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……C!
This week we’ll be discussing real estate investing terms that begin with the letter “C”. We’ll cover the following terms: Cash Flow, Closing Costs, Commercial Property, Commissions, Comparables, Counter Offer and Credit Rating.
Let’s start with Cash Flow. Cash flow is a term that describes the amount of money an investor has available to keep their project moving. If your cash flow is low, you risk running out of money and the project could come to a halt. A lending institution will use your cash flow as a measure of your credit worthiness as well. Your cash flow will show if your business is sound and growing, or if it’s faltering.
Your Closing Costs are the monies that are due at the settlement table that you pay to receive the loan to buy the property. The closing costs include points charged by the mortgage company, interest due, taxes due, and realtor fees. Depending on how the deal was strutured, you may encounter a few more miscellaneous charges at closing as well.
Commercial Property is property that is not used for residential use or industrial use. This type of property is not used as a personal residence. Every city has different guidelines they use to govern the use restrictions for these properties.
Commissions are monies that are charged by a realtor or mortgage company as their fees. For a mortgage company, these are usually shown as points or a percentage of the loan amount. The realtor will show their commissions as a percentage of the sales price of the property.
The term Comparables refers to properties that are similar to your property in relationship to their location and structure. The comparables values are determined by how much the properties have sold for in the past. These properties will be compared to your property and a value would then be unofficially assigned to your property. In order to get an official value, an appraisal would have to be completed.
A Counter Offer is an offer that is submitted in response to an initial bid. The counter offer would be a price that the buyer or seller would submit in the negotiating process. This price would reflect what that person was willing to buy or sell the property for.
Your Credit Rating is a score that is attached to your credit report called the FICO score. This score assesses how well you pay your bills and if you pay them on time. If you pay your bills late, past 29 days, this will cause your rating to go down. If your payments are on time, your credit rating will remain high and strong, thereby allowing you to get the credit you need to make your investment property purchases.
Next week we’ll discuss real estate investing terms you need to know that start with the letter “D”.