A Burned-Out Tax Shelter refers to a real estate investment that was once advantageous for providing large income tax deductions but has lost its tax-sheltering benefits over time due to the reduction and eventual nil in depreciation deductions and the decrease in interest deductions as mortgage payments increasingly cover the principal.
A capitalization rate (Cap Rate) represents the rate of return expected to be generated on a real estate investment property. It helps in deriving the property's current market value or the potential return on investment.
Debt Yield is the Net Operating Income (NOI) divided by the amount of debt, primarily used by lenders to determine the sufficiency of a property's income to cover its debt service.
Direct capitalization is a valuation method used in real estate to estimate the value of an income-producing property by dividing the net operating income (NOI) by the capitalization rate (cap rate).
The term 'Pencil Out' refers to using approximate figures to estimate whether a proposed investment is expected to be profitable. It is a preliminary assessment often used to quickly gauge investment viability.
The forecast ratio of the next year's operating income to the sale price at the time the property is expected to be resold. Contrast to Going-In Cap Rate.
