Active Participation is a type of investor position that influences how rental income is taxed. The requirements for active participation are less stringent than for material participation.
Cost new rent refers to the minimum market rental rate needed to justify new construction projects in a real estate market.
Deferred gain refers to the amount of gain that is realized but not recognized at the time of a transaction, commonly occurring in tax-deferred exchanges, often known as 1031 exchanges. Essentially, deferred gain allows taxpayers to defer paying taxes on capital gains by reinvesting the proceeds in like-kind properties.
FF&E stands for Furniture, Fixtures, and Equipment, encompassing all movable property that is used in business operations and can include everything from chairs and desks to lighting and cabinetry.
Functional obsolescence is an appraisal term that refers to the loss of value from all causes within a property except those due to physical deterioration.
A Gain in real estate refers to an increase in the value or selling price of a property compared to its purchase price. This can result in a financial profit for the property owner.
Ginnie Mae, officially the Government National Mortgage Association, is a government agency within the U.S. Department of Housing and Urban Development (HUD) that guarantees the timely payment of principal and interest on securities backed by residential mortgages.
The Income/Expense Ratio in real estate measures the relationship between a property's operating income and its operating expenses, providing investors insights into financial performance.
Interval ownership, also known as time-sharing, is a method of property ownership where multiple owners have exclusive rights to use a property for different intervals of time.
A liquid asset is a property that can be converted to cash quickly and with minimal loss of value. Liquid assets provide the ability to raise cash for financial needs such as down payments for real estate.
A long-term lease typically refers to a commercial lease agreement that spans five years or more or a residential lease agreement lasting over one year. Long-term leases offer stability and predictability for both landlords and tenants, coming with distinct advantages and potential drawbacks for each party.
Negative leverage, also known as reverse leverage, occurs when the cost of borrowing exceeds the income generated by an investment, resulting in a lower overall return.
Net Operating Income (NOI) is a key performance metric used to evaluate the profitability of income-generating real estate assets. It represents the income produced by a property after deducting all operating expenses but before accounting for taxes, interest, depreciation, and amortization.
Net Spendable Income, also known as After-Tax Cash Flow, refers to the actual cash flow available to an investor after accounting for all operating expenses, debt service, and taxes.
An optionor is the party that grants or sells an option contract, giving the buyer the right, but not the obligation, to purchase or sell an asset at a specified price within a set period.
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.
Rehab, short for rehabilitation, refers to the process of restoring or improving a property to a better condition, often for resale or rental purposes. It typically involves fixing structural issues, upgrading systems, and enhancing aesthetics.
In real estate, a 'spread' refers to several key financial differences, often pertaining to prices or interest rates, that can significantly impact transactions, investments, and profits.
Strategic default is the intentional cessation of payments on a debt despite having the financial means to fulfill the obligation, typically done for perceived financial benefits.
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.
Value in exchange refers to the worth of a property based on its ability to be traded for goods and services. It differs from investment value or value in use, focusing primarily on what the property can be exchanged for in the open market.
Yield to Maturity (YTM) is the internal rate of return on an investment, considering all inflows and outflows of investment returns and their timing, providing a comprehensive view of the investment's profitability.
