Maintaining knowledge of the latest real estate terms is of utmost importance for owners of rental properties. You can protect your investments and grow your portfolio by remaining informed of the substantial transformation occurring in the real estate market. When in negotiations with potential buyers or renters, knowledgeable insight will enable you to make informed decisions. Understanding the following six terms is crucial in a competitive market. Let’s analyze each one in greater detail.
iBuyer
iBuyers are real estate companies that automate and streamline home-selling solutions through the use of technology. They provide an innovative and reliable way of selling residential properties in a matter of days, requiring little effort on the part of the homeowners. In order to generate immediate and competitive offers predicated on prevailing market conditions, iBuyers analyzes real estate market data using sophisticated algorithms.
Homeowners typically submit property details to an iBuyer’s website as part of the iBuying procedure. The iBuyer then assesses the property and generates an instant cash offer within 24-48 hours. The homeowner can arrange a closing date and receive payment within a few days of the offer being approved.
iBuyers provides a streamlined selling process that eliminates the necessity for staging, open houses, and negotiations, which stands as a notable benefit. The difficulty of preparing their homes for showings and waiting months to sell their properties can be eliminated for homeowners.
Days on Market (DOM)
Fundamental real estate terms are crucial to comprehend when searching for a new property. One such term is “DOM,” which is “days on the market.” This metric monitors the number of days a property has been listed for sale.
A high DOM can be a red flag, indicating that the property has remained on the market for an extended period without any offers. However, it’s worth noting that seasonal changes in the real estate market can affect the DOM. For instance, homes typically sell faster in spring than in winter.
By evaluating the average DOM for a particular region, you can verify whether the real estate market is strong (i.e., with a low average DOM) or weak (i.e., with a high average DOM). A weak market usually favors purchasers, who may find it less complicated to negotiate a better deal.
Real Estate Owned (REO)
An REO property, short for “Real Estate Owned,” refers to a type of property that a lender owns after the previous owner has failed to keep up with mortgage payments and the property has been foreclosed on. Typically, this occurs when a foreclosure auction fails to generate sufficient interest in the property.
For investors, REO properties can be a compelling investment opportunity because they have the potential to be bought below market value. Nevertheless, it is critical to emphasize that these particular transactions frequently entail risks, given that the property is sold “as-is.” It may be difficult to obtain financing, and the buyer will be responsible for any necessary repairs or renovations.
FHA 203k rehab loan
The FHA 203k rehab loan is a loan program backed by the federal government. It is intended to allow homebuyers to finance the purchase of a property that needs major repair or renovation.
The loan can fund repairs and renovations, including but not limited to structural enhancements, plumbing and electrical repairs, and the installation of new heating and cooling systems. In addition, it can be utilized to make energy-efficient upgrades to older homes, such as putting in new windows, doors, and insulation.
One of the main perks of the FHA 203k rehab loan is that it allows buyers to finance the cost of the maintenance and improvements into the mortgage, meaning they don’t have to pay for these expenses out of pocket. Plus, the loan can be utilized to purchase a property needing repair and refinance an existing property.
However, it is necessary to note that “luxury” improvements such as building a swimming pool or other non-essential amenities are not eligible for this loan. The loan is intended to help homeowners make essential fixes and upgrades to their homes to live safely and comfortably in their properties.
Debt to Income (DTI)
The DTI, or debt-to-income ratio, is a financial metric that lenders use to ascertain how much of your monthly income is assigned to paying debts. DTI is determined by adding your monthly mortgage or rent and other debt payments, dividing the total by your gross monthly income, and multiplying by 100. Lenders can determine how much mortgage you can afford based on this computation, which indicates how much of your income is already allocated to paying off debts.
Ensuring a low DTI is crucial as it can complicate qualifying for a loan. All in all, lenders favor borrowers to spend no more than 28% of their monthly income on housing payments and 36% or less on monthly debt payments. Obtaining approval for a loan or a mortgage is more probable when your DTI is reduced.
Notably, depending on the type of loan or mortgage for which you are applying, lenders might employ marginally different standards when calculating DTI ratios. For instance, certain lenders may allow a higher DTI ratio for borrowers with admirable credit scores.
In any case, it is imperative to maintain a low DTI ratio in order to maintain good financial health and make it easier to obtain financing when necessary. Debt consolidation, income augmentation, or consulting a financial professional are all viable options to contemplate if you’re dealing with a high DTI.
Earnest Money Deposit (EMD)
Earnest Money Deposit (EMD) is a deposit a buyer must make when offering a property. It is also known as a “good faith deposit.” This deposit demonstrates the buyer’s genuineness and willingness to purchase the property, which can motivate the seller to accept the offer. Commonly, the amount of EMD provided is between 1% and 5%, but it can fluctuate depending on the market and the condition. The EMD is held in escrow and is applied to the purchase price of the home if the transaction is successful.
As a rental property owner, it is critical to know various real estate terms. Keeping oneself apprised of the most recent developments in the industry can assist one in safeguarding investments and facilitating informed decisions when negotiating with buyers or renters. Knowledge is power, especially in a competitive market.
By investing in Findlay and the adjacent area, the Real Property Management Clarity Team is prepared to assist you in attaining financial freedom and generating passive income. Concerning property management and real estate investment, our specialists are able to provide knowledgeable and approachable guidance. Contact us online or call us at 567-200-2320.
We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.
