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  • Writer's pictureKris Krohn

Real Estate Vocabulary

Kris Krohn is here to explain some of the real estate terminology that you're maybe wondering about like, equity or land lord or mortgage and a few other things. Let's understand what these terms really mean. Stay tuned, this is real estate 101 on language.



Kris Krohn here. And today we're doing Real Estate for Dummies. Now, today's video is not intended to sound condescending in any way, shape, or form, but I remember when I jumped into real estate and I was hearing words like equity and cash flow and landlord, and I was like, what do these words mean today? I am hoping to bring that clarity to you right now.


All right, my friends, Kris Krohn here, and I wanna tell you that I've got a lot of you that are watching me here on YouTube and you're asking some really elemental questions. Recently, I posted a video called What is Equity? And I was blown away at how popular of a topic that was. And so based on some of the recent questions and concerns you've had, I've decided to produce a really simple real estate 101 on language. Okay?


We're just going to the dictionary, we're going to the terms. So those you watch, any of my other videos here, I don't want anything to go over your head, and this is a good opportunity for you to put comments below, to ask other vocab questions, other things that I talk about that maybe I'm taking for granted, that you should understand these things. But listen, we all start in a world where these concepts are foreign. So today is brought to you


By the words real estate, equity, Mortgage, down payment, landlord, tenant flipping and rentals. So that's what we're gonna cover right now. Real quick to make sure that you understand it with my wonderful friend, whiteboard.


1. Real Estate


Okay. So First of all, what is real estate? Okay, first of all, when we say real estate, we're actually talking about, this is beautiful. We're talking about something real, Something tangible, something you can touch. I love real estate investment because I'm, I'm actually buying something I can touch.


Real estate includes the Land and the house. So when we say real estate, there Is A value on the land, there's value on the home, And they ain't making more land, which means the value of land over time does what? It goes up in value because it's in demand.


The more population increase that we have, the more people want real estate. And so the cost of goods to build a house will go up in value. And so as land goes up or the home goes up together, they create real estate and they create the value of a property.


So that is what real estate is. So by the way, Um, as you drive down the road and you see a bunch of apartments, is that real estate? Yes. As you see a commercial high rise, is that real estate? Yes. As you go through a neighborhood and see single family homes, is that real estate? Yes. Real estate is land and it's also the property that's on it. Okay, Cool. If I wasn't clear enough on that, you got a comment below and let me know.


2. Equity


Okay, Number two, equity. What's equity? That's a, that's a, that's a foreign word when you really haven't been playing with it. And So let me talk about it here. We got our land here, we got our real estate, we got our property sitting right here, and this house has a value of $200,000.


That's what it would cost for me to buy this house outright. If I had $200,000 of cash and I give it to the person that owns that property, they would say, you get a title, a free and clear title that says you own this home outright. There's no banks involved or whatever.


3. Mortgage


Or I could get a Mortgage Where I say, oh, I don't got $200,000 in the bank. Ask yourself, do you have $200,000?


If you're watching this video, there's a chance that maybe you don't and you're here to learn how to have that money in the bank, right? So all of a sudden you're like, you know what? I really don't have the money to buy this house, but I know this. I can go to a bank and I Can get a Mortgage and I'll let the bank carry the note.


The bank will actually give me the money. They'll give the money to the person that owns the house, and then they'll, the bank will say, okay, well Chris, we actually own it, but now you can buy it back from us. We have terms, you can have a mortgage, a monthly payment. Okay?


So all of a sudden It's valued at 200,000. But watch this, this is magic. I purchased the property for $160,000. There was Some circumstance, there was some reason why the person selling this home sold it to me for 160, even though it's worth 200,000.


4. Down Payment


And I went to the bank and the bank said, Chris, you need to give us a down payment because we're not gonna just buy this house because you want us to, you gotta show some skin in the game.


And because it's the house you're gonna live in, we're gonna ask you to put 5% down. So the bank says, well, 5% on This 160,000, my down payment is $5,000. The bank says, woo, That's good. I mean, you're gonna be living there, but you put some money in this property, you have some skin in the game. And that brings us to the question, What is equity?


Equity Continued


Well, I have a house that's worth how much, $200,000. I Purchased it for 160, but I also put $5,000 down. So now what do I actually owe? Well, I bought it for one 60, I put five more down Towards it. Let's say that I owe $155,000.


This is what the bank Wants me To Pay them back. Generally over the, uh, a, a Typical mortgage is gonna be what's called a 30 year Mortgage. There are Other types, but a 30 year mortgage is Where the bank says, oh, Well, how much do you have to pay us every month over the next 30 years to pay Off that 155,000 and make sure we get some interest along the way.


And the bank comes up with a payment, and let's Call it my mortgage is $1,000 a month. So the bank says, Chris, it's okay. You Owe us 155 grand, But if You pay us a thousand dollars every month for the next 30 years, then that 155 will be wiped out. And then you can have the house, same as if you, if you had given the people $160,000 cash. So now we have this question, what's the equity?


I owe 1 55, but it's worth 200. And the difference between what I owe and what it's worth Is what we call equity. So For example, I pull out my handy calculator and I say, what is $200,000 of value minus 155,000 of what I owe? And it's $45,000. My equity on This property is $45K "K"means thousand.


Okay, I got $45,000 of equity. That's pretty cool, by the way, right? Like it's a good deal. But guess what happens? You hold this home for two years and the house is no longer worth 200, $200,000. It's now worth $220,000.


