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.

How to obtain your first investment property

When talking about real estate we notice it is a very complicated subject. The problem is that it is very capital concentrated, especially for those who don’t have assets. The truth is that buying a good rental property is hard, but it is also possible.

Steps to acquire an investment property

Step 1: Learn and study everything about real estate

This is the toughest part but if you want to be successful you need to learn how real estate actually works. Read books, even if you only understand half of it, keep working through it and eventually you will understood most of it. If you don’t know a term google it but try a way to learn everything you can.

You will see that the beautiful thing about real estate is that there are different ways to make money (investing, brokering, research, tech, appraisals, renovations, etc.). That is real estate is a huge driver for the US and global economy.

Step 2: Commit yourself to own real estate

This is vital in the process. Not everybody comes from a wealthy family but that doesn´t mean you can own something, to be able to buy properties you have to be committed.

Embrace the fight, use it as motivation. If you are really committed, you will get it done.

Step 3: Develop a strategy

An attainable strategy for most people is to buy a single-family house with an investor and rent it out for income and price appreciation. This is just to start. Focus just on achievable goals.  Your strategy is to have goods that will cash flow. By the end of the year, the outlay must be less than what the property brings.

First, find a property: Go to Fci Exhange or other listing site and look what is on the market. Once you find a deal, make an offer.

Step 4: Find an investor

How? Well, talk about your goal to buy real estate. It can be seen as arrogant or even taboo, but this really works. You need to sound and look smart when talking about real estate and have a plan, people need to see that it works.

Final step: stay persistent

This step-by-step process is simple. You need to be patient in this business, you will have difficulties, bad tenants, renovation but don’t freak out and never quit.

The strategy to building this kind of longterm wealth is having interest work for you, not against you and buying rental property is the most achievable way to do this.

 

Loan or Mortgage?

When talking about mortgages, we talk about different loans that are secured with real estate or personal property.

A loan involves an association between a lender and borrower. The lender is the creditor and the borrower is the debtor. The money borrowed during this transaction is what we call a loan: the creditor has “loaned out” money and the borrower has “taken out” a loan. The initial amount of money is called the principal. When the borrower pays back the principal, an interest have to be paid also.  Loan repayments are frequently paid in monthly installments and the duration of the loan is pre-determined. By tradition, banks and the financial system take in deposits and use them to issue loans in order to facilitate the correct use of money in the economy. Loans are also used by organizations and even governments.

Since there are different loans in the market, most well-known type is a mortgage. Mortgages are secured loans that are tied to real estate property, such as land or a house. The property is possessed by the borrower in exchange for money that is paid in installments over time. This allows borrowers to use property earlier than if they were required to pay the value of the property upfront, at the end the debtor sooner or later comes to independently own the property once the mortgage is paid in full.

Loan and Mortgage Differences

If we referred about the loan, in the relationship between lender and borrower the lender is also the creditor and the borrower is the debtor. The money used in this process is known as a loan. When we referred to mortgages, these are secured loans tied to real estate property, it can be a land or a house. The property owned by the borrower is exchanged for money that is paid in installments over time.

About the types:

Loans can be: open-end and closed-end, unsecured and secured, student loans, mortgage and payday loans. Mortgages can be: fixed-rate, FHA mortgage loans, adjustable rate, VA loan, interest-only and reverse mortgages.

Financial and Legal Definitions

Financially, loans are structured in the middle of individuals, groups, and/or firms when one person or entity provides money to another with hope of having it repaid, usually with interest, within a certain amount of time.

How a loan is treated officially differs according to the type of loan, such as a mortgage, and the terms found in a loan agreement. Most of federal laws are set out to defend both creditors and debtors from financial harm.

People frequently borrow and lend a minor amount of money with no contract but it is prudent to always have a written loan agreement, as financial disagreements can be settled more easily and fairly with a written contract than with an oral contract.

 

 

HOW DOES IT WORK WHEN YOU DECIDE TO BUY A MORTGAGE NOTE?

Buying a mortgage note means you take ownership of a mortgage and you receive the interest income from the mortgage, of course you have to deal with it if the borrower stops paying. However this can´t be that bad, because if the borrower doesn´t pay you can decide to start a foreclosure and claim the property as yours.

Nevertheless, there is something you need to have clear; the foreclosure process will have a cost, which is a minimum amount compared to the outcomes you´ll get after selling that house. This means you´ll get paid the monthly fee + interest + the house value after it´s sold and then subtract the amount you invested. So, do the numbers and you can see that it´s great business after all.

Mortgage notes, and any other instrument of debt, can be bought and sold, rapidly. The main purpose is to increase one’s investment yield. As an investor, this becomes a fourth level profit center.

If you have any additional questions on the process or if you want to discuss how to create the most valuable mortgage notes for resale to an investor, I suggest contacting our company FCI EXCHANGE (Click on www.fciexchange.com to access the web page) to do so, as we are a direct and independent note buyer on the secondary mortgage market.