Real Estate Investing Terms That Every Investor Needs To Know.

If you’re a beginner investor, these are terms that may be new to you.  I will give you a simplified definition of each in my own terms.  I will add to these as my blog expands.  If you’d like me to add a term please don’t hesitate to leave a comment with needed terms or shoot me a message to let me know.

Wholesaling: Buying a product for low and selling it for high (hopefully).  In real estate, this is a popular practice for beginner (and experienced) investors.  The reason is because it has a low barrier to entry.  You can wholesale real estate with no money out of your pocket.  Because once you have a contract to purchase a property you now have an equitable interest in that property.  This means that you have the right to market that property (especially if you specify this in your contract) and can actually line up an end buyer before you ever close on it (purchase it) yourself.    Note: if you actually close on a property and turn around and sell it for a profit I still call this wholesaling.  You can find more general information here or see educational courses that I recommend on my resources page.

Double Close: This is the way short sale investors and wholesalers close typically prefer to close their deals.  The goal is to have an end buyer lined up.  They are buying from Seller A.  The plan is to immediately turn around (typically within the same day) and sell to Buyer C.  There are 2 transactions.  AàB  and BàC.  This is a double closing. Transactional Funding is a popular way to fund the first transaction if the investor doesn’t have their own funds for the deal.

Subject to: Also known as “Sub 2 Deals” this is where you can purchase a property from a homeowner using the existing financing (their mortgage) that is already in place.  This is great considering the lack of financing opportunities in the marketplace.  This person would deed you the property but it would be ‘subject to’ the existing mortgage that is in place.  You just have an agreement that you will make the mortgage payment.   Why would someone agree to do this?  Because they are motivated.  They may be facing foreclosure and you may be their saving grace.  William Tingle has some good educational materials on this subject.   There are also some free resources on his site for more info.

Flipping: This is a very general term in real estate investing.  In general, if you buy a house with the intention of selling it in the short term for a profit, then you are ‘flipping’ houses (whether wholesaling, renovating, doing short sales, etc)

Short Sales: This is where a mortgage balance is more than a property’s current value, there is a buyer that wants to purchase the property, and the bank/lender is willing to take less than what is owed on the mortgage.  There is a catch.  The homeowner must be behind on their mortgage and the borrower must be able to prove that they are in financial trouble and that they are unable to make their payments.  A bank/lender is willing to perform a short sale if they think that selling the house at a discount will cost them less than foreclosing on the homeowner.  There are lots of educational courses out there, but I’d only recommend a few.  You can find them on my resource page.

BPO: Broker Price Opinion.  This is where a bank or asset management company hires an agent to review a property in order to give their professional opinion of its value.  BPO’s are performed before foreclosures, for bank refinances, and for short sale approval.

Vendors Lien: This is when an owner sells a property but the seller (vendor) still has a lien against that property until it is paid in full.  If the buyer fails to pay, then the seller has a right to foreclose on the property and take it back, similar to a bank – this is a creative solution for a buyer that lacks the credit to get financing from a traditional lender.

Lease with the Option to Purchase: Also known as ”Rent to Own” it is when a seller agrees to take an option payment to allow a tenant to move into a property.  This tenant will lease the property and has the right to buy the property at a pre-determined price.  The option fee goes towards the purchase price of the home.  A portion of the rent can also be credited towards payments depending on the rent rate, etc. – this is a creative solution for a buyer that lacks the credit to get financing from a traditional lender.