Rental income represents the actual amounts collected from tenants for the use of space. It does not include miscellaneous income such as laundry income or special fees. Understanding rental income is crucial for real estate investors and property managers to gauge the profitability of a property.
Real Estate Owned (REO) refers to properties that have reverted to the lender, typically a bank, after an unsuccessful foreclosure auction. These properties are then listed for sale as part of the lender’s inventory.
Replacement cost refers to the expense associated with reconstructing or replicating a building to perform the same function as the original structure. This concept is pivotal in insurance and real estate investment.
Replacement reserve is a specific fund set aside from the net operating income to cover the eventual wear and tear of short-lived assets, such as carpeting, appliances, and other items that have a defined useful life.
In the context of real estate investment, the resale price is the projected selling price a property might fetch at the end of the projection period or investment horizon. It plays a crucial role in profitability analysis and investment decision-making.
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.
Residential properties are real estate intended for housing purposes. This term encompasses owner-occupied homes and rental properties provided they are used as dwellings, excluding transient accommodations like hotels and motels.
Return on Investment (ROI) measures the gain or loss generated on an investment relative to the amount of money invested. ROI is often expressed as a percentage and is commonly used to evaluate the efficiency or profitability of an investment.
Reversionary Factor is the mathematical factor that indicates the present worth of one dollar to be received in the future. It is often used in financial calculations related to real estate investments and valuations.
Reversionary value is the estimated value of a property at the end of a specific time period, often related to the expiry of a lease or a pre-determined holding period. It directly impacts investment decisions and property valuation models.
In real estate, risk refers to the potential for an investment to achieve lower or higher returns than expected. Effective risk management strategies, such as diversification and insurance, can mitigate associated uncertainties.
A Rolling Option provides the right to extend the term of a purchase option by offering some form of compensation. The option holder can delay purchasing the property under specified terms.
A seasoned loan refers to a loan that has a history of timely payments made over a period of time, making it more attractive to investors.
A second home is a residence that serves as a non-primary residence for a taxpayer, often used for leisure or vacation purposes. Tax laws allow interest deductions for up to two personal residences, including second homes.
A secondary suite, also known as an accessory apartment, is a self-contained dwelling unit within or attached to a primary residential building, designed to house tenants or relatives while providing rental income to the homeowner.
Section 1031 of the Internal Revenue Code allows for tax-deferred exchanges of certain types of property, enabling the deferral of capital gains taxes under specific conditions.
Securitization is the process of pooling various types of debt—including mortgages, car loans, or credit card debt—into packaged securities that can be sold to investors.
Security in real estate is an important concept that can refer to collateral for a debt or a financial instrument that represents ownership rights. Proper understanding of security mechanisms protects investments and aids in ensuring lawful exchanges.
Seller financing, also known as owner financing, involves the seller providing a loan to the buyer to help facilitate the purchase of a property when traditional third-party financing may be expensive or unavailable. This method can be used to bridge the gap between the purchase price and what the buyer can immediately finance through other means.
Shadow inventory refers to the potential supply of homes that are kept off the market by their owners or banks, waiting for more favorable market conditions such as improved demand and higher prices.
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.
Speculation in real estate refers to investment decisions made based on predictions about the future value of property. This can involve acquiring property with the expectation of selling it off at a higher price after a favorable market change or development.
Spendable Income refers to the amount of cash flow that property owners receive after all operating expenses, mortgage payments, and taxes have been deducted.
Stagflation is an economic condition characterized by a combination of stagnant economic growth, high unemployment, and persistent inflation. This rare phenomenon presents significant challenges for policymakers and investors, as traditional remedies for inflation or stagnation can worsen the other condition.
A State-Certified Appraiser is a professional who has met the stringent requirements set by state appraisal boards, ensuring they possess the expertise to provide accurate property valuations for various purposes such as sales, mortgages, and investments.
The statute of limitations is a specified statutory period after which a claimant is barred from enforcing a claim in court.
Straight-line projection method involves estimating a uniform level of rent or revenue over the life of a lease or contract, even when irregular growth in that income stream is expected.
The Straight-Line Recapture Rate is a component of the capitalization rate that accounts for the annual loss in value of a wasting asset by assuming equal depreciation each year over the asset's useful life.
A straw man is an individual who purchases property on behalf of another person or entity to conceal the identity of the actual purchaser. This tool is often employed in real estate transactions to prevent price inflation from sellers realizing the true buyer's identity.
Sweat Equity represents the value added to a property due to improvements as a result of work personally performed by the owner. A prime example is when property owners pour their own time and energy into repairs and renovations, thereby increasing the property's value.
