Investing for Beginners: Terms to Know

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INVESTING FOR BEGINNERS: TERMS TO KNOW

Leverage, volatility, dividends, oh my! Investing terms don’t need to be complicated. Let us do the interpreting for you. Here’s a list of some common “investing for beginners” terms and their definitions for quick reference.

Accredited Investor – a designation under the SEC for individuals who are allowed to invest with fewer restrictions. The most common way to qualify as an accredited investor is to have a $1M net worth or annual income over $200k if single or $300k if married for two consecutive years.

After Renovation Value (ARV) – The market valuation of a home after renovations have been done. ARV can be used to refinance a house at a higher valuation.

Alpha – An investment’s advantage to beat the market’s returns. 

Asset – A resource owned by an individual or company that can be reasonably expected to create value in the future.

BRAIN – Buy, Rehab, Airbnb, reInvest, Next property. The core strategy of ReAlpha’s property investment strategy.

Capital – Typically refers to cash invested into an asset.

Diversification – A way of managing risk by investing across multiple categories of assets. Diversification can refer to investing in different classes of assets or investing in assets across different times.

Dividends – A distribution of earnings to shareholders in an asset.

Equity – Ownership in a company or asset such as a home. Can also refer to how much has been paid on a home loan.

Exit Strategy – How and when an investor intends to exit their investment.

Financing – A loan from a bank or other financial institution to purchase an asset like equity in a company or a home.

Leverage – Refers to the ability to borrow money in order to purchase an asset. Amount of leverage refers to how much equity is owned in something versus how much is owed on it.

Long term rental – Typically refers to leases lasting a year or more.

Refinancing – Restructuring loans with a bank for a lower interest rate or restructuring loan for a higher valuation after renovations.

Reg A – A way for non-accredited investors to invest in startups, like a mini IPO.

Return on Investment (ROI) – A measurement of the profit from an investment compared to the total cost of it.

SEC – Securities and Exchange Commission. The regulatory body in the U.S. government for securities markets.

Short term rental (STR) – Typically refers to any lease lasting less than a month. The largest listings sites for short term rentals are Airbnb, VRBO, and HomeAway

Volatility – Measures the degree of fluctuation in return or valuation of an investment. Often used to measure the security of an investment.

Wholesale Real Estate – These are houses that can be bought at a discount before they get listed on sites like Zillow. Think of it like Costco for homes.

Hopefully, these definitions help you understand investing for beginners to curb the confusion that comes with starting out.