Glossary

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Accrued Depreciation: (referred to as cost recovery), any loss of value or usefulness. The difference between the cost of new replacement improvements and the current value of the improvements. Top of Page
Acquisition Cost: The costs paid to secure purchase of a property. These costs typically include the down payment, mortgage acquisition points, appraisal fees, attorney fees, inspection fees, environmental evaluation fees, Etc. Top of Page
Adjusted Basis: The basis or original cost of a property reduced by allwoable cost recovery (depreciation) and increased by capital improvements. Or [COST + CAPITAL IMPROVEMENTS - COST RECOVERY = ADJUSTED BASIS] Top of Page
Amortization: The process of paying off a loan by making regular periodic installment payments. Top of Page
Amortized Loan: A loan in which periodic installment payments are made. The interest portion due is subtracted from the payment amount and the remainder is applied against the principal. The payment amount and number of payments are calculated so that each payment gradually reduces the principal and the last payment reduces it to zero. Top of Page
Annual: Once each year. Top of Page
Annual Debt Service: The total dollar amount required to make all periodic loan payments (principal & interest) in one year. Top of Page
Annual Percentage Rate: (APR) expressed as a percentage, includes interest and other finance charges to indicate the total cost of the credit. Top of Page
Appraisal: An opinion of value made by one who is qualified to evaluate factors of value. Top of Page
Appraised Value: The estimated value of a property as determined by an appraiser. See Cost Approach, Income Approach and Market Data Approach. Top of Page
Appreciation: The increase in property value usually achieved by inflation and increased market demand. Top of Page
Appreciation Rate: A percentage figure to compute actual or estimated appreciation. Top of Page
Appurtenance: Something that passes with title to the land such as physical features: buildings, fixtures, fences, Etc. and non-physical features such as easements, mineral rights Etc. Top of Page
Assessed Value: A value placed on property for the purpose of taxation. Top of Page
Assumption of Mortgage: Assuming liability for an existing mortgage when acquiring a property. Top of Page
Balloon Loan: A loan that contains a provision requiring a payment, or payments, larger than the regular payments. Often the balloon payment will occur many years prior to full amortization and will be for the amount of the remaining balance of the loan. Top of Page
Balloon Payment: A loan payment, usually much larger than regular payments, required pursuant to the provisions of a balloon loan. Top of Page
Basis: Determined for purposes of taxation by the IRS, Initially it is the cost of a property which is then reduced by cost recovery (depreciation) taken. Basis is used to determine taxable gain on the sale of a property. Top of Page
Blanket Mortgage: A mortgage loan which is secured by two or more properties. Top of Page
Broker's Rate: Same as Equity Return Rate. A percentage method to determine the rate of return on a real estate investment includes the cash flows, debt reduction and estimated (or actual) appreciation divided by the owner's equity. [(CASH FLOW BEFORE TAXES + PRINCIPAL REDUCTION + ESTIMATED ANNUAL APPRECIATION) divided by DOWN PAYMENT] Top of Page
Capital: Money, property and other assets of an individual or business. Top of Page
Capital Assets: Any property held by the taxpayer except those held for the purpose of sale to customers during the ordinary course of business. Top of Page
Capital Expenditure: The cost of an improvement that has been made to either extend the useful life or add value to a property. Top of Page
Capital Gain: Selling Price of a property less the Costs of Sale and Adjusted Basis At Sale. Top of Page
Capital Gains Rate: The rate of taxation on gains or losses from the sale of investment property. In 1999 the rate is 20%, however, this is subject to change, from time to time, by the legislature. Top of Page
Capital Improvement: An improvement or addition that has been made to either extend the useful life or add value to a property and which is considered a non-expense item by the IRS and is subject to cost recovery (depreciation). Top of Page
Capitalization: A mathematical process using Net Income to determine value. Top of Page
Capitalization Rate: 1). TO DETERMINE CAPRATE = Divide the Net Operating Income (NOI) by PRICE or VALUE. 2.) TO DETERMINE PRICE or VALUE FROM A DESIRED CAPRATE: Divided THE NOI by CAPRATE. Top of Page
Capitalize: To provide funding for or, in accounting, a procedure that records expenditures as capital assets on the books instead of being charged as an expense. Top of Page
Cash Flow (after tax): Cash Available form an investment's gross income after paying all expenses and income tax owed. Top of Page
Cash Flow (before tax): Cash available from an investment's gross income after paying all expenses, except income taxes. Top of Page
Cash On Cash-After Tax: A rate of return expressed as a percentage that simply divides an investment's after tax income by the initial cash outlay. Top of Page
Cash On Cash-Before Tax: A rate of return expressed as a percentage that simply divides an investment's pre-tax income by the initial cash outlay. Top of Page
