Adjusted Basis refers to the net cost of an asset after adjusting for various factors such as improvements, depreciation, and damage, and is primarily used for calculating capital gains or losses upon the sale of the asset.
Amortization is the process of gradually paying off a debt over time through regular payments, which include both principal and interest. This structured repayment schedule is commonly used in loans such as mortgages, car loans, and personal loans.
An amortization schedule is a detailed table laying out the periodic payments on a loan, breaking them down into interest and principal components, as well as showing the remaining balance after each payment. It is vital for understanding how a loan is paid off and the interest incurred over time.
The Amount of One per Period, also known as the Compound Amount of One per Period, is a financial concept used to determine the future value of a series of regular investments or payments. It allows investors and financial planners to project the growth of periodic contributions over time, considering the effect of compounded interest.
An annuity is a series of equal, or nearly equal, periodic payments or receipts. These payments could be for loans, investments, or pensions, providing a predictable stream of income over a specified period.
An Annuity Due is a financial product in which payments are made at the beginning of each period, offering specific advantages and distinctive planning opportunities as compared to ordinary annuities.
An annuity in arrears, also referred to as an ordinary annuity, is a financial product where payments are made at the end of each period. This type of payment structure impacts the present value and future value calculations of the annuity.
In real estate and other facets of financial planning, a 'Beneficiary' is a person or entity designated to receive benefits or assets, such as proceeds from a life insurance policy, trusts, or estates.
An itemized list of expected income and expenses prepared weekly, monthly, or annually. A budget is crucial in managing finances efficiently and planning for future needs in real estate investments.
Capital Expenditure, commonly referred to as CAPEX, are funds used by a company to acquire, upgrade, and maintain physical assets such as property, industrial buildings, or equipment.
Capital calls are additional money requested from equity owners to bridge deficits in construction or operating costs. These calls often happen due to initial underfunding or unforeseen expenses.
A capital reserve is a fund created to finance major, long-term investments, property or infrastructure enhancements within a real estate property. These are set aside from profits and retained earnings specifically for future large scale repairs, renovations, or unexpected large expenses.
A closed-end mortgage is a type of mortgage loan whose principal amount cannot be increased during the payout period. This contrasts with an open-end mortgage, where the loan amount can be revised or increased.
The Compound Amount of One Per Period represents the final value of a series of $1.00 deposits made at each period, with interest compounded at each period.
The Consumer Price Index (CPI) measures the average change in prices over time that consumers pay for a basket of goods and services. It is a crucial indicator used to assess inflation and the cost of living.
A coupon book is provided by mortgage lenders to borrowers, containing a set of preprinted coupons that detail the account number, payment amount, and due date for each monthly mortgage payment. It simplifies the payment process, helping borrowers keep track of their payments.
Credit life insurance is a policy that pays off a borrower's debt if they die or sometimes if they become disabled. It contrasts with mortgage insurance, which is specifically designed to protect lenders from defaults.
Fixed expenses in real estate management refer to costs that remain constant regardless of occupancy levels, which contrast with variable expenses that fluctuate based on usage or occupancy.
A Fixed Payment Mortgage is a loan secured by real property that features periodic payments of interest and principal that remain constant over the term of the loan. It is a subset of Fixed Rate Mortgages but maintains a fixed payment schedule throughout its term.
Furniture, Fixtures, and Equipment (FF&E) are vital items that wear out more rapidly than other components in commercial properties like hotels or motels, and typically have a useful life of around 7 years.
Future Worth of One, also known as Compound Amount of One, refers to the value of a single sum invested at a specific interest rate over a set period. It helps in understanding how much a present value amount will grow over time when subjected to compound interest.
An illiquid asset is an asset that cannot be quickly converted into cash without a substantial loss in value. This is a critical consideration in real estate investing, as properties can take considerable time to sell and often incur significant transaction costs.
An income stream refers to a regular flow of money generated by a business or investment. It can come from various sources such as rentals, dividends, interest, or any other form of residual income.
An Inter Vivos Trust is a legal entity created during an individual’s lifetime to manage and protect assets for the benefit of the trust’s beneficiaries. It is also known as a living trust.
An investment involves the allocation of resources, usually money, into assets or ventures with the expectation of generating income or profit. It aims at wealth preservation and enhancement.
The Investment Life Cycle refers to the entire process an investment goes through from its initial acquisition to its final disposal or sale. Understanding this cycle helps stakeholders make informed decisions regarding entry and exit points to maximize returns.
Investment value refers to the estimated value of a real estate investment to a specific investor, which can vary from the property's market value based on the investor's unique situation and objectives.
The Mortgage Interest Deduction is a tax incentive for homeowners which allows them to deduct interest paid on a mortgage of their primary residence or secondary residence from their taxable income.
An operating budget outlines a reasonable expectation of future income and expenses from property operations, playing a crucial role in financial planning and management within real estate investments and enterprises.
Opportunity cost represents the potential benefits an individual, investor, or business misses out on when choosing one alternative over another. It mainly concerns the analysis of trade-offs and ensuring that the benefits of a pursued action or investment outweigh its associated costs.
An Ordinary Annuity is a series of equal payments made at the end of consecutive periods, commonly used in financial planning, loan repayments, and retirement accounts.
A pro-forma statement is a financial document that projects future income and expenses for a property, enabling investors and developers to make informed decisions based on estimated financial performance.
Refinancing replaces an old loan(s) with a new loan(s), potentially securing better terms, reduced payments, or accessing cash.
Reserves in real estate refer to amounts of money set aside to cover potential economic setbacks or to replace worn-out assets in property management and development.
To retire a debt means to pay off the principal on a loan, thereby fulfilling the obligation under the loan contract, which can be done through regular payments or a lump sum. It is a significant financial milestone indicating that the borrower has met the terms laid out by the lender.
Risk vs. Reward is a financial concept that attempts to compare the potential fluctuations, especially the downside, with potential benefits of an investment or financial decision.
The Rule of 72 is a simple formula used to estimate the number of years required to double the principal amount of money invested at a given annual rate of compound interest. By dividing the number 72 by the annual interest rate, investors can quickly gauge the growth period needed for their investment to double without using complex calculations.
A sinking fund is a reserved account used for saving up for a specific future expense. Over time, through continuous contributions and compound interest, the fund grows to the desired amount.
A tax bracket refers to the range of income subject to a certain marginal tax rate. It defines the percentage of each additional dollar in income required to be paid as income taxes.
A tax-deductible expense is a type of expenditure that can be subtracted from taxable income, thus reducing the amount of income that is taxed. This helps in lowering the overall tax liability for individuals and businesses.
A tax deduction is an expense that can be subtracted from an individual or entity's gross income to reduce the amount subject to tax.
Taxes that apply to the sale of a home, governed primarily by Section 121 of the U.S. Internal Revenue Code, which provides an exclusion on capital gains for qualifying homeowners.
In real estate, the term can refer to the duration during which a lease is effective or the maturity period of a loan such as a mortgage. Understanding the implications of the term is crucial for both lessees and borrowers.
Vacancy and Collection Allowance is an estimated deduction from Potential Gross Income (PGI) when preparing a real estate budget. This deduction accounts for the loss of income from unrented units and uncollected rent.
