Real Estate Vocabulary

Summary

In this beginner-friendly video, Kris Krohn breaks down essential real estate terms, making complex concepts like equity, mortgage, and cash flow easy to understand. Using clear examples and simple math, he explains how property value, mortgages, down payments, and rental income work. Viewers learn the roles of landlords and tenants, the concept of rental properties generating passive income, and how flipping homes can create profits. With practical illustrations and a focus on everyday language, this Real Estate 101 session equips beginners with the foundational knowledge to confidently navigate the world of property investment.

Takeaways

• 🏠 Real estate refers to land and any property on it, including homes, apartments, and commercial buildings, and its value generally increases over time.
• 💰 Equity is the difference between a property's current market value and the amount owed on it; it can grow as the property value rises or the mortgage decreases.
• 🏦 A mortgage is money borrowed from a bank to purchase a property, typically repaid in monthly installments over a set period, often 30 years.
• 💵 A down payment is the initial upfront money you pay to the bank when purchasing a property, showing your investment or 'skin in the game.'
• 👨‍💼 A landlord is the person who owns a property and rents it out to tenants for income.
• 👩‍💼 A tenant is someone who rents a property from a landlord and pays monthly rent.
• 💸 Rental income generates cash flow, which is the money left after paying mortgage and other property expenses, providing residual or passive income.
• 🔄 Flipping involves buying a property, making improvements, and selling it for a profit, which is separate from rental income.
• 📈 Cash flow is calculated by subtracting monthly expenses (like mortgage payments) from rental income, providing a measurable profit each month.
• 📝 Understanding real estate vocabulary—terms like equity, mortgage, landlord, tenant, rental, and flip—is crucial for building financial knowledge and making informed investment decisions.
• 💡 Real estate investment allows you to build wealth over time through property appreciation, cash flow, and equity growth.
• 🎯 Combining knowledge of basic real estate terms and strategies can have a significant long-term impact on financial success.

Q & A

What is the definition of real estate according to Kris Krohn?

Real estate is tangible property that includes land and any structures on it, such as homes, apartments, or commercial buildings. Its value tends to increase over time due to demand and limited supply.

How does Kris Krohn define equity in real estate?

Equity is the difference between the current market value of a property and the amount owed on it. For example, if a house is worth $200,000 and the mortgage owed is $155,000, the equity is $45,000.

What is a mortgage and how does it function in property buying?

A mortgage is a loan from a bank to buy a property, typically repaid monthly over time with interest. It allows buyers to purchase a home even if they don’t have the full purchase price in cash.

What is a down payment and why is it important?

A down payment is the initial sum of money given to the bank when securing a mortgage. It demonstrates the buyer’s commitment or 'skin in the game' and helps the bank feel comfortable providing the loan.

Who is considered a landlord and what are their responsibilities?

A landlord is the owner of a property who rents it out to tenants. They control the property and manage the rental, even though the bank may technically own it until the mortgage is fully paid.

What role does a tenant play in real estate investments?

A tenant is a person who rents and occupies a property. They pay rent to the landlord, which can generate income and cash flow for the property owner.

How is cash flow calculated in a rental property?

Cash flow is the difference between rental income and property expenses, such as the mortgage. For example, if rent is $1,300 and the mortgage is $1,000, the cash flow is $300 per month, or $3,600 annually.

What is the difference between a rental and a flip in real estate terms?

A rental is a property held to generate ongoing income through tenants, while a flip is a property bought to improve and sell quickly for a profit.

How does holding a property over time affect equity?

Equity increases as the property value rises or as the mortgage is paid down. For example, if a property originally valued at $200,000 with a $155,000 mortgage grows to $220,000 while the mortgage decreases to $150,000, equity increases from $45,000 to $70,000.

What is a real estate purchase contract (REPC) in the context of flipping a property?

A REPC is a legal document signed when a buyer agrees to purchase a property. In a flip, it finalizes the agreement and allows the seller to transfer ownership and receive profit from the sale.

Why does Kris Krohn emphasize learning real estate vocabulary?

Understanding real estate terminology is essential for beginners to grasp property concepts, make informed investment decisions, and build wealth effectively. Knowing the vocabulary prevents confusion and enhances financial literacy.

How can cash flow contribute to passive or residual income?

Cash flow from rental properties provides regular income without requiring daily work. This passive income can continue over time if the property is managed well, often through a property manager.