KEY TERMS YOU NEED TO KNOW BEFORE GETTING YOURSELF INTO REAL ESTATE
A legal agreement in which a person borrows money to buy a property. Before buying any asset, it’s key to understand the monthly payments that you’ll owe the Bank (or a lender).
PITI – Principal, Interest, Taxes and Insurance
Pronounced like the word “pity”, it’s an acronym for the monthly mortgage which is the sum of the Principal, Interest, Taxes and the Insurance.
PMI – Private Mortgage Insurance
Type of mortgage insurance from private insurance companies to help protect the lender in case the buyer stops making payments. It needs to be in place whenever the down payment is lower than 20% of the property value, and the buyer is responsible for paying the premium.
ROI – Return on Investment
Not for nothing, this is the name of our company and our motto. It’s all about what return you’re getting on your investment. For example, if you put down $100,000 for an apartment and after all is said and done, you receive $10,000 per year from rent, you found a 10% return on your investment.
REI – Real Estate Investment
The reason you’re reading this to being with!
SFH – Single Family Home
An individual, freestanding, unattached unit that is usually occupied by just one household or family.
Co-Op – Housing Cooperative
It is a legal entity, that owns real estate consisting of several units in one or more buildings. The Co-Op shareholder does not own real estate, but owns shares in the Legal entity. These shares grant him the right to occupy one housing unit, generally needing to abide to a housing agreement.
FSBO – For Sale by Owner
When a property does not have a listing agent or broker, but it’s being sold directly by the owner. Owners tend to do this, in order to avoid paying a commision for the transaction.
HOA – Homeowners Association
This is the entity that manages the complex of the properties. You’ll generally find “HOA Fees” within your paperwork, which tells you how much you can expect to pay for monthly fees.
NOO – Non Owner Occupied
Refers to the nature of the renter of a property, when it is not occupied by the owner. It’s important to know that NOO properties tend to have a slightly higher interest rate than an owner-occupied property (OO).
NNN – Triple Net Lease
It’s a type of lease, where the lessee is responsible for paying for property taxes, building insurance and any costs related to maintenance and repairs. Because the tenant is covering these costs – which is generally the responsibility of the property owner – the rent tends to be lower.
FMV – Fair Market Value
It’s the price given to a property, when a seller and buyer are both knowledgeable and free from pressure to complete the transaction. The period to complete the transaction needs to be reasonable.