Real Estate Vocabulary
Articles,  Blog

Real Estate Vocabulary


Kris Krohn here and today we’re doing
real estate for dummies. Now today’s video is not intended to sound
condescending in any way, shape or form but I remember when I jumped into real
estate and I was hearing words like equity and cashflow and landlord and I
was like, what do these words mean?! Today, I’m hoping to bring that clarity to you
right now. Alright, my friends. Kris Krohn here and
I want to tell you that I’ve got a lot of you that are watching me here on
youtube and you’re asking some really elemental questions. Recently I posted a
video called What Is Equity and I was blown away at how popular the topic that
was and so based on some of the recent questions and concerns you’ve had, I’ve
decided to produce a really simple Real Estate 101 on language. Okay, we’re just
going to the dictionary, we’re going to the terms so those of you who watch any of my
other videos here, I don’t want anything to go over your head and this is a good
opportunity for you to put comments below to ask other vocab questions, other
things that I talk about that maybe I’m taking for granted that you should
understand these things but listen, we all start in a world where these
concepts are foreign so today is brought to you by the words real estate, equity,
mortgage, downpayment, landlord, tenant, flipping and rentals so that’s what
we’re going to cover right now real quick to make sure you understand it with my
wonderful friend, white board. Okay, so first of all, what is real estate? Okay,
first of all, let me say real estate, we’re actually talking about, this is
beautiful, we’re talking about something real, something tangible, something you
can touch. I love real estate investment because I’m actually buying
something I can touch. Real estate includes the land and the house so when
we say real estate, there is a value on the land, there’s value on the home and
they ain’t making more land which means the value of land over time does what? It
goes up in value because it’s in demand. The more population increase that we
have, the more people want real estate and so the cost of goods to build a
house will go up in value and so as land goes up or the home goes up, together
they create real estate and they create the value of a property so that is what
real estate is so by the way, as you drive down the road and you see a bunch
of apartments, is that real estate? Yes, as you see a commercial high-rise, is that
real estate? Yes. As you go through a neighborhood and see single family homes,
is that real estate? Yes, real estate is land and it’s also the property that’s
on it. Okay? Cool. If I wasn’t clear enough on that, you got to comment below and let
me know. Okay, number two, equity. What’s equity?
That’s a foreign word when you really haven’t been playing
with it and so let me talk about it. Here we got a land, here we got our real
estate, we got our property sitting right here and this house has a value of
$200,000, that’s what it would cost for me to buy this house outright if I had
$200,000 of cash and I give it to the person that owns that property, they
would say, you get a title, a free and clear title that says, you own this home
outright, there’s no banks involved or whatever or I could get a mortgage where
I say, oh, I don’t got $200,000 in the bank, ask yourself, do you have $200,000?
If you’re watching this video, there’s a chance that maybe you don’t and you’re
here to learn how to have that money in the bank, right? So all of a sudden you’re like,
you know what, I really don’t have the money to buy this house but I know this,
I can go to a bank and I can get a mortgage and I’ll let the bank carry the
note, the bank will actually give me the money, don’t give the money to the person
that owns the house and then the bank will say, okay, well Kris, we actually own
it but now you can buy it back from us, we have terms, you can have a mortgage, a
monthly payment, okay. So all of a sudden it’s valued at
$200,000 but watch this, this is magic. I purchased the property for a $160,000,
there was some circumstance, there was some reason why
the person selling this home sold it to me for $160,000 even though it’s worth $200,000
and I went to the bank and the bank said, Kris, you need to give
us a down payment because we’re not going to just buy this house because you
want us to, you got to show some skin in the game and because of the house
you’re going to live in, we’re going to ask you to put 5% down so the bank says well, 5%
on this $160,000, my down payment is $5,000,
the bank says, woof, that’s good. I mean, you’re going to be living there but you put
some money in this property, you have some skin in the game and that brings us
to the question, what is equity? Well I have a house that’s worth how much?
$200,000. I purchased it for $160,000 but I also put $5,000 down so now
what do I actually owe? Well, I bought it for $160,000, I put five more down towards it,
let’s say that I owe a $155,000, this is what the
bank wants me to pay them back generally over the typical mortgage is going to be
what’s called a 30-year mortgage, there are other types but a 30-year mortgage
is where the bank says, oh, well how much do you have to pay us every month over
the next 30 years to pay off that $155,000 and make sure we get some
interest along the way and the bank comes up with the payment and let’s call
it my mortgage is $1,000 a month so the bank goes, Kris, it’s okay, you owe us a
$155,000 but if you pay us a thousand dollars every month
for the next 30 years, then the $155,000 will be wiped out and then you
can have the house, same as if you had given the people $160,000
cash so now we have this question, what’s the equity? I
owe $155,000 but it’s worth $200,000 and the difference between what I owe and what
it’s worth is what we call equity so for example I pull out my handy calculator
and I say, what is $200,000 of value minus $155,000 of what I owe and it’s $45,000. My equity on this
property is 45K. K means thousand, okay. I got $45,000 of equity, that’s pretty cool
by the way, right? Like it’s a good deal but guess what happens, you hold this
home for two years and the house is no longer worth $200,000,
