Every Real Estate Investor Should Master

When you learn about something, when you are interested in new subjects, you also learn a whole new vocabulary you start using. Well, with real estate investing happens exactly the same. If you are a Real estate beginner or an experienced investor, you must understand and master all the terms and words of the investment vocabulary, especially acronyms, so here is a small list of every acronym a real estate investor should know:

1. PITI

Initials for: Principal (P), Interest (I), property Taxes (T) and Insurance (I). Essentially this means, the “bottom line” or the minimum amount needed when you estimate the acquisition of investment property with a loan. Frequently this is estimated monthly.

This amount is what you would might spend in the investment property over the life of the loan. Every and each month is the frequency of the PITI you have to pay in order to be in good standing. Thanks to this you will know how much rent you should pay.

2. GOI

GOI or Gross Operating Income, is related to the annual income that is collected from the property, including: laundry, parking, storage, etc. and consider any vacancies.

3. LTV

Initials for: Loan-to-Value, this is vital if you’re removing a loan on your investment property, it is estimated by dividing the loan by the property’s value; then, that number is expressed as a percentage. For example, to make it easy: if a loan is $200,000 and price of the property is $250,000, then the LTV is 80%.

You will have more equity in your property and negotiate more if the LTV is lower.

4. DCR

Initials for: Debt Coverage Ratio. This is referred to a commonly used term by lenders when they have to deal with underwriting loans for income-generating properties. How it is calculated? You need to divide the NOI (see below) by the total debt. If the ratios is 1.20 or higher, this is considered the average.

5. NOI

Initials for: Net Operating Income, this is the income left over from your rentals after paying all your monthly operating expenses. So, deduct your expenses from your GOI (Gross Operating Income) to get you the property’s NOI. For example, if you take in $20,000 in leases on all the units you have and spent $6,000 on maintenance including supplies, accounting, taxes, insurance, utilities and more, the NOI for the month was $2,000.

If you felt this information was useful and want to learn more about real estate. You can go to our Official Website and see all the incredible ways we have to offer to invest in real estate.

What is a mortgage pool?

Many times, when we are trying to learn more about the real estate world, we see many different words and expressions we are familiar to it, but do we really know what they mean? Really sure? Today, we are going to talk about mortgage pools. A mortgage pool is a group of mortgages in a mortgage-backed security (MBS) and held in trust as collateral for the issuance of this MBS.

Some people also know them as “pass-throughs” and trade in the to-be-announced (TBA) forward market. Click here, if you want more information about them.

How does it work? Here is an example:

Once a lender finishes a mortgage transaction, it usually sells the mortgage to another unit or entity. The entities or units that buy mortgages let’s say, Company A and Company B set hundreds of mortgages together into a mortgage pool. Then is when the mortgage pool acts as collateral for a mortgage-backed security.

Why is it important?

Pass-throughs or mortgage pools are involved with mortgages with close to the same maturity and interest rate. A MBS is collateralized by a mortgage pool. Mortgages pool usually have similar characteristics.

People have to be careful to not confuse MBSs with CDOs (collateralized debt obligations) because the last one is collateralized by a pool of loans with varying characteristics and they might have different terms (10-year, 15-year, 30-year) and adjustable rates.