Commercial Property: A non-residential real estate classification that includes investment properties such as office buildings, restaurants, shopping centers, retail stores, Etc. Top of Page
Common Area Maintenance: Usually on multi-tenanted properties is the maintenance of land and/or its improvements that exists for the common benefit of many or all tenants and/or the property owners. Top of Page
Cost: That which was given to acquire something. Top of Page
Cost Approach: One of the three primary methods of valuation used by Appraisers. (Cost, Income, Market Data) Value estimate is determined by the cost to replace or reproduce the property's improvements new factored by depreciation plus the Market Value of the land. Top of Page
Cost Basis: See Basis. Top of Page
Cost Recovery: Formerly known as "depreciation" for tax purposes is the systematic calculated reduction in value of a property's improvements to reflect wear and tear, and obsolescence. The calculated amount of cost recovery is deducted from the Net Operating Income of an investment property to determine taxable income and reduces the Basis which determines the taxable gain at sale. See Basis & Recapture. Top of Page
Debt: An amount of money owed to others. Top of Page
Debt Coverage Ratio: The relationship between a property's Net Operating Income (NOI) and Annual Debt Service (ADS) [NOI divided by ADS]. This ratio is often used by lenders as a criterion for income property mortgage loans. Top of Page
Debt Service: The total dollar amount required to make all periodic loan payments (principal & interest) for a particular period. Top of Page
Depreciation: See Cost Recovery. Top of Page
Depreciation Rate: Or rate of cost recovery is the calculated rate at which cost can be recovered from a property improvement. In 1999 Residential property improvements can be recovered on a straight line basis at the rate of their value divided by 27.5 years. Non-Residential properties at the rate of their value divided by 39 years. Top of Page
Down Payment: The amount of money that is paid for a property while the remainder is financed. This amount may, or may not, include additional fees and costs incurred by the purchaser. Top of Page
Equity Return Rate: Same as Broker's Rate. A percentage method to determine the rate of return on a real estate investment includes the cash flows, debt reduction and estimated (or actual) appreciation divided by the owner's equity. [(CASH FLOW BEFORE TAXES + PRINCIPAL REDUCTION + ESTIMATED ANNUAL APPRECIATION) divided by DOWN PAYMENT] Top of Page
Escalation Clause: A lease provision that requires a tenant to pay more rent based on an increase in costs. Top of Page
Gross Income: The total income received before deducting any expenses. Top of Page
Gross Lease: A lease in which the landlord pays all of the property's expenses such as real estate taxes, fire insurance and other operating expenses. Top of Page
Gross Rent Multiplier: The sales price divided by the Gross Operating Income (GOI). A factor commonly used as a valuation indicator for properties such as Motels and Apartment buildings. Top of Page
Ground Lease: A lease in which the tenant leases the land only and agrees to provide any buildings or other improvements at tenant's expense. Top of Page
Hypothecate: To pledge something as security without having to give up possession of it. Top of Page
Improvements: Additions to raw land such as buildings, streets, sewers, Etc., which tend to enhance its value. Top of Page
Income Approach: One of the three primary methods of real estate valuation used by Appraisers (Cost, Income, Market Data). Based on the anticipated future income of the property. The formula is (Expected Annual Net Income divided by the Capitalization Rate) = Value. Top of Page
Interest: The sum of money paid for the use of borrowed money. Top of Page
Interest Rate: The percentage of a sum of money charged for its use. Top of Page
Internal Rate Of Return: (IRR) is a commonly used measure of investment quality in the market place. It factors the initial investment and estimated future after tax cash flows including sale proceeds after tax. To some, an investment is considered attractive if the IRR exceeds the cost of capital. Two problems exist with IRR. It assumes that after tax cash flows will be reinvested at the same rate as the investment being analyzed (which is often difficult to achieve) and the function can be erroneous when it encounters multiple sign changes and/or abnormally high positive or negative numbers. Top of Page
Investment Analysis: The study to determine the suitability and feasibility of a particular investment to the Investor and the likely return the Investor may achieve from the investment. There are many methods and measures available to make this determination. Top of Page
Investor Tax Bracket: (Same as Tax Bracket) The marginal rate of taxation set by the IRS for income taxes. The percentage of each additional dollar of income required to be paid as income tax. Top of Page
Lease: A contract between a property owner (Lessor) and another party (Lessee) in which the parties agree that the Lessee shall be entitled to possess and use the Lessor's property for a specified period of time and under specified conditions in return for the payment of money called RENT. Top of Page
Lessee: Also known as Tenant is a person or entity to whom property is rented under a lease. Top of Page
