Real Estate Investing Vocabulary of Terms: The Language of The Deal

"He didn't seem to know what he was talking about. Or if he did, he couldn't express it."

People have said that to me about deals they walked away from. Not because the numbers were wrong. Because the other party could not speak the language.

Real estate investing has its own vocabulary, and you are judged on it every time you open your mouth — by lenders, by sellers, by agents, by partners. Judged harshly if you get it wrong. but judged favorably if you are clear and precise, and obviously know the subject.

Here is the problem. Much of what is being said in general conversations out in the business world is simply incorrect.

Terms get repeated until they sound authoritative, and a great many of them are wrong, incomplete, or even backwards. And you probably picked them up the same way everyone else did — by listening.

Some examples from this book:

• "Pre-Approved" means you have not been approved. The person who decides your approval has not even seen your application.
• There is no such thing as "clear title" to real estate. Learn what you actually get instead.
• A Quitclaim Deed is not a deed, and it does not transfer title.
• You cannot "abandon" property and make it somebody else's problem. That idea is nonsense.
• Landlocked property does not give you an Easement of Necessity across your neighbor's land.
• Acquiring title to real estate by adverse possession is so unlikely it virtually never happens.
• There is no legal requirement that your company hold an annual meeting.
• Family members can conduct an arm's-length business transaction with each other. It is not prohibited.
• There is no Certificate of Title to real estate.
• There really is a 0% Capital Gains Tax Rate.
• Your mortgage probably contains a Dragnet Clause that can attach a lien to your property for debt you have not even incurred yet — including unsecured debt.
• There are three kinds of Personal Guaranty. One is terrible. Two are alright. Know which one you are signing.

Eighty-four terms, defined properly, with examples.

Not dictionary definitions. Each term is explained the way it actually operates in a transaction, and most terms include a worked example showing what it does to the deal and to your money.

Abstract of Judgment. Acceleration Clause. Assignment of Rents. Banker's Year. Basis. Cap Rate. Cash-on-Cash Return. Chain of Title. Constructive Eviction. Cost Segregation. Daily Accrual Amount. Deed In Lieu of Foreclosure. Depreciation Recapture. Discounted Cash Flow. Due-on-Sale Clause. Encroachment. Escrow. First Lien. Holdover Clause. Installment Sale. Internal Rate of Return. Irrevocable Trust. Lease-to-Own. Mass Appraisal. Modified Adjusted Gross Income. Owner Financing. Pass-Through Entity. Points. Right of Survivorship. Stepped-Up Basis. Subordinate Financing. Substitution of Collateral. Title Insurance. Title Opinion. Wraparound Financing. And fifty more.

Written by an attorney, an accountant, and an investor.

Michael Lantrip is licensed to practice law in Texas, Virginia, North Carolina, and the District of Columbia, and before the United States Tax Court. He is a former IRS Tax Examiner and a former Tax Accountant for a Big 8 accounting firm. He built one of the first computerized abstract plants in Texas, owned his own Title Insurance Company, was an Approved Title Attorney for seven national Underwriters, and has handled over 2,000 real estate closings.

He has read more of these documents than almost anyone alive, and he has written ten books on real estate investing and tax strategy.

Read the definitions. Study the examples. Change the way you speak.

Sound like a professional while you are working to become one.