In property investing, many professionals agree on the most important real estate rental business terms to know. Every new landlord should be aware of cash-on-cash returns, the covenant of quiet enjoyment, and other everyday real estate vocabulary words. Read below to get a crash course on the basics.
Main Takeaways
- As far as real estate rental business terms to know go, you should start with property-related terms, like commercial real estate, residential real estate, short-term rentals, long-term rentals, single-family properties, and multi-family properties.
- Some financial real estate rental business terms to know are ROI, net operating income, cash-on-cash return, cap rate, and gross rental income.
- Some real estate vocabulary words and definitions about day-to-day landlord issues are tenant screening, security deposit, normal wear and tear, vacancy rate, rental maintenance, landlord insurance, and property management company.
- Common legal real estate vocabulary includes evictions, the Fair Housing Act, Fair Credit Reporting Act, Equal Credit Opportunity Act, lease agreement, covenant of quiet enjoyment, squatters’ rights, and a lease termination letter.
Basic Property Classification Terms
First, our property management services in Northern Virginia will go over real estate rental business terms to know about property classifications. You’ll find these words in most real estate-related media you encounter:
1. 
Commercial Real Estate
Commercial real estate refers to properties used for businesses. Multi-family properties with 5 or more units count as commercial real estate.
2. Residential Real Estate
Residential real estate refers to properties used for daily living. Single-family properties and multi-family properties with less than 5 units are residential ones.
3. Short-Term Rentals
Tenants rent short-term rentals for short timeframes, like a couple of days or weeks. Airbnb is a popular type of short-term rental. However, some people mistakenly use it as a synonym for this real estate vocabulary term altogether. Short-term rentals out can have high returns, but they can provide inconsistent income.
4. Long-Term Rentals
Long-term rentals are ones that tenants rent out for a long time, such as a year or more. These rentals tend to give you smaller, but steadier, returns than short-term rentals.
5. Single-Family Properties
“Single-family rental property” is one of the most common real estate vocabulary terms. A single-family property stands alone, separated from other properties. As the name implies, it’s meant for a single family to live in. Single-family rentals give you fewer renters to draw rent from, but tenants tend to stay in them longer than multi-family ones.
6. Multi-Family Properties
As another huge piece of real estate vocabulary, multi-family properties have multiple families under one roof. Each renter, or group of renters, gets their own unit. Apartment buildings are one of the most common types of multi-family properties.
Financial Real Estate Business Terms to Know
Now, let’s get into financial real estate vocabulary words and definitions related to your rental property’s income.
1. 
Return on Investment (ROI)
Return on investment is one of the absolute most critical business terms to know. Earning it is the main goal of most landlords’ investments. It refers to how much money you get back from the money you put into your rental business. You divide your net profit by your cost of investment to find it. Then, you multiply it by 100 to find it in a percentage.
The bigger your result is, the more money you may get back. However, results in the negatives mean you actually may lose money. As an industry rule of thumb, you should try to earn a 10-12% ROI.
2. Net Operating Income
Net operating income is an additional key business term to know. It refers to your final income after you subtract expenses, like repair costs.
3. Cash-on-Cash Return
The cash-on-cash ratio compares the amount of cash flow before taxes to the amount of cash you initially invested in your property. In a percentage, it gives you a rough snapshot of your ROI. To find it, you divide your yearly cash flow by the money you invest in it. Of course, it does not factor in taxes.
4. Cap Rate
The real estate vocabulary term “cap rate” shows how much net operating income you’ll garner in proportion to the property’s market value. In that vein, you can find it by dividing your net operating income by your property’s market value. For reference, a good cap rate should be 5-10%.
5. Gross Rental Income
Gross Rental Income is yet another one of the biggest real estate rental business terms to know about in financial planning. It shows what your total income could look like—the rent, parking fees, and any other type of income you earn from your property. Essentially, it shows your profit potential.
As a side note, security deposits don’t count because you may have to give them back to your tenant.
Real Estate Vocabulary for the Rent-Out Process
Next, let’s explore some business terms to know about the routine landlord experience. You’ll likely hear these in your everyday business operations:
1. Tenant Screening
In the tenant screening process, a landlord or property manager screens a tenant’s overall background. For instance, they look at a tenant’s credit, criminal, eviction, and employment history, among other factors. All this ensures it’s safe to move forward with prospective tenants.
2. Security Deposit
When tenants initially move into a rental property, they should pay a security deposit. This lump sum serves as an informal kind of “insurance” in case any property damage or unpaid rent occurs. At the tenancy’s end, landlords must return it unless they have a legitimate reason to retain it.
3. Normal Wear and Tear
At the end of a lease, a property should ideally be left with normal wear and tear. In other words, there should be a regular amount of damage that naturally occurs in daily life. If more than that occurs, that is grounds to keep a portion of your tenant’s security deposit. Then, you can keep the portion that will pay for repairs.
