set of depreciation rules and you must use their recovery periods when determining taxable income.

Refinance

When you refinance a home loan, you’re essentially trading in your current mortgage for a newer one, often with a new principal and a different interest rate. The goal is to have a better interest rate and better terms than the current loan. Another reason for a refinance is to reduce the term of the loan.

Rent control

Rent control is a government program that is intended to keep living costs affordable for lower-income residents. It places a limit on the amount that a landlord can demand for leasing a home or renewing a lease. The limit is set by a government program, and rent control laws are put into place by local municipalities.

Rent Roll

A rent roll is a spreadsheet that highlights the rental income for a specific property or portfolio of properties. It’s a key report for real estate investors, property managers, and lenders because it makes it easy to analyze business performance.

Renters Insurance

Renter’s insurance is insurance that covers specific types of losses suffered by renters during their occupation of a rental property. A typical renter’s insurance policy covers personal property, liability protection, and additional living expenses. Renter’s insurance often kicks in after damage from natural disasters, accidents, or other incidents.

REO

REO refers to Real Estate Owned. This means that the property is owned by a lender, like a bank, after it failed to be sold during the foreclosure process.

Reverse Mortgage

Homeowners who are 62 or older may take out a reverse mortgage loan to borrow against a portion of their home equity.

Right Of First Refusal

The right of first refusal clause gives a potential buyer the first chance to purchase a piece of property. This clause is typically enacted when renters are looking to buy from their landlords.

ROI

ROI stands for Return On Investment. Return on investment (ROI) is a measurement of how much money you have earned on an investment as a percentage of its total cost. It is a metric that helps real estate investors evaluate whether they should buy an investment property, one investment to another.

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Second Mortgage

A second mortgage, or "junior-lien", is a loan that borrowers can take out using their home as collateral while simultaneously having another loan that is secured by your home. Some examples of second mortgages are home equity loans or HELOCs.

Section 8 housing

The Section 8 Program, initially part of the Housing Act of 1937, is a government subsidy program that provides funding to local housing authorities to pay landlords on behalf of low-income families, the elderly, and people with disabilities. These housing authorities receive HUD funds to distribute as vouchers to those who cannot afford to pay market rates for decent, safe, and sanitary housing. Housing provided under this program is known as Section 8 housing.

Security deposit

A security deposit is a fixed, refundable sum paid by a tenant before moving into a rental. It is held throughout the lease term as security for the landlord. Upon move-out, the landlord can use security deposit funds to cover damage to the property, unpaid rent or fees, excessive cleaning costs, or early termination fees. Security deposits cannot be used to cover costs associated with normal wear and tear.

Self-storage facility

A facility that rents out space ("storage units") on a short-term, often month-to-month, basis for tenants to use to store personal belongings, furniture, or other items.

Seller’s Disclosure

When an owner sells a property, they are typically required to disclose information in a written document, This document is supposed to provide details about a property's overall condition and information about issues that might negatively affect its value. Sellers who willfully conceal information can be sued and potentially convicted of a crime.

Serial squatter

Serial squatters are squatters (people who live in vacant properties without the landlord’s permission) who move from property to property, often in the same community, without being a legal occupant of any of them.

Short sale

A short sale occurs when a financially distressed homeowner sells their home for less than they owe on the mortgage. The lender of the original mortgage gets all of the proceeds of the sale, and either forgives the difference or gets a deficiency judgment, which requires the homeowner to pay what’s left over.

Single Family Home

The legal definition of a single-family home is a structure maintained and used as a single dwelling unit. A single-family home is a stand-alone, detached property. These homes are designed to be used as a single-dwelling unit, with one owner, no shared walls, and its own land.

Squatter

A person who occupies and lives in a property they do not own, rent, or have permission to enter.

Staging

Staging refers to preparing your property to sell so it appeals to the most potential buyers who will pay the highest possible price. It involves redecorating, rearranging furniture, cleaning and other design or aesthetic strategies to present the property in the best possible light.

Start-up expenses

Start-up expenses are the costs you incur to get your rental business up and running. Any expense that would be deductible as an operating expense by an ongoing business is a start-up expense when it's incurred before a business begins.

Straight-line depreciation

Straight-line depreciation is a method of calculating depreciation of real property that deducts equal amounts over a dedicated lifespan of the property that's allowed for tax purposes. It is used to reduce the carrying amount of a fixed asset over its useful life. It is calculated by dividing the difference between an asset's cost and its expected salvage value by the number of years it is expected to be used.

Student Housing

Student housing is a form of off-campus accommodation for university or college students. These are not typically owned by the college or university but located in close proximity to them. Student housing is available to students enrolled in college or university classes and these rentals are usually priced on a per bed lease.

Sublease

Subleasing occurs when your lease-signing tenant rents out their spot in your property for a certain period of the lease term. A sublease is essentially a new contract that is signed between your tenant (the lessee) and the subleasee (the new tenant that is taking over during that period).

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Tax Cuts and Jobs Act (TCJA)

On Dec. 22, 2017, former President Donald Trump signed a massive tax bill known as the Tax Cuts and Jobs Act (TCJA). As its name implies, it cut individual, corporate, and estate tax rates. If you live in an area with high property taxes, you will be affected by the new $10,000 limit on how much state and local tax (including property taxes) you can deduct from your federal income taxes.

