13 Real Estate Terms You Should Understand Before Investing

Are you a first-time realtor? Do you want to know what the most popular terms used by real estate marketers are? We are delighted to assist you with this. Whether you are making your first real estate investment or diversifying your investment portfolio, there are numerous common acronyms and jargon that you should be familiar with. So the next time you hear a term like ROI, EMI, or FSI, you’ll know what it means and why it’s important.

It is impractical for a newcomer to understand all of the terminologies at once, but you can become familiar with a few common ones below. We’ve developed a list of 13 common real estate terms that every real estate marketer and investor should be familiar with.

Return on the investment (ROI) Return on the Investment (ROI) is a method of calculating the profit made on an investment. The return on investment (ROI) is computed by dividing the net profit by the total capital cost of investment. The higher the ROI, the greater the profit. The ROI calculation assists you in determining whether or not an investment is profitable.

ROI = Net Income / Cost of Investment 

2. HOA

HOA, or Homeowners Association, is a self-governing organization made up of homeowners in a certain subdivision, apartment complex, or planned housing neighborhood. The HOA has the authority to impose rules for keeping the properties in excellent shape and to collect monthly maintenance fees from the owners. When you purchase a home within a certain HOA, you become a member of the association and are obligated to pay the HOA fees required for the property’s routine maintenance.

3. Cash Flow

Cash flow is the net amount of money you earn from a property each month after deducting all operating expenses. It is the difference between the amount of money coming in and going out of your asset. When your revenue exceeds your expenses, you have a productive investment with a positive cash flow. However, if your expenses exceed your income, you have a negative cash flow. An ideal rental property for an investor generates a positive cash flow.

4.Basic Sale Price (BSP)/ Market Value (MV)

The seller’s basic selling price (BSP) or market value (MV) is the base rate per square foot at which the property is placed for sale. It excludes additional taxes such as Goods and Services Tax (GST), amenity fees, preferential location fees, and other maintenance fees. These additional expenses can amount to up to 20% of the BSP.

5. Turnkey Property

A turnkey property is a house or apartment that is nearly finished or is close to being ready to move into. Turnkey homes are in high demand among investors since they can acquire and start renting them out right away. Because these properties are new, the owners will not need to make any substantial renovations or repairs. Another advantage of turnkey houses is that purchasers can inspect the home and evaluate its quality and other characteristics before purchasing it.

6. Appreciation

Real estate appreciation refers to a growth in the value of a property over time. Property value appreciation can be caused by factors such as a highly advantageous location, high property demand, limited supply, inflation, and so on. Property values, for example, are expected to rise significantly in areas where new and impending commercial and infrastructure improvements are underway. Aside from that, houses with a distinct ‘view’ such as nature, a lake, or the sea will be in more demand among purchasers and hence will appreciate faster than others.

7. Built-up Area

The term “built-up area” refers to the whole floor area of a house or apartment, including the carpet area, internal and external wall thickness, and balcony area. Inner walls and balcony areas might take up to 30% of an apartment’s total area in India. For example, if a house has a built-up size of 1000 square feet, the carpet area will not exceed 700 square feet. As a result, the built-up area is the real area that the home buyer will use.

8. Super Built-Up Area

The super-built-up region is also known as the saleable area since it is used by realtors to promote their projects to purchasers. The super built-up area includes the carpet area, wall thickness, and additional places within the apartment such as terraces, corridors, lobbies, stairs, lifts, and so on. In certain situations, builders include amenities such as a gymnasium, swimming pool, clubhouse, and garden in the super building. In some situations, the extra built-up area includes amenities such as a gymnasium, swimming pool, clubhouse, and garden.

9. Freehold property

A freehold property is one in which the owner owns both the land and the building completely and unrestrictedly. In this instance, the owner has no constraints on transferring the property further, and it can also be inherited. Freehold properties are more stable than leasehold properties and will command a higher price in the future. A freehold parcel of land is typically acquired through an auction or lottery. When you purchase a freehold property, you also own the land on which it was built, in addition to the house itself. The selling of a freehold property is simplified because no state approval is necessary.

10. Equal Monthly Instalment (EMI)

The monthly amount that a loan borrower must pay to the lender is known as the Equal Monthly Instalment (EMI). Buyers who obtain a house loan to purchase a property must pay an EMI. EMI is computed using a variety of factors such as loan amount, loan tenure, wage, age, credit history, and so on. Most banks and financial organizations provide home loans to prospective purchasers. You may calculate your EMI using an online home loan EMI calculator based on the principal loan amount, loan tenure, and interest rate.

Super built-up area = Built-up area + common areas

11. Floor Area Ratio (FAR) or Floor Space Ratio (FSR) 

The Floor Area Ratio (FAR) or Floor Space Ratio (FSR) is the maximum amount of floor space that can be built on a particular plot of land. That is, it is a ratio of a building’s gross floor space to its land area. The only difference between it and the FSI (Floor Space Index) is that it is presented in percentage. FAR rules vary by locality and are determined by the individual local municipalities. The FAR value determines features such as a building’s height and the number of floors. A greater FSI indicates a larger built-up area.

12. Carpet Area 

Carpet area is defined by the Real Estate Regulatory Authority (RERA) as the net usable floor area of an apartment excluding the area covered by external walls, areas under services shafts, exclusive balcony or verandah area, and exclusive open terrace area, but including the area covered by the apartment’s internal partition walls. In other terms, carpet area refers to the area that a carpet may cover or the area of the apartment omitting the thickness of the inner walls.

13. Credit Score

A higher credit score can also provide additional benefits such as lower interest rates, flexible repayment periods, a faster approval process, and so on.

A credit score assesses a person’s creditworthiness or ability to repay a loan. The credit score, commonly known as the CIBIL score, is a three-digit figure ranging from 300 to 900. A good CIBIL credit score is 750 or higher. Before making a home loan, banks and other lenders look at an individual’s credit score. It is calculated using the individual’s previous credit history. The higher the credit score, the more likely it is that a loan will be accepted. In India, real estate is one of the most profitable sorts of investments.

 Property is a long-term asset that appreciates. If you understand the market and its current conditions, you may make the proper investment that will yield a large profit. We hope you found this post useful. 

If you have any property-related questions, please contact us and we will gladly assist you.