Lessor: Also known as Landlord is a person or entity who rents property to another under a lease. Top of Page
Leverage: The use of borrowed money to increase purchasing power and, under ideal conditions, to increase the return on the investment. Top of Page
Liability: A financial obligation. Debt. Top of Page
Lien: A legal hold or claim against a property to secure payment of a debt or other obligation such as payment of a mortgage loan, taxes, contractor fee, judgement, Etc. A lien is an encumbrance on the property. Top of Page
Loan to Value (Ratio): The portion of an amount borrowed compared to the value (or cost) of a property. Usually expressed as a percentage. EXAMPLE: a buyer obtains an $80,000 mortgage loan on a $100,000 house which results in a 80% "loan to value ratio". Top of Page
Maintenance: The work, care and money spent on the repair and upkeep of a building in order to keep it in good operating condition and productive use. Top of Page
Market Data Approach: One of the three primary methods of valuation used by Appraisers (Cost, Income, Market Data). Value estimate is determined by analyzing and comparing sale prices of similar properties recently sold. Top of Page
Market Price: The actual price paid for a property. Top of Page
Market Value: The highest price a buyer, ready, willing and able would pay and the lowest price that a ready willing, and able seller would accept. Top of Page
Minimum Rent Clause: A provision in a percentage lease that sets a "minimum" amount of rent regardless of the property's gross income. Top of Page
Month-To-Month Tenancy: A lease for one month which usually renews automatically for the same period unless expressed otherwise by either the Landlord or Tenant. Top of Page
Mortgage: A written document that creates a lien on a property to secure the repayment of a loan. Top of Page
Mortgage Banker: A person or entity that makes mortgage loans, services them but often sells them to investors. Top of Page
Mortgage Broker: A person or entity acting as a middleman for a fee to bring lenders and borrowers together. Top of Page
Mortgagee: The person or entity who lends money to the other and in return obtains a mortgage as security. Top of Page
Mortgagee's Policy: An insurance policy if favor of the lender to insure against loss in the event of bad title. Top of Page
Mortgagor: One who pledges property as security for loan. Top of Page
Net Income: Gross Income less Operating Expenses. Top of Page
Net Lease: A lease in which the Lessee, in addition to rent, pays expenses such as property taxes, fire insurance and maintenance. The Lessor's receipts are "Net" of those expenses. Top of Page
Net Operating Income: Gross Income less Operating Expenses, but before deducting debt service and income taxes. Top of Page
Origination Fee: A fee charged by a lender for providing a mortgage loan. Top of Page
Percentage Lease: A lease in which the rent is based on the gross sales volume made on the leased property. It is typically used by shopping centers leasing to large chain stores and calls for a "minimum rent payment". Top of Page
Property - Personal: (Personalty) Property that is moveable and not fixed to the land or building. Not Realty. Top of Page
Property - Real: (Realty - Real Estate) Land and all improvements attached to it. Ownership extends below to the center of the earth and above to the heavens. Top of Page
Purchase Money Mortgage: A mortgage given by the buyer to the seller to cover part or all of the purchase price. Top of Page
Quiet Enjoyment: The right of possession and use of a property without interference. Top of Page
Rate Of Return: The relationship between the earnings and cost of an investment expressed as a percentage. Top of Page
Real Estate: See Property - Real. Top of Page
Real Property: See Property - Real. Top of Page
Recapture-Cost Recovery: The portion of capital gain attributable to the reduction in value by cost recovery taken is taxed at a different rate than the remainder of the capital gain. The rate of taxation on the cost recovery (depreciation) portion of Capital Gain in 1999 is 25%, however, this is subject to change, from time to time, by the legislature. Top of Page
Rent: A charge for the use and possession of space. Top of Page
Return On Investment: A rate, expressed as a percentage, at which money is being earned from an investment. Top of Page
Sale And Leaseback: A simultaneous transaction where an owner/user sells a property to an investor and leases it back. The seller is converted from an owner to a tenant, typically long term. Top of Page
Sublease: A lease given by a Lessee to another Lessee who then becomes the "Sublessee or Subtenant". Top of Page
Tax Bracket: The marginal rate of taxation set by the IRS for income taxes. The percentage of each additional dollar of income required to be paid as income tax. Top of Page
Tenant: One who is given possession and use of property pursuant to a Lease. Lessee. Top of Page
Trade Fixtures: Personal property items that are installed on a property or building to be used by the tenant in his trade or business. Typically, these items are identified and acknowledged as such by both Landlord and Tenant and may be removed at the expiration of the lease. Top of Page
Vacancy Rate: The percentage or projected percentage of Gross Income lost due to unoccupied space. Top of Page