Key Real Estate Investment Terms

Successful real estate investors have extensive knowledge of the real estate industry.  They are equipped with the information, facts and figures necessary to make important real estate investment decisions.  The following key terms will apply whether you are purchasing a small, oceanfront condo in Jupiter, Florida or a multi-million dollar commercial property in Manhattan.

An investment property is a piece of real estate you purchase with the objective of earning a return.  Your primary residence is not considered an investment property because the primary purpose of your purchase is to provide a place to live. Common investment properties include rental homes, apartments, condos, townhouses as well as commercial properties such as business or industrial parks and shopping centers.

Depreciation is another way of saying something is decreasing in value.  Investment properties may experience depreciation, because typically as a building ages the value of the physical building depreciates.  It is important to note the actual depreciation realized is related specifically to the value of the physical building. The value of the land is integrated into the equation as well, and traditionally land increases in value. When we look at investment properties, we normally see an increase in value thanks to the continuous appreciation of the land the building was built on.

A land contract is fairly simple.  The land contract for the investment property outlines the terms of the agreements, such as the monthly payments, interest rate, and maturation date of the loan.

Before buying an investment property you will want to make sure the property does not have a lien against it.  A lien is basically a claim against the property.  A lienholder owns a legal right to extract their money from a property should the borrower default.  If you buy a property that has lien on it, and the person you bought the property has defaulted on their loan, you may find yourself in second standing for right to the property behind the bank that has the lien. It is important to do your due diligence and ensure you are not setting yourself up for a fall by investing in property that can be claimed by others.

Real estate investing can become rather complex.  However, if you gain a good grasp on the fundamentals of investing, such as depreciation, liens, and land contracts and auctions, you will be in a position to earn a positive return on your investment property for many years to come.

Joseph Quirk, Broker, Cobblestone Realty in Jupiter, Florida.  Joe is also a real estate investor and has accumulated over 50 investment properties in five years in Palm Beach County, Florida.  For more information about real estate investments, contact Joe at jquirk@cobblestonefl.com.  Visit our blog, Jupino to learn more.