it’s now worth $220,000. Does that change my equity?
Oh yeah, because remember, I owed $155,000. 2 years have
passed, I actually now owe $150,000, it’s now worth $220,000.
What’s the difference between $220,000 and $150,000? My equity is not 45K. Now I have $70,000 of equity.
Now it’s not like I can necessarily go to the bank and I can’t
roll up to like McDonald’s and be like, I’d like a number 2, supersize me and
I’m going to pay for it with equity because equity, it’s a number on a
balance sheet that is a part of your net worth. Your net worth is, what are you as
a human being worth based on your asset, not your real net worth, your real net
worth, you are precious and priceless but I’m talking about the things that you
have, right. So this house is one of the things that I have and this house I owe
$150,000 is worth $220,000 so my ballot sheet says, actually, I’m
worth a $170,000. So $70,000.
Okay, then we get to this next part, that’s what equity is and then it’s like,
well, what am I doing with the house? You know what, I’ve been watching Kris
Krohn’s channel here, I’m a subscriber and I also hit the bell and that means
that I get the daily videos and I’ve been getting wise so I learned how to
become a landlord which means, and here’s what a landlord is, the landlord is the
person that owns the house, technically the bank owns it but we always look at
it like we own it cause we’re paying the bank off, right. This is my house,
technically it’s the bank’s but it’s my house, I control it, I can do some things
with it that I want to and what I’m going to do is, I as the landlord, I’m not
going to live in this house anymore, I’m moving out and you know what I’m going to do? I’m going to put a tenant in this home and that tenant is going to pay me rent
and my rent is $1,300 a month. Well, hot dog, check this out, do you remember what
your mortgage is? Your mortgage is a thousand a month but every month you’re
collecting how much? What’s the difference between the thirteen hundred
I get a month and the thousand I need to pay to the bank to have this?
$300, that’s what we call a cash flow. Now put that at the top here.
Actually put it right on the house. My cash flow is $300 a
month, now just for a moment, calculate that for a year, that’s $3,600,
that’s pretty exciting, right?
That is a residual income or it’s often called a passive income. If you have a
property manager doing all this stuff for you and you get that $300
no matter what, it’s passive whether you work or not, you’re going to get
paid in. Some people call it a residual income which is, it comes in every month
on a natural ongoing basis, okay. So now all of a sudden, who am I as a land lord
going to put in my home? That person is called the tenant.
So the tenant I move out because I used to buy it for me, I now become the
landlord because I put a for rent sign up, someone else says, I’ll pay $1,300 a
month and live in this house, they move in, I’m the landlord, they’re the tenant,
this is what we call a rental because we’re collecting rent and the last
phrase here is, flip. Instead of renting it we say, no no no no no no, I’m not
going to rent this, I’m moving out of this home, I was only there for a short
while and you know what I want to do? I want to sell this home and I moved in, I fixed
it up a little bit, I put it on the market and even though it’s worth
$220,000, I actually listed to sell it for $200,000, this is an important
terminology for you, I got it under contract for a $190,000.
Let me tell you that story. I’m into it $160,000, I owe $150,000 and all of a
sudden, I say, well this house is worth $220,000 let’s give someone a really good
deal and so you list it for $200,000 and someone comes along and
says, you know what, I think I want your house but I want to pay $180,000 for it. You
know like, wait a second, I’m offering it for $200,000,
what do you mean you want to pay a $180,000? So you come back and you’re like, lowest
that go is a $190,000 and they say,
okay, and now you are under contract, that means, under contract means they have
signed a piece of paper called a REPC, a real estate purchase contract to buy
it for $190,000 and 30 days goes by and the bank swoops in and
now that bank buys it out from your bank and there’s some leftover money in this
flip. Remember you owe $150,000, they bought for $190,000, we’re going to leave the closing
costs out of it to keep it real simple, we’re going to keep the realtor fees out of
it to keep it real simple because you sold it for sale by owner.
What’s a $190,000 different from $140,000? That’s $40,000. You no longer have this house, you no
longer own this real estate but what you do have is a $40,000 check and any money
that you made along the way plus tax advantages.
Friends, that’s the story of real estate, that’s the language. If I were to give
you a real quick summary, real estate is property and the land that it’s valued
with, equity is the difference between what it’s worth and what I owe, a
mortgage is the money I owe to the bank to basically buy it from them with time,
it can also reference the monthly payment that I have on it. My down
payment is how much money I had to give to the bank so that they would feel
comfortable doing the deal with me because they say, Kris, we want you to
have skin in the game. Landlord is Who I am
when I’m renting this real estate out. A tenant is the person I rent the real
estate to, it’s called a rental, if I’m holding on to it and cash flowing it and
getting my cash flow and a flip is what I call it if I buy it to later sell it
and to make a profit and friends, that is the basic language of real estate.
Friends, I hope today’s message on real estate vocabulary was helpful, it brought
great clarity for you and I think you’re ready now for some more the advanced
training so the best thing you can do is to subscribe, ring the bell and everyday
when you watch these videos, learn new vocabulary, learn new words, learn new
principles. You combine all of this knowledge together and in a lifetime,
this can have a six and a seven figure impact on where you end up in your
destiny.

100 Comments

Leave a Reply

Your email address will not be published. Required fields are marked *