Welcome to the Real Estate Investing From A to Z series. Each week we’ll take a letter from the alphabet and define all the real estate investing terms you need to know that begin with that letter. Today’s letter is……B!
Last week I talked about some key words in the real estate investing arena that started with the letter “A”. This week I’ll be dealing with the letter “B”. Words like Bid, Bank, Broker, Buyer’s Market, and the Buy and Hold Strategy. These are a few terms a beginning investor needs to have in their vocabulary.
Let’s start with the term Bid. A bid is the price you submit on a property that’s for sale. It indicates the amount you are willing to pay for a prospective property. Once you submit your bid, the seller will likely come back with a counter offer. In the bidding process, the sellers asking price is the top of the negotiation process, and your bid is at the low end. Your bid can be changed or adjusted to arrive somewhere in between.
Banks are the lending institutions that many of us are most familiar with. A bank is not only a company that you can deposit and invest money with, they can also be used to secure loans. The banks will typically give the best interest rates and lowest closing costs. Although the process of getting a loan for an investment property is a little more difficult than getting a loan for a home you will live in, banks are still a viable option for investment property financing.
A Broker is a mortgage company that will secure a loan for you through a different lender. Contrary to a bank that lends their own money, a mortgage broker will structure a loan for an individual with a separate lender. A broker will shop or take your loan to a number of different lenders to obtain the best terms and interest rate for their client. The other benefit of using a broker is you can have several lending institutions evaluate your credit worthiness without running your credit multiple times, which can lower your credit score.
When people speak of a Buyer’s Market they are referring to the state of the real estate market. This term is used when the real estate market favors the buyer more so than the seller. This happens when property prices fall due to a recession or a market slow down. This type of market allows the buyer to purchase properties at a much lower price than they would have been able to in a normal market.
The Buy and Hold Strategy is when an investor purchases a property with the intention of holding it for a period of time. This strategy is most successful when an investor purchases a property in a Buyer’s Market, when potential investment property values are low. The investor would then hold the property until the value of the home rose to an acceptable level. The property can then be sold for a profit.
Next week I’ll cover the “C’s” as we make our way to the “Z’s”!