The fix and flip world is full of its own terms and lingo, from weird acronyms — ARV? SOW? REO? — to the technicalities of the renovation itself.
As you research and then jump into projects, you’ll quickly pick up on the unique language of rehabs and real estate. Here are some definitions to get you started; it’s far from a complete list, which could easily encompass an entire book, but it’s enough to help you sound like you know what you’re doing!
Some popular acronyms
ARV — After Repair Value. The estimated resale value of the property after you’ve fixed it up. This is a key metric, as it drives your bidding.
REO — Real Estate Owned. A banking term used to classify which properties the bank owns, i.e. has taken back in a foreclosure.
SOW — Scope of Work. The document that spells out the work a contractor will perform on the property.
HVAC — Heating, Ventilating, and Air Conditioning.
ARM — Adjustable Rate Mortgage. With this type of loan, the interest rate fluctuates but is set at a maximum.
MAO — Maximum Allowable Offer. The most you’re willing to pay for a property; it’s the highest figure at which you determine you can go to and still make a profit, or the highest you’ll bid.
CMA — Comparative Market Analysis. A report that details the recent sales prices of similar properties so you can get a good idea of your ARV. The CMA sometimes includes active listings as well so you know what your current competition is.
ROI — Return On Investment. What you get back on the money you’ve invested; this is calculated in a variety of ways, whether it’s the ROI on the cash you ponied up yourself, the ROI of the project as a whole, and more.
GFI or GFCI — Ground Fault Circuit Interrupter. The most modern type of electrical outlet, and the one that is often required in kitchens and bathrooms. It is essentially a very sensitive circuit breaker designed to trip quickly and protect against shock/electrocution.
Rehab and construction terms
Square: A unit of measurement in roof replacement and repair, one square is 10’ x 10’, or 100 square feet.
Soffit and Fascia: Two popular terms used in roofing. The soffit is an architectural feature, typically the underside of an overhang on a balcony, while the fascia are the boards that run along the roof line.
Hot Water Heat: Water is heated and runs through pipes in baseboards and radiators.
Forced Air Heat: Makes use of vents and ductwork to move air that’s been heated in a furnace.
Knob-and-Tube: The oldest type of wiring, sometimes still found in turn-of-the-century houses (up until about the 1940s). If you find it, you’ll likely need to replace it.
Vinyl Siding — The most popular type of siding. You may come across aluminum siding in older homes and wood siding, or shingles. Fiber cement siding, a composite, is another option.
Leaching Field — A component of a septic system, and one whose condition is vital to understand prior to purchase. Generally made up of perforated pipes that distribute the effluent, or liquids, from the septic tank into the ground. A leaching field costs many thousands of dollars to replace.
Rough Electric vs Finish Electric — Rough electric includes the type of work that’s behind the walls, i.e. the wires that run from the fuse box or circuit breaker to the outlets; it’s best to get this done before installing sheetrock. Finish electric includes items like fan and light installation, outlets and switches. Think of it as finishing touches.
Load-Bearing Wall — As the name suggests, a wall that bears and redistributes weight and is a vital structural component of a house. It’s important to have a licensed contractor determine whether a wall is load-bearing before tearing anything down.
Batt Insulation — Also known as Blanket Insulation, a common form of insulation that comes in rolls that are cut to the desired length and installed between wall studs and between floor joists. Insulation is given an R-value that measures how well it can resist heat.
Mud — Slang for joint compound, the material used to smooth out the spaces between sheets of drywall or sheetrock. The sheetrock is nailed or screwed onto studs, then “tape” is applied to the cracks and transitions between sheets and these are mudded and sanded until smooth. The area will then need to be primed before painted.
These should get you off to a good start, and you’ll pick up dozens more as you work through your rehab projects. Learn the basics and how various components work, and then move on to more advanced concepts.
House-flipping is a complex subject with a number of simultaneous moving parts, so always be sure you know exactly what you’re getting into before you purchase that fixer-upper. When you are ready to make an offer on that investment property, ABL is here to help you finance it.