Does that change my equity? Oh yeah, because remember, I owed 1 55, 2 years had passed. I actually now owe 150,000. It's now worth 220,000. What's the difference between 220,000 and 150,000? My equity's not 45. Now I have $70,000 of equity. Now, it's not like I can necessarily go to the bank and I, I can't roll up to like McDonald's and be like, I'd like a number two supersize me and I'm gonna pay for it with equity.


Because equity is, it's um, it's a number on a balance sheet that, that is a part of your net worth. Your net worth is what are you as a human being worth based on your assets, not your real net worth, your real net worth, your precious and priceless.


But I'm talking about the things that you have, right? So this house is one of the things that I have. And this house I owe one 50 is worth two 20. So my balance sheet says, actually, I'm worth $170,000. Sorry, $70,000. Okay? Then we get to this next part. That's what equity is. And then it's like, well, what am I doing with the house?


You know what, I've been watching Kris Krohn's channel here. I'm a subscriber and I also hit the bell. And that means that I get the daily videos and I've been getting wise.


5. Landlord


So I learned how to become a landlord, which means, and here's what a landlord is. Uh, the landlord is the person that owns the house. Sh technically the bank owns it, but we always look at it like we own it. 'cause we're paying the bank off, right?


This is my house. Technically it's the banks, but it's my house. I control it. I can do some things with it that I want to. And what I'm gonna do is I, as the landlord, I'm not gonna live in this house anymore. I'm moving out. I you're only gonna do, I'm gonna put a tenant in this home and that tenant is going to pay me rent.


And my rent Is $1,300 a month. Well, hot dog, check this out. Do You remember what your mortgage is? Your mortgage is a thousand a month, but every month you're collecting how much. What's the difference between the 1300 I get a month and the thousand I need to pay to the bank to have this $300. That's what we call a cash flow. I'm gonna put that At the top here. Actually, I'm gonna put it right on the house.


My cashflow Is $300 a month. Now, just for a moment, calculate that for a year. That's $3,600. That's pretty exciting, right? That is a residual income or it's often called a passive income. If you have a property manager doing all this stuff for you and you get that $300 no matter what, it's passive, whether you work or not, you're gonna get paid it. Um, some people call it a residual income, which is, it comes in every month on a natural, ongoing basis.


6. Tenant


Okay? So now all of a sudden, who am I as the landlord gonna put in my home? That person is called the tenant. So the tenant, I move out 'cause I used to buy it for me. I now become the landlord. 'cause I, I put a for rent sign up.


Someone else says, I'll pay $1,300 a month and live in this house. They move in, I'm the landlord, they're the tenant.


7. Rental


This is what we call a rental because we're collecting rent. And the last phrase here is flip.


8. Flip


Instead of renting it, we say, no, no, no, no, no, no, no, I'm not gonna rent this. I'm moving out of this home. I was only there for a short while and you know what I wanna do.


I want to sell this home. And, uh, I moved in, I fixed it up a little bit. I put it on the market. And even though it's worth $220,000, I actually listed to sell it for $200,000. And this is an important terminology for you. I got it under contract for 190,000. Let me tell you that story.

I'm into it. One 60, I owe one 50. And all of a sudden I say, well, this house is worth two 20. Let's give someone a really good deal.


And so you list it for 200,000 and someone comes along and says, you know what? I I, I think I want your house, but I I I wanna pay 180 for it. You're like, wait a second. I'm offering it for 200,000. What do you mean you wanna pay 180? So you come back and you're like, lowest I go is nine is $190,000. And they say, okay. And now you are under contract.


9. Under Contract


That means under contract means they have signed a piece of paper called a sy, a real estate purchase contract to buy it for 190 and 30 days goes by and the bank swoops in. And now that bank buys it out from your bank and there's some leftover money in this flip.


Remember, you owe one 50, they bought it for one 90. We're gonna leave the closing costs out of it. To keep it real simple. Um, we're gonna keep the realtor fees out of it to keep it real simple. 'cause we'll sell you, you sold it for sale by owner. What's 190 different from 150? That's $40,000. You no longer have this house. You no longer own this real estate. But what you do have is a $40,000 check and any money that you made along the way, plus tax advantages. Friends, that's the story of real estate. That's the language.


Summary


If I were to give you a real quick summary,


  • Real estate is property and the land that it's valued with.

  • Equity is the difference between what it's worth.

  • And what I owe a mortgage is the money I owe to the bank to basically buy it from them.

    • With time. It can also reference the monthly payment that I have on it.

  • My down payment is how much money I had to give to the bank so that they would feel comfortable doing the deal with me. 'cause they say, Kris, we want you to have skin in the game.

  • Landlord is who I am when I'm renting this real estate out.

  • A tenant is the person I rent the real estate to.

  • It's called a rental if I'm holding onto it and cash flowing it and getting my cash flow.

  • And a flip is what I call it if I buy it to later sell it and to make a profit. And friends. That is the basic language of real estate Friends, I hope today's message on real estate vocabulary was helpful.


It brought great clarity for you. And I think you're ready now for some more of the advanced training. So the best thing you can do is to subscribe. Ring the bell.


And every day when you watch these videos, learn new vocabulary, learn new words, learn new principles. You combine all of this knowledge together and in a lifetime, this can have a six and a seven figure impact on where you end up in your destiny.


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