4. Vacancy Rate
A vacancy rate refers to how many units in your rental property are empty. When your units are vacant, you have to continue maintaining those units without any ROI. It puts money down the drain. Furthermore, you must dedicate funds to marketing to tenants, which can snowball quickly.
Needless to say, this piece of real estate vocabulary is every landlord’s nightmare. You want to minimize your vacancy rates as much as possible.
5. Rental Maintenance
Rental maintenance is an umbrella term for the duties involved in maintaining a property’s physical condition. For instance, it can include repairs, pest control, appliance checkups, and more.
6. Landlord Insurance
Landlord insurance covers potential damages that occur on your property. For example, if tenants get injured, your property is damaged, or your equipment is damaged or stolen, it covers the costs of dealing with those problems.
7. Property Management Company
One of the business terms to know that you may have heard of is property management. Landlords can hire property management companies to handle the duties of managing a property on their behalf.
For a monthly fee, property managers can deal with virtually all aspects of running a rental business. They can take over maintenance, property marketing, inspections, hiring contractors, and other responsibilities of running a rental business.
Legal Real Estate Terms to Be Aware Of
Next, we’ll examine some key legal real estate vocabulary that you should keep in mind.
1. Evictions
The word “eviction” is another real estate vocabulary word that strikes fear in landlords. With evictions, landlords remove their tenants because they seriously violated their lease. For instance, the tenant may have repeatedly failed to pay their rent or irrevocably damaged the property. When landlords evict tenants, they can’t simply boot them out unprompted. They must obey laid-out local and federal legal processes.
2. The Fair Housing Act
Fair Housing Laws forbid landlords from enacting discrimination against people of protected classes. More specifically, you cannot treat tenants differently based on their race, religion, sex, disability, national origin, or familial status. This rule stays true throughout all parts of the tenancy process, from marketing to move-outs.
3. Fair Credit Reporting Act
Essentially, the Fair Credit Reporting Act lays out how landlords must handle credit reports. It declares that landlords must ask for a tenant’s consent before obtaining their credit report. They can only access information relevant to tenancies, like unpaid debts. Furthermore, if landlords reject an application, require a co-signer, or ask for an extra-large security deposit or rental rate, they must explain that decision.
4. Equal Credit Opportunity Act
The Equal Credit Opportunity Act forbids landlords from discriminating against tenants in credit transactions. They cannot discriminate based on race, color, sex, religion, national origin, marital status, age, usage of public assistance, or invocation of Consumer Credit Protection Act rights.
To show how this applies in practice, one example is that you cannot reject prospective tenants because they get their income from public assistance. Like other anti-discrimination laws, you must treat all tenants equally.
5. Lease Agreement
Lease agreements are a piece of real estate vocabulary you’ll deal with in virtually every tenancy. They’re legally binding contracts between a landlord (or property manager) and a tenant. They outline the terms and conditions each party must follow throughout a tenancy. For instance, lease agreements should map out both landlord and tenant responsibilities.
Each party must obey the agreement to avoid legal trouble.
6. Covenant of Quiet Enjoyment
The legally binding covenant of quiet enjoyment protects tenants’ rights. With it, tenants have the right to live in their rental without disruption. They have the right to use their property freely, undisturbed by neighbors, property managers, and landlords, unless that usage violates their lease. Furthermore, their stay shouldn’t be disturbed by the absence of basic services. In summary, they should be able to live there in peace.
7. Squatters’ Rights
“Squatters” is a real estate vocabulary term for people who live in rentals illegally.
Unfortunately, most areas’ squatters’ rights state that landlords cannot take the squatter situation into their own hands. Instead, they must report it to the authorities and follow their lead. Also, some states let squatters own the property if they meet certain standards. So, you should research your location’s laws and act accordingly.
8. Lease Termination Letter
Landlords or property managers send termination letters to inform tenants that their lease is ending. These letters are legal documents. Typically, landlords should use them to explain when and why the lease is ending.
Most states have laws about how long in advance landlords must deliver this letter to a tenant. Furthermore, those same laws may require you to include certain information in your letter. As such, you should refer to those laws in your own letters.
Let PPM Handle Rental Property Management for You
As you dip your toe into real estate investing, there are several business terms to know. Real estate vocabulary, from rental maintenance to return on investment, pops up just about everywhere in the industry. By knowing these words inside and out, you can be more informed about whatever comes your way.
However, while reading about this real estate vocabulary is one thing, putting it into practice is another. For example, it can take hours to navigate federal and state laws, implement eviction processes, and comb through lease agreements. And that’s only a fraction of what you do as a landlord.
Even worse, if you make even one mistake, you could find yourself in court. That’s why so many landlords let professional property management take the reins.
As professional property managers, PPM can handle:
- Legal compliance
- Lease agreement development
- Lease termination letters
- Aggressively marketing properties to limit vacancies
- Maintenance and repairs
- Eviction processes
- Rental inspections
- Accounting to ensure ROI
- Tenant screening
…and more! Call us today to start your business off on the right foot.