Real estate investments have a language of their own. Six terms are particularly important.
Investing in real estate is its own industry. With any industry, you’ll see it has a language of its own. In real estate, investors need to know investing language before they can do anything else. Below is a look at six of the top real estate investing terms.
Net Operating Income
Every property in commercial real estate has a net operating income (NOI.) It is a building’s potential for profitability. The property’s revenue is what it makes in total. Subtracting the revenue from all expenses like maintenance, fees, taxes, and repairs will get you the NOI.
Capitalization Rate
Capitalization rate (or “cap rate” for short) calculates the percentage of the purchasing cost that the property makes each year. To get the cap rate, you divide the amount you paid for the building by the amount of income it makes each year. This rate helps you see how risky or safe it is to invest in a property.
Cash Flow
Cash flow is the stream of income you get after paying all the routine costs, including loan payments. Adding up your total rental income and subtracting your operating expenses leaves you with what you can pocket at the end of the month. If you spend more than you earn, your cash flow is negative, but if you spend less, it’s positive.
Closing Costs
When purchasing a property, you should also keep in mind that you will need to be able to afford the fees that come with it. These fees, which pay for inspections, transfer of ownership, etc., are the closing costs. They can add up to about 2-5% of the purchasing price.
Gross Rental Yield
The gross rental yield is the total amount you get from a property before subtracting operating expenses. To get the gross rental yield, divide the year’s rental income by the purchase price and its closing costs.
HOA Fees
A property, whether it be a single-family house, condominium, or other structure, may be part of a homeowner’s association. An HOA sets rules on how someone in the area should keep their property and collects fees to pay for overall maintenance of the neighborhood. Compare HOA fees in other areas nearby and factor these costs into your operating expenses.
Trust the Professionals at Clagett Enterprises for Your Realty Needs
If you’re looking for the perfect realtor for your property or a professional to assist you during your purchase of any home, you can rely on Clagett Enterprises. Clagett Enterprises is a full-service real estate company with almost 30 years of experience in the Frederick and Western Maryland area. For assistance with selling your home and getting the best possible price, contact us online or give us a call at 301-665-6009. To meet our team and see some of our beautiful homes, follow us on Facebook, Twitter, and Pinterest.