Anyone in the business of real estate investment knows there are some terms one needs to familiarize his or herself with.

To help you succeed in your real estate investment journey, these are 7 real investment terms you should know.

1. Appreciation

Appreciation is increase in the value of a property over time. It can be caused by added value as a result of property improvements (such as upgrading a kitchen, adding a room or a pool, etc.) and other things like inflation, increase in demand or decrease in supply of properties.

Appreciation is usually projected as a percentage of the property’s value over the course of a year/particular period.

  2. Cash flow

Cash flow is the amount of money you can pocket at the end of each month; after all operating expenses (including loan payments) have been paid. If you spend less money than you earn, your cash flow will be positive. If you spend more money than you earn, your cash flow will be negative.

Rental income – all operating expenses (including loan payments) = Cash flow

  3. Equity

Equity is the difference between the current market value of the property and the amount that the owner owes on the property’s mortgage. For instance, if you were to sell your property, the equity would be the money you receive after paying off the mortgage in full. This value can build up over time as the mortgage balance declines and the market value of the property appreciates.

Building home equity is a great strategy for building long-term wealth because at some point you might need to use your home equity for other investments like retirement, upgrade to a different home, or paying for a major life event.

4. Rehabilitation

Rehabilitation refers to the repairs that need to be done to make an asset tenant-ready.
This can include minor fixes such as paint and lighting upgrades but can also extend to more large-scale repairs such as roof replacement, plumbing or garage upgrades. Should such large-scale upgrades be necessary, the investor will be notified prior to purchase and can choose to forego the purchase. Rehabilitation costs are generally included in the purchase price.

5. Turn Key Property (TKP)

A turnkey property or TKP is a property that has been purchased, rehabbed and rented to a tenant and is now for sale to another investor. Turnkey properties usually cash flow from the moment the investor purchases it since the property is already rented.

6. Leasing Fee

A leasing fee is paid to the property manager when they sign a lease with a new tenant. If a tenant renews their lease there is a re-leasing fee.

  7. Return on Investment

When considering how to invest in real estate, one term you may see come up over and over is – return on investment (ROI) which stands for the calculated benefit of an investment (called the return), divided by its cost. Your ROI is impacted by several variables, such as renovation and maintenance costs, and how much you originally borrowed in order to invest in your property.

I hope this article has helped you understand these 7 real estate investment terms.