As an owner of rental properties, it is important to keep updated on the latest real estate terms. The real estate market is enduring major changes, and knowing these changes can help you protect your investments and grow your portfolio. Smart awareness will help you to make informed decisions when you are bargaining with potential buyers or renters. In a competitive market, it is important to understand the following six terms. Let’s take a closer look at each one.
iBuyer
iBuyers are real estate companies that employ technology to deliver quick and hassle-free home-selling solutions. They offer an innovative and reliable way of selling residential properties in a matter of days, with little exertion from the homeowners. iBuyers use advanced algorithms to assess real estate market data, which allows them to make prompt and competitive offers that are based on the latest market conditions.
The iBuying procedure typically involves homeowners inputting their property details to an iBuyer’s website. The iBuyer then assesses the property and makes an instant cash offer within 24-48 hours. If the offer is recognized, the homeowner can arrange a closing date and receive payment in a few days.
One of the main perks of iBuyers is that they provide a hassle-free selling process, disregarding the need for staging, open houses, and negotiations. Homeowners can avoid the anxiety of preparing their homes for showings and waiting months to sell their properties.
Days on Market (DOM)
When you’re seeking a new property, knowing critical real estate terms is essential. One such term is “DOM,” which is “days on the market.” This metric shows the number of days a property has been listed for sale.
A high DOM can be a red flag, demonstrating that the property has remained on the market for too long without any offers. However, it’s necessary to remember that seasonal changes in the real estate market can affect the DOM. For illustration, homes typically sell faster in spring than in winter.
By examining the average DOM for a specific area, you can identify whether the real estate market is strong (i.e., with a low average DOM) or weak (i.e., with a high average DOM). A weak market frequently favors buyers, who may find it simpler to negotiate a better deal.
Real Estate Owned (REO)
An REO property, short for “Real Estate Owned,” refers to a type of property that a lender owns after the previous owner has failed to continue mortgage payments and the property has been foreclosed on. Usually, this occurs when the property fails to sell at a foreclosure auction.
For investors, REO properties can be an attractive investment opportunity because they have the possibility to be purchased below market value. However, it is advisable to note that these types of sales typically come with jeopardies since the property is sold “as-is.” Any necessary repairs or renovations will be the buyer’s duty, and financing can be difficult to secure.
FHA 203k rehab loan
The FHA 203k rehab loan is a loan program assisted by the federal government. It is intended to allow homebuyers to finance the purchase of a property that needs major repair or renovation.
The loan can fund repairs and renovations, including but not limited to structural improvements, plumbing, and electrical repairs, and the installation of new heating and cooling systems. It can also be utilized to make energy-efficient upgrades to older homes, such as installing new windows, doors, and insulation.
One of the important benefits of the FHA 203k rehab loan is that it allows buyers to finance the cost of the repairs and renovations into the mortgage, meaning they don’t have to pay for these expenses out of pocket. Furthermore, the loan can be used to purchase a property needing repair and refinance an existing property.
However, you need to understand that the loan is not intended for “luxury” upgrades such as adding a swimming pool or other non-essential amenities. The loan is intended to help homeowners make essential fixes and updates 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 use to identify how much of your monthly income goes toward paying debts. DTI is computed by adding your monthly mortgage or rent and other debt payments, dividing the total by your gross monthly income, and multiplying by 100. This calculation gives lenders an understanding of how much of your income is already dedicated to paying off debts and how much mortgage you can afford.
A high DTI can make it difficult to qualify for a loan, so it’s recommended to keep this number low. Usually, lenders prefer borrowers to spend no more than 28% of their monthly income on housing payments and 36% or less on monthly debt payments. The lower your DTI, the more likely you will be accepted for a loan or a mortgage.
It’s important to keep in mind that lenders may have slightly different criteria for evaluating DTI ratios, depending on the kind of loan or mortgage you’re applying for. For example, some lenders may allow a higher DTI ratio for borrowers with excellent credit scores.
In any case, keeping your DTI ratio low is vital for maintaining good financial health and making it easier to obtain financing when required. If you are struggling with a high DTI, think about paying down your debts, increasing your income, or seeking advice from a financial professional.
Earnest Money Deposit (EMD)
Earnest Money Deposit (EMD) is a deposit a buyer must make when offering a property. It is also known as a “good faith deposit.” This deposit attests to the buyer’s determination and eagerness to purchase the property, which can urge the seller to accept the offer. Normally, the amount of EMD offered is between 1% and 5%, but it can change based on the market and the scenario. The EMD is held in escrow and is applied to the purchase price of the home if the deal is successful.
As a rental property owner, it is important to be familiar with numerous real estate terms. Staying up to date with the newest industry developments can help you make smart choices when negotiating with buyers or renters and protect your investments. Remember, in a competitive market, knowledge is power.
Real Property Management Reliance is ready to assist you with creating a passive income and reaching financial freedom through real estate investments in Baltimore and the neighboring area. Our experts can provide experienced and friendly advice on property management and real estate investment matters. Contact us online or call us at 978-998-8114.
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