In the context of real estate, a syndicate is a group of investors who pool their capital to invest in larger properties or projects than they could individually. Syndicates are typically organized by a syndicator who manages the investment on behalf of the group, aiming for shared profits.
Syndication is a method of selling property whereby a sponsor (or syndicator) sells interests to investors. This process can take various forms such as partnerships, limited partnerships, tenancies in common, corporations, LLCs, LLPs, or Subchapter S corporations.
A synthetic lease is a financial arrangement where the lessee assumes complete responsibility for the property, including all risks, costs, and obligations, while the lessor receives a fixed rent.
Tax abatement is a financial incentive offered by a government to reduce or eliminate property taxes on a property for a certain period. This encourages development and investment in specific areas or projects.
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 deed is a legal document transferring ownership of a property to a purchaser following a public auction for unpaid property taxes.
Tax Exemption is a full or partial retraction of property from the tax base, resulting in a lower AD VALOREM tax for the property owner.
A tax shelter is an investment strategy that provides tax advantages by generating more after-tax income compared to before-tax income. These investments can produce before-tax cash flow while creating tax losses that can shield income from other sources from taxation.
A Tax-Deferred Exchange, often referred to as a 1031 exchange, allows investors to defer paying capital gains taxes on real estate investments when one property is sold and a similar one is purchased within specified time frames.
Tax-sheltered income refers to income received, particularly from rental property, that is not subject to taxation, creating a tax benefit for the property owner. It typically occurs when depreciation expense claimed for income tax purposes exceeds mortgage principal payments.
Tenant Improvements (TIs), also known as leasehold improvements or build-outs, refer to changes made to the interior of a rented commercial property to customize it for the specific needs of the tenant.
Title search is an examination of public records to determine the ownership and encumbrances affecting real property. It is an essential step in the purchase of real estate to ensure the buyer receives clear title to the property.
A Transfer of Development Rights (TDR) is a zoning ordinance mechanism that allows property owners in low-density or conservation areas to sell their development rights to other property owners. This system supports low-density development, such as historic preservation or open space conservation, while permitting higher density developments elsewhere, effectively balancing real estate utilization.
A triplex is a type of residential building that contains three separate apartment or townhouse units within one structure. Each unit typically has its own entrance, and the building can offer different living spaces and layouts for tenants or owners.
A landmark property that is well known by the public and highly sought by institutional investors such as pension funds and insurance companies. Generally features one-of-a-kind architectural designs, the highest quality of materials, and expensive finishes. These properties are more desirable than Class A buildings and are likely to stand for hundreds of years.
A turnkey project is a type of development where the developer completes the entire project on behalf of a buyer, turning over the keys upon completion. This comprehensive approach includes all necessary activities such as land purchases, permits, planning, and construction.
Undeveloped land, also referred to as raw land, represents parcels of property that have not been built upon, subdivided, or improved. This type of real estate offers a range of investment opportunities but also comes with various risks and considerations.
An unencumbered property is a real estate asset with a free and clear title, meaning there are no claims, liens, or restrictions by any third party. It signifies full ownership by the titleholder without any existing obligations such as mortgages, vendor liens, mechanic’s liens, or tax liens.
Unimproved property refers to land that remains in its natural state, with no existing developments, construction, or site preparation. It is often also referred to as raw land.
An unrealized gain refers to the increase in the market value of an asset that remains unsold, reflecting a rise in value relative to its purchase cost. It remains 'unrealized' until the asset is sold.
The vacancy factor, also referred to as the vacancy rate, is a critical metric in real estate that measures the percentage of vacant rental properties compared to the total inventory of units in a specific area or property portfolio. It's essential for property managers, investors, and developers to assess the health of the rental market and forecast income expectations.
Vacancy rate represents the percentage of all available units or space that are vacant or not rented in a particular property, influencing projected income and financial planning.
Vacant land refers to parcels of land that are not currently being used for any purpose. While it may contain basic utilities and some off-site improvements, it remains unutilized as opposed to developed land.
Variable expenses are property operating costs that change in relation to the level of occupancy or usage of a rental property. These expenses are crucial in property management for adapting to fluctuating income levels.
A white elephant in real estate is a property that is too expensive to maintain relative to its value or revenue-generating capability, often making it a financial burden instead of an asset.
A wraparound mortgage is an innovative financing tool that includes an existing underlying mortgage within its structure, facilitating real estate transactions by streamlining payment processes. It features a consolidated loan combining both old and new debts, circumventing the traditional need for two separate mortgages.
The yield rate, also known as the return on investment, is a key metric used to evaluate the annual return generated from an investment property expressed as a percentage of its cost or market value.
