The world of real estate runs on a ton of colorful language that’s constantly evolving. To keep you up on the latest, here’s a rundown of terms to know, which we’ll keep adding to each week. Heard a word or phrase you want to share? Submit your own Term of the Week here.
Accredited investor
An accredited investor is essentially someone wealthy enough to get VIP access to real estate investments that aren’t available to the general public. To qualify, you must prove you have a net worth of over $1 million (excluding your primary residence) or an income of at least $200,000 per year (or $300,000 for a couple) for the past two years.
You can also become an accredited investor by meeting certain professional or educational requirements—for instance, registered brokers and investment advisors can also make the cut. Here’s more on becoming an accredited investor, but even if you never qualify, take heart that there are still plenty of real estate investments out there that don’t require such deep pockets.
Bird dog
Just like a trusty English setter can flush out waterfowl, these professionals (also called “property scouts” or “real estate jobbers”) hunt down run-down properties with sellers eager to bail. Bird dogs then sell these leads to wholesalers, house flippers, or other interested parties. Since bird dogs don’t actually purchase the property, it’s a low-risk yet potentially lucrative enterprise for starting out in real estate. The downside is rooting out these properties can be time-consuming, so make sure you’ve got the appetite for the hunt and a keen nose for a deal. Learn more about bird dogging here.
BRRRR
BRRRR isn’t just the sound you make when it’s freezing out; it’s also a real estate investing strategy that stands for Buy, Rehab, Rent, Refinance, Repeat. You basically find a fixer-upper, give it a glow-up, rent it out, then once you’ve built up enough equity, you cash it out to buy another property to replay this process all over again. Here’s where you can read up further on the BRRRR method.
Comps
Short for “comparables,” comps help you accurately estimate the true value of a property you own (or hope to buy) by comparing it to similar properties that have sold recently in the same area. So, if you’re eyeing a three-bedroom, two-bath condo listed at $400K, and another three-bedroom, two-bath condo with similar square footage and features down the block just sold for $350K, that comp suggests you’d be an idiot to offer full asking price, and might want to try lowballing instead.
Comps also come in handy when you sell, helping you pinpoint an accurate asking price so your property doesn’t sit on the market untouched like a wallflower at the high school dance. Here’s more on how investors can use real estate comps.
Dollhouse
A dollhouse is a fixer-upper light, requiring only cosmetic updates that even Barbie could renovate with her own plastic hands. Dollhouses are smart investments if you don’t want to expend much sweat equity getting a property into shape. The key is to steer clear of homes with major problems in the roof, foundation, or HVAC and zero in on properties that simply need a couple of superficial tweaks like new kitchen cabinet doors or a fresh paint job before heading to market. A pop of color on the front door is another easy upgrade that packs high return on investment.
Hard money lenders
These private lenders are the speedy, no-bull alternatives to getting a mortgage at a regular bank, delivering loans within days rather than weeks. The catch? High interest rates, most likely in the double digits. Still, when you need money fast to snag that foreclosure at an upcoming auction, a hard money loan can tide you over until you can secure more traditional financing or sell the property before the interest really starts stacking up. BTW, this loan is called “hard” not because these guys will rough you up if you don’t pay them back, but because they’re secured by a hard asset—meaning your house. Here’s where you can learn more about hard money lenders.
JADU
You’ve probably heard of those tiny backyard domiciles called ADUs (Accessory Dwelling Units), but JADUs (Junior Accessory Dwelling Units) are like their smaller, clingier younger siblings. Unlike ADUs, which can be separate tiny homes, JADUs are attached to the main house. Think garage-turned-apartment, or basement-turned-mini-suite. They’ve grown in popularity not only as a place to stash your in-laws or failed-to-launch kids, but also as rentals in pricey markets like California. So if you lack the acreage to build an ADU, consider a JADU instead. Here’s more info on JADUs and ADUs.
OPM
Don’t have a mountain of cash lying around to buy that house? Other People’s Money can help. OPM is shorthand for any type of third-party financing, such as mortgages from banks or loans from private lenders. Real estate investors often use OPM even if they have the cash, since leveraging third-party financing alleviates how much risk they’re taking on personally and expands the scope of how much real estate they can get. While it’s important never to overextend yourself, OPM is an option most investors consider if they want to pounce on opportunities quickly rather than saving up for years. This guide has more info about OPM for real estate investors.
1031 exchange
US tax laws shine warmly on real estate investors, and one of the best perks of all is the 1031 exchange. This refers to Section 1031 of the US Internal Revenue Code that allows investors to defer capital gains tax when selling a property as long as they purchase another property, so it’s an “exchange” rather than a straight sale. These transactions are subject to a few rules: The new property you buy must be of equal or greater value than the one you’re offloading—in other words, you’ve gotta upgrade. Two, the clock is ticking: You’ve got 45 days to find a new property, then another 180 days to close the deal. While restrictive, a 1031 exchange can save you a ton on taxes so in most cases it’s worth the trouble. Here’s more on the ins and outs of 1031 exchanges.
30-60-90 Pre-NOD
This list of property data leads is of homes where its owners are 30, 60, or 90 days late on mortgage payments, but no Notice of Default (NOD) has been filed yet. That means this info isn’t public knowledge (yet), and you get first dibs to strike a deal with these desperate homeowners before their properties hit the open market. Of course, early-bird access comes at a price, but that could be money well spent if it helps you land a fantastic deal. Learn more about 30-60-90 Pre-NODs.