Buy and Hold Investing Terms
Long Term Rental (LTR) vs Short Term Rental (STR)
Think about renting out your place. If you're looking for tenants who'll call your property home for a year or more, you're in the LTR camp. But if you're imagining a revolving door of guests staying for a few days or weeks, much like a vacation spot, you're playing the STR game. Both have their perks: LTR offers stability, while STR can mean higher income.
The exact legal difference between an LTR and STR will vary depending on the area, but six months is often the delineator.
Turnkey vs Value-Add Investing
Turnkey Investing: This approach involves purchasing investment properties that are already renovated, often with tenants in place, and require minimal immediate maintenance or upgrades. These properties are typically managed by a property management company, making them ideal for investors looking for a hands-off approach.
Value-Add Investing: This strategy focuses on acquiring properties that need significant improvements or renovations. The investor adds value through these upgrades, aiming to increase the property's rental income potential and resale value. This approach often requires a more active role in management and a deeper understanding of real estate renovation.
Note Investing
Forget bricks and mortar for a second. Imagine investing in the debt that's secured by real estate, like mortgages. That's Note Investing. You're basically stepping into a bank's shoes, earning money from interest. It's a different ball game, with its own set of rules, but can be a lucrative way to diversify your real estate portfolio.
Tax Lien Investing
Have you ever thought about what happens when someone doesn't pay their property taxes? The government will typically slap a tax lien on the property, and here's where it gets interesting for investors. Oftentimes, local governments will sell these liens to investors. Why? Because they want their money now. When you buy a tax lien, you're essentially paying those owed taxes. In return, the property owner owes you the tax amount along with some (often) heavy interest.
If the owner can’t pay the debt owed, you have the ability to possibly take ownership. It's a different way to play the real estate game, with its own set of risks and rewards. Before diving in, do your homework, but remember: where there's risk, there's often opportunity!
Rental Analyzer or Rental Calculator
Before diving into a deal, using a tool like a rental calculator can be your best friend, helping to separate the gems from the duds. There are plenty of calculators to choose from online, and many investors just create their own in Google Sheets or Excel. One of the more popular calculators that I’ve used is part of the BiggerPockets website.
Enemy Method
The Enemy Method in Airbnb investing refers to using the performance of your “enemies” to estimate the revenue, ADR, and occupancy of a short-term rental. “Enemies” are other vacation rentals that are similar to your investment property and are in the same market. It’s a colloquial term used for comparative rental analysis.
Exit Strategy
Even before you jump into an investment, you should have an idea of how you'll jump out. That's your Exit Strategy. Whether it's selling after hitting a profit target, refinancing, or something else altogether, having a game plan for the end will save a lot of headaches down the road. Remember, it's not just about getting in; it's about getting out gracefully and having options.
Self-Management
This is when a property owner personally handles the day-to-day management tasks of their investment property, including tenant relations, rent collection, maintenance issues, and any legal compliances. It eliminates the need for a property management company but requires time, effort, and knowledge of landlord-tenant laws.
Average Daily Rate (ADR)
This metric is used primarily in rental property investments, especially short-term rentals or hotels. It represents the average rental income earned per rented room per day. ADR is calculated by dividing the total rental income by the number of rooms rented over a given period.
1% Rule of Thumb (1% Rule)
This is a guideline used by real estate investors to evaluate rental properties. It suggests that the monthly rent of a property should be at least 1% of its total purchase price to ensure a good return on investment. This rule helps investors quickly assess a property's income potential.
10 or 12% Rule of Thumb
This is a guideline where an investment property's annual income should be around 10-12% of its total purchase price.
High Season / Low Season
These terms refer to the periods of peak and low demand in rental property markets, often influenced by factors like weather, tourism trends, and local events. High Season is when demand and rental rates are typically at their highest, while Low Season sees reduced demand and lower rental rates. Understanding these cycles is crucial for pricing strategies in rental investments.
