Real Estate Jargon Decoded: Must-Know Terms for Kelowna Condo Investors
You may be a seasoned real estate investor who is looking at condos as an investment instrument or someone who is already raking in profits from their condo investments. However, when you’re exploring new condo investment opportunities in Kelowna, Canada, have you been caught off guard by real estate jargon?
Well, this article aims to clear up that jargon so that you can make the most out of your Kelowna luxury real estate investments. Being aware of these terms can paint a clear picture of your profits and assets and allow you to stay more informed during negotiations.
Terms Every Condo Investor Must Know:
1. Pre-Approval Letter (A Negotiation Edge)
As an investor without huge reserves of cash, you must borrow capital. You can provide information like:
- Income
- Ongoing debts
- Assets you hold
- Credit score
When lenders get this information, they can decide on a loan amount they are prepared to extend to you in the form of a pre-approval letter. While the letter doesn’t guarantee finance, it shows lender confidence and increases your purchasing power in front of condo owners. So, when you’re browsing through properties in Kelowna condo developments, it empowers you with an edge for swift negotiations.
2. Return On Investment (An Investment Performance Metric)
ROI is a crucial metric for investments, real estate or otherwise. It’s a figure that tells you how much profits your investments in new condo developments in Kelowna are bringing in or would bring in the future compared to the investment amount. Let’s understand it through an example.
For instance, if you buy a condo for $250,000, put in around $50,000 more for renovations, and sell it off for $300,000, the property brings you an ROI of 20%. While this was a simple scenario, if you’re investing in pre-construction Kelowna condos for sale to rent out, other factors like inflation, years to completion, and rent increase rate come into play. Either way, several online ROI calculators can help you with the maths and help you make better purchase decisions.
3. Net Operating Income (Another Important Performance Metric)
NOI is similar to ROI, with a small distinction. It’s a forward-looking metric that shows you how profitable your investments will become in the future. Net Operable Income boils down to your condo’s in Kelowna annual revenue without the expenses. These expenses may include:
- Insurance
- Utility bills
- Maintenance fee
- Taxes
- Mortgage installments (if any), and more.
Similar to ROI, let’s understand this metric through an example. If you’re looking at a condo that is supposed to bring in $45,000 every year in rent and demands yearly expenses of around 15,000, the NOI is : $45000 – $15000 = $30,000
Similar to ROI, NOI allows you to compare different condo listings in Kelowna, Canada and figure out the best bets that bring in the most money. However, NOI depends on the accuracy of the revenue prediction.
Here’s an example – You compared condo listings in the neighbourhood and projected to get around $45,000 in rental income while accounting for a new public park coming up in the area. If the city decides to cancel the public park project, your projected revenue would be lower. That’s why it’s always a safe bet to account for those irregularities.
4. Fair Market Value (Local Real Estate Market Metric)
The real estate market is different across cities and state lines. That’s why luxury real estate companies have completely different listings compared to those in Vancouver. Fair Market Value (FMV) is a price that both sellers and investors can agree on with common knowledge of local factors.
These factors may include amenities available at the condo construction, management fees, HOA (Homeowners Association) rules, and many more. Buyer’s markets make for low FMV where buyers are less likely to pay more for the condo. As a consumer you should know that, if it’s a seller’s market, it leads to high FMV and reduces your purchasing power or long-term profitability of the assets you invest in.
5. Refinancing (Reducing Your Costs)
Refinancing simply means replacing your existing mortgage with a new one. Your real estate agent may have recommended refinancing your existing condos to maximize your cash flow. Why should you consider it? Well, refinancing may help you access equity in your condos, lower the rate of interest, or even more favorable terms. However, always make sure that those benefits outweigh the closing costs for your existing loan.
As an investor with a sharp nose for lucrative opportunities and the financial might to harness them, don’t let real estate jargon hold you back. Getting familiar with this real estate jargon, will help you to choose the best condominium or properties in Kelowna, Canada. The terms explained in this article should help you make more confident and sound decisions for your next investment.