Tax shelter

A tax shelter is a place to legally store assets so that current or future tax liabilities are minimized. A tax shelter is a financial technique used by taxpayers to reduce taxable income. Tax shelters include both investments and investment accounts that provide favorable tax treatment, as well as deductions as laid out by the Internal Revenue Service (IRS).

Tenancy

In real estate, tenancy refers to the temporary possession, occupation, or use of a property by a tenant as established by a lease agreement.

Tenant Improvement

A TI, or tenant improvement/leasehold improvements, are any changes or repairs that the landlord will make to the property as agreed upon in the lease agreement. Usually, these improvements are made to better fit the preferences of the tenant.

Tenant Screening

Tenant screening is a process carried out by landlords to assess an applicant before renting to them. This includes looking into their credit, eviction, and criminal history so that the landlord can be confident in the tenant’s ability to fulfill all their lease obligations.

The Fair Credit Reporting Act (FCRA)

The Fair Credit Reporting Act (FCRA) is a federal law that protects consumer information and regulates both how consumer reporting agencies like credit bureaus can report information as well as how third parties can use it. For example, reporting agencies are required to investigate disputed information, and landlords and employers are required to send adverse action notices explaining why a denial was made based on an applicant’s credit information.

Title

In real estate, a title is an intangible legal construct that represents ownership of a property. Title ownership is recorded and represented by a deed, which is a legal document signed and received at the time of closing. During a real estate transaction, the title is transferred from seller to buyer.

Title Company

A title company is a third party that is hired by the lender and the buyer to insure the title of the home.

Title Insurance

Title insurance policies are meant to protect home buyers and mortgage lenders from the consequences of bad title defects. These consequences could cause financial losses and other damages. Title insurance coverage can cover outstanding liens, conflicting wills, and back taxes, among other things.

Total Tenant Payment (TTP)

The Total Tenant Payment (TTP) represents the minimum amount a family must pay towards rent and utilities in the Section 8 Housing Choice Voucher (HCV) Program.

Townhouse

A townhouse, also called a townhome, is a multi-floor home that shares at least one of its walls with other residences. These buildings are often tall, thin and attached to other townhomes in a long row. Townhouses are usually designed for high-density, urban areas, with a tall and narrow silhouette.

Townhouse vs. Apartment

Townhouses and apartments differ with regards to organization and management. A townhouse is a multi-story housing unit with no other units above or below it and is only connected to neighboring units by side walls. An apartment is a unit within a larger complex building that consists of a rental community within its walls in which a single entity typically manages the entire building.

Townhouse vs. House

Townhouses give the impression of a traditional house but are rental units attached to one another adjacently by shared vertical walls. (Single-family) houses are free-standing homes typically situated on a plot of land owned by the homeowner.

Transfer of ownership

Transfer of ownership is the means by which the ownership of a property is transferred from one hand to another. These agreements can be used to sell a property, goods, a business, a vehicle, or even land.

Transfer tax

A transfer tax is a charge on the transfer of ownership or title to property from one individual or entity to another. It is a one-time tax or fee imposed by a state or local jurisdiction upon the transfer of real property.

Triple Net Lease

Triple net lease (also commonly known as NNN) is normally a commercial lease where the tenant or lessee pays rent and utilities, and also promises to pay all the expenses of the property, including real estate taxes, building insurance, and maintenance.

Triplex

A triplex consists of three individual dwelling units combined into one building, with the individual units sharing one or two common walls. Each unit within the triplex will have its own kitchen, bathroom(s), living room, and its own address or unit number.

Truth In Lending Act

The TILA, or regulation Z, requires that lenders disclose any charges and fees associated with a loan. This act was created in an effort to promote honesty from lenders about the costs of debt.

Turnkey Property

A turnkey property is a fully renovated property that can be immediately rented out by the investor.

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Under Contract

A property that is under contract is a property on which the seller has accepted an offer from a buyer. However, the deal can still fall through until the contingencies on the home are met and the ownership is successfully transferred to the new homeowner in the closing process.

USDA loan

The U.S. Department of Agriculture (USDA) home loans program offers mortgages to low-income residents of rural areas who cannot otherwise obtain a conventional mortgage. The home loans program is designed primarily to help lower-income people living in unhealthy or unsafe rural conditions purchase safe and affordable homes in rural areas.

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VA mortgage

A VA loan is a mortgage loan that is available through a program established by the U.S. Department of Veterans Affairs. These are available to active and veteran service personnel and their surviving spouses. VA mortgages have benefits such as zero down payment and no private mortgage insurance.

Vacancy rate

The vacancy rate is the percentage of all available units in a rental property that are vacant or unoccupied at a particular time. It is expressed as a percentage and compares the amount of time a property could be rented to the amount of time a property was actually rented.

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Warranty Deed

A warranty deed is a legal real estate document where the seller guarantees that they have a clear title to the property, and they have the legal rights to sell it to the buyer.

Workforce Housing

Workforce housing usually means affordable housing for families without sufficient income to secure safe and quality housing within a reasonable distance to their workplace.

Writ of Restitution

A writ of restitution is a court order issued to enforce an eviction. It allows a sheriff or constable to remove a tenant from a rental property so that the landlord can reclaim possession.

Z

Zero-Lot Line House

A Zero-Lot Line House is a property in which the structure is very close or comes right up to the edge of the property line. Possible examples of zero-lot line houses are townhomes, patio homes, or rowhouses.