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……D!
We’re now up to the letter “D”. These are terms that I’ve found to be important for both new and seasoned investors. This weeks words are Deed, Distressed Property, Depreciation, Down Cycle and Down Payment.
A Deed is a document that shows ownership of a property. A deed is much like the title for a car; it simply shows the owner of the property. Once the lien has been satisfied, if there’s a lien on the property, the lien holder will forward the deed to you, and the property is yours free and clear.
A Distressed Property is a property that’s in need of work to get it ready for renting or for sale. Generally the word distressed refers to a property that needs to be rehabbed. Distressed properties are great for investors because they can usually be purchased substantially lower than market value.
Depreciation is calculated on the useful life of an asset. Properties, machinery and equipment have a useful life time limit. This term has a dollar amount equated to it and can be used as a write-off on your taxes. The useful life of an item might last for years. You would be able to write-off a dollar amount on your taxes even though you didn’t spend money in that year for that item. Depreciation for an investment property could last as long as twenty years or longer.
A Down Cycle is referring to the cycle of the economy. During a down cycle the economy is in a slow down where values are low and times are hard. This is a good time to purchase properties because prices are low and inventory is high. A down cycle can be a real estate investor’s playground.
Your Down Payment is the amount of money you have to come up with to acquire a loan. The mortgage company wants to see that you have a stake in the property. Your down payment shows that you have money invested in the project just as the lender does. Your down payment is generally a percentage of the total loan amount.
Here again are key words that every investor should know and understand. Next week we’ll move on to the letter “E”.