Here is part III in our series of investing terms. In this part we cover two key areas for residential real estate investors- owning and renting to others, with key terms for each. Destination Maui Realty is uniquely positioned to help you understand these terms, since our agents are both qualified realtors and property managers. If there is a topic you’d like to discuss further, please do not hesitate to reach out to us!
Real Estate Terms: Owning
Assessment: The act of determining the real estate value for tax purposes
Assessed value: The dollar value assigned to a property by a public assessor for tax purposes
Appreciation: The increase of a property’s value over time, and can be attributed to improvement, increased demand, inflation, and/or weakening supply
Depreciation: The decrease of a property’s value over time, partially attributed to wear and tear
Property management: Individuals or companies paid by a property owner/landlord to oversee the day-to-day operations of a rental property. Our property management clients are both located remotely and right here on island.
Remote investing: A type of real estate investing in which the investors are located geographically distant from their investment property; unlike traditional real estate investing where owners want to be close to their properties so they can check up on them, have a relationship with their tenants, and conduct maintenance, remote investing allows owners to buy into markets where there are favorable returns (e.g. higher rents and/or lower ownership costs) that might not be available in their area of residence and have the properties managed by a property management company because of their status as an absentee landlord. In Hawaii, it is legally required that you have a local representative (owner, agent or manager) on the lease.
HOA fee: The fee a property owner pays to the organization that creates and enforces community policies if their investment property is located within a homeowners or condo association; the fee goes toward maintaining and improving properties within the association
Real Estate Terms: Renting
Vacancy rate: The percentage of unoccupied units (not generating income) in a rental property portfolio at any given time
Tenant screening: The process of interviewing, conducting background and credit checks, calling references, and fully vetting applicants to find the best possible tenant
Liability insurance: A type of insurance policy that protects property owners against claims of negligence or action that results in bodily injury or property damage to another party
Rental property: Investment property from which an owner receives monthly payments from tenants for living there
Short-term rental: A type of rental property only leased for a short period of time, usually for vacationers, that comes furnished. We have a separate business unit that handles short-term rentals, Destination Maui Vacations.
Long-term rental: The traditional type of rental property where tenant sign a lease for a longer period of time (minimum 6 months in Hawaii).
Rental income: Income generated from rent payments the tenants make to the landlord for living on the landlord’s property
Single-family home: A free-standing residential property not attached to any other residential or commercial properties
Multi-family home: A residential property designed to house many different tenants (or groups of tenants) in separate units within a single structure
Mixed-use building: A property zoned for both commercial and residential use (e.g. a multi-family home where the ground floor is a convenience store)
Leasing fee: The fee a property owner pays to a property manager. This can include a fee when the property manager signs a tenant for the rental unit and a monthly percentage of the rent.
Vacancy provision: A sum of money set aside to help cover expenses in the event a rental unit is vacant for a period of time (typically 12% of the rent to allow 6% to cover vacancy and 6% to cover maintenance)
Fair Housing Act (FHA): Federal law that prohibits real estate agents, landlords, sellers, lenders, and any other party that has influence in the decision-making process of buying, selling, renting, and financing of housing from discrimination against individuals in a protected class based on race, nationality, gender, religion, family status, and disability. It is critical to be well-versed in both FHA and State regulations regarding fair housing.
Many of these terms may be familiar to you, but a refresher is always good. When you start investing in real estate, those you collaborate with will speak this lingo.