Investing

Common Terms

1. Cap Rate: a quick calculation expressed as a percentage to show the relationship between income and value/price. The formulas is Net Operating Income divided by Price. Cap = NOI/Price
2. ARV
3. Hard Money Loans: Money that is lent usually more short term at a higher interest rate 
4. Flipping: buying a property in disrepair, at a low cost/in foreclosure, or a mismanaged property with the intention of fixing the issues and putting it back up for sale. This can be a property with bad tenants or a bad landlord in addition to having physical or cosmetic issues
5. Buy and Hold: buying a rental with the intention to own it long term, usually in areas with good appreciation over the years.
6. House Hacking: when an investor buys a house with an FHA loan, lives there for at least a year, then rents it out. FHA requires the buyer to live there at least a year as primary residence, and they can buy with less money down, making investing easier. This can be done on a single family house up to a 4plex since FHA loans are for residential properties only.
7. Cash on Cash Return
8. Capital Gains: a tax that you pay when you sell an investment property more than what you paid for it. There are short term (when you owned the property for less than a year) and long term (when you owned a property for more than a year) and the amounts are different. Ask a tax professional for more detail on the specific tax rate.

Helpful Links
    Investment Calculator spreadsheet template
    How to Calculate Investment Property Income and Expenses
    Maintenance Reserves
    Dustin's CE class slides "How to Choose, Sell, and Profit with Investment Properties"