New to real estate investing? 11 terms you must know before you start.
Are you new to real estate investing? Learn the most commonly used terminologies by real estate marketers. We’re happy to assist you in this endeavor. There are many acronyms and jargons you should know before you make your first real-estate investment. You will be able to understand the meaning and significance of terms such as ROI, EMI, or FSI when you next hear them.
It is impossible to master all terms in one sitting. However, you can learn a few of the most common ones by starting here. This list contains 11 terms that every investor or real estate marketer should be familiar with.
1. Return on Investment (ROI).
The return on investment (ROI), is the measure of how much profit you make from an investment. The ROI is calculated by subtracting the net profit from the total investment cost. The greater the ROI, the higher the profit earned.
2. Basic Sale Price (BSP), or Market Value (MV).
The base rate per square foot at which the property is offered for sale is called the Basic Selling Price (BSP), or the Market Value (MV). This price does not include any additional fees such as Goods and Services Tax, GST, amenity costs, preferential location charges and other maintenance fees. These charges can add up to 20% to the BSP.
3. Cash Flow
After deducting all operating costs, cash flow is the amount of cash that you make each month from your property. It’s the difference between money coming into and leaving your asset. If your investment generates more income than your expenses, it is considered profitable and vice-versa.
HOA, or Homeowner’s Association, is a self-governing group that consists of homeowners living in a specific subdivision, apartment, or planned housing community. HOAs are able to enforce rules and collect maintenance fees monthly from owners. You will become a member of an HOA when you purchase a property in that area.
Appreciation refers to an increase or decrease in property’s value over time. Properties can appreciate in value due to factors such as favourable locations, high property demand and limited supply. Property prices will likely rise quickly in areas where there are new or upcoming infrastructural and commercial developments. Properties with a unique view, such as a lake, nature or sea, will be more sought after by buyers, and will therefore appreciate at a faster rate than other properties.
6. Turnkey Property
Turnkey properties are homes or apartments that are nearing completion. Investors are attracted to turnkey properties because they are easy to rent out and can purchase them quickly. These properties can be rented immediately after they are built. Turnkey properties offer buyers the opportunity to see the property and evaluate its quality before they purchase it.
7. Equal Monthly Installment (EMI).
The Equal Monthly Installment (EMI), is the monthly remuneration that a borrower must pay to the lender. Buyers who take out a home loan to buy a property will be subject to EMI. The loan amount, tenure, salary, credit history, and age all play into the calculation of EMI. Many banks and financial institutions offer home loan options to potential buyers. An online calculator can be used to calculate your EMI for a home loan based on principal loan amount, term and interest rate.
8. Carpet Area
According to RERA, carpet area refers to the total area that can be used by an apartment. This includes areas under service shafts, outside walls, and areas under external walls. It also includes the area covered internally by partition walls. Carpet area refers to the area that can cover with a carpet, or the area of an apartment that is not covered by the inner walls.
9. Super Built-Up Area
The super built-up area, also known as the saleable zone, is where realtors promote their projects to buyers. Super-built-up area refers to the total area of the apartment, including the carpet area, wall thickness, and any other areas such as terraces, corridors or lobbies. Builders may also add amenities such as a swimming pool, clubhouse, or garden to the super-built-up area.
Super-built-up Area = Built-up Area + Common Areas
10. Floor Area Ratio, (FAR), or Floor Space Ratio, (FSR).
The Floor Area Ratio or Floor Space Ratio is the maximum amount of floor space that can be used to construct a building on a piece of land. I.e. It is the ratio of a building’s gross area to its land area. It’s also called FSI (Floor Space Index), and is expressed in percentage. FAR guidelines can vary from one area to the next and are determined by local municipalities. Based on the FAR value, features such as the height of buildings and the number of floors can be determined. Higher FSI means a larger built-up area.
11. Freehold property
Freehold property is one in which the owner retains full and unrestricted control over the land or building. The owner is free to sell the property and can also inherit it. Leasehold properties are less stable than freehold properties, and they will be more valuable in the future. An auction or lottery is the most common way to buy freehold land. A freehold property is one that you owns the land on which it was built. A freehold property can be sold without the need for state authorization.
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Are you new to real estate investing? Learn the most commonly used terminologies by real estate marketers. We’re happy to assist you in this endeavor. There are many acronyms and jargons you should know before you make your first real-estate investment. You will be able to understand the meaning and significance of terms such as ROI, EMI, or FSI…