As an owner of rental properties, it is important to stay updated on the latest real estate terms. The current state of the real estate market is undergoing significant changes, and being aware of these changes can help you protect your investments and grow your portfolio. Astute awareness will enable you to make informed decisions when dealing with potential buyers or renters. In a competitive market, it is important to have knowledge of the following six terms. Let’s do a more thorough analysis of each item.
iBuyers are real estate companies that use technological advancements to provide fast and efficient home-selling solutions. They offer an innovative and reliable way of selling residential properties in the next few days, with homeowners needing to put in minimal effort. iBuyers use sophisticated methods to analyze real estate market data, allowing them to offer immediate and competitive offers that reflect the prevailing market conditions.
Typically, the iBuying procedure entails homeowners inputting their property details to an iBuyer’s website. Afterward, the iBuyer assesses the property and provides an instant cash offer within 24-48 hours. Once the offer is accepted, the homeowner can arrange a closing date and receive payment quickly.
A significant advantage of iBuyers is their ability to offer a simplified selling process, removing the need for staging, open houses, and negotiations. Homeowners can reduce the burden of getting their homes ready for showings and waiting months to sell their properties.
Days on Market (DOM)
When you’re searching for a new property, understanding basic real estate terms is essential. One such term is “DOM,” which is “days on the market.” This metric calculates the number of days a property has been listed for sale.
A high DOM may indicate a potential issue, showing that the property has been sitting on the market for a long time without any offers. Nevertheless, it’s important to be aware that seasonal changes in the real estate market can affect the DOM. As an illustration, houses tend to be sold more quickly during the spring season compared to the winter season.
By assessing the average DOM for a specific area, you can determine if the real estate market is strong (i.e., with a low average DOM) or weak (i.e., with a high average DOM). Buyers often have an edge in a weak market as they can more easily negotiate a better deal.
Real Estate Owned (REO)
An REO property, often known as “Real Estate Owned,” refers to a type of property that a lender owns after the previous owner’s inability to sustain mortgage payments, leading to foreclosure. This situation often arises when the property fails to be sold during a foreclosure auction.
For investors, REO properties can be an attractive investment opportunity due to their potential of being purchased below market value. Nevertheless, you should be aware that such sales often come with risks due to the property being sold “as-is.” The buyer takes on the responsibility for necessary repairs or renovations, and obtaining financing may present difficulties.
FHA 203k rehab loan
The FHA 203k rehab loan is a loan program assisted by the federal government. It is planned to help homebuyers to finance the purchase of a property that necessitates substantial repair or renovation.
The loan can fund repairs and renovations, including improvements to the structure, plumbing, and electrical fixes, and the installation of new heating and cooling systems. In addition, it can be used to make energy-efficient upgrades to older residences, such as installing new windows, doors, and insulation.
An important benefit of the FHA 203k rehab loan is that it allows buyers to finance the cost of the repairs and reconstruction into the mortgage, eliminating the need to cover these costs with their own funds. Additionally, the loan can be used to purchase a property needing repair and refinance an existing property.
However, you need to remember that the loan wasn’t intended for “luxurious” improvements such as the building of a swimming pool or other non-essential amenities. The loan’s objective is to aid homeowners in making essential repairs and enhancements to their homes so they can live safely and comfortably in their properties.
Debt to Income (DTI)
The DTI, or debt-to-income ratio, is a financial metric that lenders employ to determine the proportion of your monthly income that is allocated towards paying debts. DTI is ascertained by adding your monthly mortgage or rent and other debt payments, dividing the total by your gross monthly income, and multiplying by 100. By performing this calculation, lenders can gain insight into the percentage of your income that is already allocated to paying off debts and how much mortgage you can afford.
Having a high DTI ratio can make it challenging to qualify for a loan, so it’s recommended to keep this number low. Typically, lenders prefer that borrowers allocate no more than 28% of their monthly income on housing payments and 36% or less on monthly debt payments. Having a lower DTI improves the chances of getting approved for a loan or a mortgage.
Recognizing that lenders may use different standards to evaluate DTI ratios is crucial, depending on the specific loan or mortgage you’re seeking. For instance, some lenders may allow a higher DTI ratio for borrowers with excellent credit scores.
Regardless, keeping your DTI ratio low is critical for maintaining good financial health and simplifying the procedure of obtaining financing when needed. If you are encountering difficulties as a result of a high DTI, it might be advisable to consider alternatives such as reducing your debt, increasing your income, or seeking guidance 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 buyer’s deposit demonstrates their commitment and eagerness to purchase the property, potentially encouraging the seller to accept the offer. In general, the percentage of EMD offered usually falls within the range of 1% to 5%. However, this figure may differ depending on the market conditions and circumstances. The EMD is held in escrow and is applied to the purchase price of the home if the deal works out.
As a rental property owner, you need to have a thorough knowledge of various real estate terms. Staying up-to-date with the latest advancements can assist you in making informed judgments when negotiating with buyers or renters and protecting your investments. Remember, in a competitive market, knowledge is essential.
Real Property Management Instant Equity is ready to provide support in creating a passive income and achieving financial independence through real estate investments in Round Rock and the nearby vicinity. Our team of professionals is equipped to offer expert advice and assistance regarding property management and real estate investment topics. Contact us online or call us at 512-500-0422.
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.