As an owner of rental properties, it is important to keep yourself informed about the latest real estate terms. The real estate market is experiencing notable transformation, and having knowledge about changes can assist you in protecting your investments and growing your portfolio. Having a keen understanding will help you make informed decisions when you are bargaining with potential buyers or renters. In a competitive market, it is crucial to have a solid understanding of the following six terms. Let’s examine each one more closely.
iBuyer
iBuyers are real estate companies that use technology to offer fast and convenient home-selling solutions. They offer an innovative and reliable way of selling residential properties in a matter of days, requiring minimal involvement from the homeowners. iBuyers use sophisticated technology to examine real estate market data, enabling them to generate immediate and competitive offers that are based on the present market conditions.
Typically, homeowners would submit their property details to an iBuyer’s website during the iBuying process. Within 24-48 hours, the iBuyer assesses the property and presents an instant cash offer. Once the offer is agreed upon, the homeowner can establish a closing date and receive payment in a few days.
One of the primary perks of iBuyers is that they provide a convenient selling experience, removing the requirement for staging, open houses, and negotiations. Homeowners can avoid the pressure of getting their homes ready for showings and waiting months to sell their properties.
Days on Market (DOM)
It is crucial to have a grasp of important real estate terms when you’re in the market for a new property. “DOM,” also known as “days on the market,” is an example of such a term. This metric watches the number of days a property has been listed for sale.
A high DOM can serve as a warning sign, suggesting that the property has been on the market for a long time without any offers. However, it’s important to understand that seasonal changes in the real estate market can affect the DOM. For example, houses generally have a quicker selling time during the spring season compared to winter.
By reviewing the average DOM for a particular region, you can assess if the real estate market is strong (i.e., with a low average DOM) or weak (i.e., with a high average DOM). Buyers may have an advantage in a weak market, as they may find it more convenient to negotiate a better deal.
Real Estate Owned (REO)
An REO property, also known as “Real Estate Owned,” is a type of property that a lender owns after the previous owner has been unable to maintain mortgage payments and the property has been foreclosed on. Usually, this occurs when the property does not sell at a foreclosure auction.
For investors, REO properties can be a good investment opportunity as they have the potential to be purchased below market value. However, it is worth noting that these types of sales typically come with risks since the property is sold “as-is.” The buyer will be responsible for any necessary repairs or renovations, and it can be difficult to secure financing.
FHA 203k rehab loan
The FHA 203k rehab loan is a loan program sponsored by the federal government. It is intended to allow homebuyers to finance the purchase of a property that necessitates major fixes or renovation.
The loan can fund repairs and renovations, which may include but are not limited to enhancements to the structure, fixing plumbing and electrical issues, and installing new heating and cooling systems. Additionally, it can be used to make energy-efficient upgrades to older homes, such as installing new windows, doors, and insulation.
One of the primary perks of the FHA 203k rehab loan is that it allows buyers to finance the cost of the repairs and renovations into the mortgage, eliminating the need to pay for these costs separately. Furthermore, the loan can be utilized to purchase a property needing repair and refinance an existing property.
However, you need to understand that the loan does not qualify for “luxury” improvements like installing a swimming pool or other non-essential amenities. The purpose of the loan is to help homeowners make essential repairs and upgrades to their homes to live safely and comfortably in their properties.
Debt to Income (DTI)
The DTI, or debt-to-income ratio, is a financial metric that lenders utilize to evaluate the proportion of your monthly income allocated towards paying debts. To calculate your DTI, you need to sum up your monthly mortgage or rent and other debt payments, divide the total by your gross monthly income, and multiply by 100. This estimation gives lenders a hint of how much of your earnings already goes to paying off debts and how much mortgage you can afford.
Having a high DTI can pose difficulties in qualifying for a loan, so it’s crucial to maintain a low DTI. In general, lenders prefer borrowers to allocate no more than 28% of their monthly income on housing payments and 36% or less on monthly debt payments. Having a lower DTI increases your chances of getting approved for a loan or a mortgage.
It’s important to mention that lenders may have slightly different standards for determining DTI ratios, depending on the specific loan or mortgage you’re seeking. For instance, some lenders might permit a greater DTI ratio for borrowers with excellent credit scores.
In any case, keeping your DTI ratio low is important for maintaining good financial health and making it easier to obtain financing when required. If you find yourself facing difficulties with a high DTI, you may want to contemplate reducing your debt, boosting your income, or consulting with a financial professional.
Earnest Money Deposit (EMD)
Earnest Money Deposit (EMD) is a deposit a buyer must make when offering a property. It is alternatively referred to as a “good faith deposit.” This buyer’s deposit serves as evidence of their commitment and enthusiasm to purchase the property, potentially motivating the seller to accept the offer. Usually, the amount of EMD offered falls within the range of 1% to 5%, although it may differ depending on the market conditions and specific circumstances. If the deal is successful, the EMD is held in escrow and is applied to the purchase price of the home.
As a rental property owner, it is essential to be familiar with various real estate terms. Staying up to date with the latest industry changes can help you make informed decisions when negotiating with buyers or renters and protect your investments. Remember, in a competitive market, knowledge is power.
Real Property Management Viking is prepared to help you generate passive earnings and attain financial independence through real estate investments in Eden Prairie and its nearby vicinity. Our team of experts is available to provide knowledgeable and accessible guidance on property management and real estate investment issues. Contact us online or call us at 612-230-3953.
We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.
