Property Investment Headache? Here’s Something To Help

Something as complex and risky as property investment has to be taken seriously. But, when you can’t understand what half of the estate agent is saying, it makes it hard to be confident enough. To help you bust some of the jargon the professional’s use, here’s a collection of some of the harder ones.

• Appraisal

An appraisal is the valuation of a property. This valuation has to be conducted by a licensed professional, as it will be used as the basis for the price at sale. You can use past appraisals from your area as a guide.

• Capital Gain

Capital gain is the total gain you will see from an investment over a certain period. For example, if you rent a house for $200 a month, over a year your capital gain would be $2400.

• Capitalization Rate

This refers to the gain you will see at a given rate. So, using the example above, your capitalization rate would be $200 a month. This is used to determine growth in investments when looking at past rates.

• Closing

Closing is the process at the end of a sale when everything is full handed over from the seller to the buyer. At this point, the new owner has full rights to the property, and the sale is “closed.”

• Declaration

If you invest in a property, you will receive a declaration. This document is the reference for everything included in your deal. So, if you own a property, the declaration would give you proof. It will also outline any fees or restrictions on the property.

• Default

Defaulting means that you have broken the agreement in place. For example, if a tenant defaults on rent, it means that they haven’t paid in full. Be careful not to default on contracts, especially on large property.

• Depreciation

Depreciation is the loss of value over time. This might happen to a property if it’s location becomes less desirable or if the building goes into disrepair. Depreciation is something to think about, even with new buildings. Especially for those looking for quick sales.

• Due Diligence

This is the work that both the seller and buyer will both put in before the sale. This will include the property’s history, value, and any other important information. It will also include drawing up contracts and sales agreements.

• Escrow

Escrow is used to ensure that both parties honor their agreement. An individual or organization that both parties trust will hold all of the money involved. This gives the seller confidence that they will receive the payment and the buyer confidence that there’s nothing to hide. The trustee will hold the funds until both parties agree that it’s ready to be released. It’s usually the estate agent who will act as the trustee.

• Exchange

Sometimes, it’s possible to swap properties instead of selling. Investors use the 1031 exchange system to avoid taxes and save money, by swapping instead of selling. This will also save time looking for a second investment property after you’ve sold your current one.

Of course, there’s loads more. Unfortunately, it’s just too many to cover here. So, you might have to do some research. Nevertheless, hopefully, this has given you a better understand of property investment!