Discover 5 key real estate terms you need to know as an investor, and more importantly, how to use each to make more money in real estate!
5 Key Real Estate Terms
So, you want to be a knowledgeable real estate investor? No one wants to be the newbie in the room, right? If you’re a real estate investor, or an aspiring one, there are lots of real estate terms you’ll need to learn as you gain more real estate education and do more deals. But knowing the lingo, and knowing how to make money with it, are entirely different. Understanding the lingo isn't enough; you've got to walk the walk!
In this blog post, we'll dive deeper into five key real estate investing terms and how to leverage them for profitable investments today. You want to be prepared to recognize opportunities and act on them fast – without wasting time or money. Whether you've heard these terms before or not, understanding how to use them will set you apart as a savvy investor. Let's get started!
1. Flipping
Flipping is a versatile term that often implies different strategies. Traditionally, it involves purchasing a property at a discount, renovating it, and selling it quickly for profit. The trick is to buy properties in need of repairs, improve their value, and sell at a higher price. However, flipping can also involve purchasing properties at a discount due to seller circumstances, reselling at a profit without major renovations. Essentially, any time you buy a property and resell it quickly for profit, you're flipping. Whether the buyer is another investor or a DIY enthusiast looking for a primary residence, flipping properties can be a highly profitable strategy. For more insights, check out Phil’s video: Secret to Flipping Houses.
2. Wholesaling
Wholesaling is akin to flipping, but with a significant twist—you don't actually purchase the property. Instead, you contract it with the owner and sell this contract to another buyer for a profit. There are a variety of methods to do this, and they are affected by how your new buyer is purchasing (cash or a loan), and the amount of your "spread", the difference between the contract price with the owner and the price with the new buyer.
Is Wholesaling Legal?
Some critics say wholesaling is illegal because it involves acting as a middleman for a fee, which would require a real estate license. In fact, a few states have enacted laws to prohibit wholesaling. These laws are said to protect sellers, though some argue they are intended to safeguard agents' commissions. However, as long as the investor legally establishes an interest in the property through the initial contract, the transaction is legitimate. This establishes a legal or equitable interest in the property, and it’s that interest that is being sold, whether by assignment or another strategy. Many states respect this legal principle, and title companies and attorneys facilitate these transactions regularly. Done correctly, wholesaling can meet the seller's need for speed, provide a great deal for the buyer, and result in a handsome profit for the wholesaler. Phil’s video, 3 Huge Wholesaling Myths Debunked, offers more valuable insights.
3. Comps
Comps, short for comparable sales, are critical for understanding a property's market value. They refer to recently sold properties in proximity that are similar in size, condition, and features. They are pulled from the MLS (Multiple Listing Service) and are used by agents and appraisers to help determine the market value of a property. Comps are crucial because over 90% of house purchases require a loan, and lenders rely on appraisals that use comps to decide on loan approvals. Before making a purchase or even an offer, you should know the comps to ensure profitability. House flippers must buy at a discount, and without comps, they can waste valuable time and money on unprofitable investments.
Only agents and appraisers can access the MLS, making it crucial to have the right relationships or resources. While there are helpful shortcuts we teach, ultimately, you'll need to work with agents to access MLS comps to make profitable offers and purchases.
4. ARV
The next term is ARV—After Repair Value. ARV refers to a property’s projected value after it has been improved by repairs or renovations. This figure is essential for estimating profit potential. So, in short, ARV is what the property will sell for after you fix it up. As we've discussed in other trainings, value is subjective. Appraisers may consider different comparables (comps) in their appraisal, leading to varying opinions of value. Objective factors like age or square footage contribute to these differences, but subjective assessments of condition and level of finishes can affect appraisal results as well. Those results don’t always match up with what a buyer is willing to pay.
Therefore, in studying comps to determine ARV, you are trying to determine what’s in demand, and the improvements that provide a fast sale and the best return. For a detailed explanation, be sure to watch Phil's training on Predicting Final Sales Prices.
5. Creative Real Estate
Creative real estate involves the use of unconventional strategies like seller financing and purchase options to buy, finance, or sell properties. This makes up a very small portion of residential real estate purchases because investors, agents, and title attorneys often lack knowledge about them. Though non-traditional, these methods are perfectly legal, as evidenced by the standard closing statements: line 503 of the HUD, and section N.03 of the Closing Disclosure. Creative real estate involves working directly with a seller, bypassing traditional cash or loan methods. Although less common, these strategies can offer flexibility and speed, allowing you to craft deals tailored to unique situations. We have some proprietary creative methods we only teach our apprentices, but the most common creative techniques involve seller financing and Subject To.
Bonus Term: Subject To
Subject To is acquiring title to a property, while leaving the existing mortgage in place. In other words, a buyer takes over the seller’s mortgage payments without formally assuming the loan. The mortgage remains in the seller's name, but the buyer has control of the property. This method allows buyers to benefit from existing low-interest rates. And while taking over a 3% loan compared to today’s interest rates offers significant advantages, there is also the potential for significant risk if not done correctly. For more details, check out: Subject To Real Estate Explained Step by Step.
Every Successful Real Estate Investor Has a Mentor
We've used Subject To and countless other creative real estate strategies for decades, making millions in profits. However, these strategies require extensive education and training—something you won’t get from your average agent or attorney. Whether you’re looking to flip real estate, wholesale, rehab, or dive into creative deals, you need a mentor to avoid costly pitfalls, unnecessary risks, and wasted time and money. We've guided countless investors through flipping, wholesaling, and creative real estate to transform their financial futures. If you're ready to take the next step, join our Apprentice Program—our team will mentor, coach, and guide you to financial success. Get your mentor here: Freedom Mentor Apprentice Program.
If you have questions for us, text FREEDOM to 305-315-8030 or post a comment below.
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