Real Estate Investment & Finance (Vocabulary)

  1. Present Value
    The current worth of a sum of money due at a future date. The discounted value of a stream of future cash flows based on an expected rate of return.
  2. GAAP (Generally Accepted Accounting Principles)
    An extensive set of policies and procedures that establish standards to be used in the recording and treatment of accounting transactions.
  3. Churn Rate
    The annual rate of reconfiguration, relocation, or other physical change in a facility. It is expressed as a percentage of square feet or population involved in the change.
  4. Investment ROI
    The return on an investment while it is being held.
  5. Capital ROI
    The return on an investment as appreciation in value over time.
  6. Yield
    The total return on an investment during the period it is held, expressed in percentage terms based on the rate of return for each dollar invested.
  7. Break-Even Analysis
    A financial evaluation technique that maintains that if a project contributes any return greater than its variable costs, the project should be undertaken.
  8. Payback Analysis
    A financial evaluation technique that evaluates the length of time required to pay the ivnestor back for the quantity of capital inputs.
  9. Net Present Value Analysis
    A financial evaluation technique that evaluates an investment in terms of the difference between the cost of an initial investment and its future cash flow stream.
  10. Internal Rate of Return
    A measure of investment performance; the rate of return on capital that is generated or capable of being generated within an investment or portfolio over a period of ownership; simlar to the equity yield rate. A rate that equates the presnt value of the future benefits to the present value of the capital outlays by ownership. It is frequently used as an investment criteria for acquisition purposes and is expressed as a percentage rate.
  11. Net Operating Income
    Income that remains after deducting all fixed and operating expenses. NOI computation excludes debt service and all noncash items such as depreciation and amortization.
  12. Real Estate
    Land and improvements that are permanently attached to land, such as buildings, driveways, and sidewalks. Real estate is physical, immobile, and tangible in character.
  13. Four Governmental Powers Doctrine
    The influence government exerts over privately-held real estate through zoning regulations.
  14. Ad Valorem Levies
    Taxes levied on real estate based on value.
  15. Interest
    Fee paid for the use of money. Interest may also be viewed as rent paid for the use of money.
  16. Compound Interest
    Interest that is earned on cash assets and is immediately included in the investment principal. Compound interest is interest that is earned on itself, thereby increasing the actual interest derived.
  17. Rule of 72
    An approximation of how many years will be required to double capital investment. It is determined by dividing the yield into the number 72.
  18. Leverage
    The use of borrowed funds to finance a portion of the cost of an investment.
  19. Liquidity
    An entity's cash position, based on assets that can be readily converted to cash.
  20. REIT (Real Estate Investment Trust)
    A form of ownership in which typically smaller investors invest in shares of a trust that accumulates money and invests in real estate through mortgages, equity, or both. REITs can be publicly traded and are highly regulated.
  21. Business Cycle
    Alternating periods of expansion and decline in economic activity.
  22. Harvey's Rule
    Inverted structures - where long rates are below short rates - will precede a recession, as has been the case for every recession of the past 30 years. Named for Campbell R. Harvey of Duke University.
  23. Risk
    The potential for injury or loss. Economic risk involves aspects of both statistical and human risk.
  24. Inflation
    A prolonged and continuous increase of average price levels.
  25. Jawboning
    Using publications and other media to influence expectations.
  26. Discount Window Operations
    An activity of the Federal Reserve Bank wherein member banks borrow money to meet reserve requirements.
  27. Open Market Operations
    Federal Reserve security transactions that have the effect of expanding and contracting the United States money supply and adjusting market interest rates.
  28. Commercial Paper
    An unsecured, interest-bearing or discount obligation of a large, creditworthy corporation issued for periods ranging from 1 to 270 days.
  29. Debenture
    A general term applied to all forms of unsecured, long-term indebtedness.
  30. Bond
    A formal promise to pay a specified sum of money on a specified future date. A bond may be secured or unsecured, but it must be in writing, contain a specified maturity, and specify any interest to be paid.
  31. Deed
    A written instrument that is signed by the owner of real property and conforms to certain formalities specified by state law in order to convey the real property to another person.
  32. Proprietor
    An individual engaged in a for-profit business enterprise.
  33. Partnership
    A business entity involving two or more individuals or business entities that jointly own or operate the business.
  34. Limited Partner
    A partner in a limited partnership whose finanical liability to the partnership is limited to his or her capital contribution.
  35. Subchapter S Corporation
    A form of corporation that is administered for tax purposes in such a way that income is not subject to double taxation. Also called a Sub-S Corporation.
  36. Limited Liability Company
    A statutorily authorized, unincorporated entity that provides corporate-like limited liability for its owners but is managed, in many respects, like a partnership.
  37. Syndication
    An ownership form in which an individual, called a syndicator, identifies or creates an investment opportunity and attracts investors to provide equity for the project.
  38. Trust
    An arrangement whereby legal title to property is transferred by the grantor (or trustor) to a person called a trustee, to be held and managed by that person for the benefit of another, called a benficiary.
  39. Joint Venture
    A form of ownership in which partners bring different attributes to the venture. Typically, the partner who holds the majority ownership is in control of the venture and bears the greater burden of responsibility in its success or failure. Joint ventures are typically formed between institutions and developers for the development of real estate.
  40. Institution
    An investor or lender in real property whose investment is generally of significant size. Included in this category are insurance companies, banks, savings and loan associations, charitable foundations, pension funds, nonprofit universities and colleges, and many other organizations.
  41. Tenancy
    Real estate multiple ownership form that typically occurs among family members.
  42. Algebraic Logic
    A sequentially-based mathematical logic system that assigns levels of power to mathematical operations.
  43. Chaining Logic
    A strict, sequentially-based mathematical logic system in which the operator is assigned prior to entering the numeric value.
  44. Reverse Polish Notation Logic
    A strict, sequentially-based mathematical logic system in which the operator is assigned after entering the numeric value.
  45. Market Value
    The msot probable price as of a specific date, in cash, terms equivalent to cash, or in other precisely revealed terms for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to fair sale. It assumes that the buyer and seller are each acting prudently, knowledgeabley, and for self-interest without duress.
  46. Assessed Value
    Administrative, government-imposed valuations on the value according to the tax rolls in ad valorem taxation.
  47. Utility
    A characteristic of real estate investment indicating that it has the power of an economic good; it fills a human need or provides a desired service.
  48. Highest and Best Use
    The reasonable, probable, and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and results in the highest value.
  49. Gross Lease
    A lease agreement in which the lessee pays a fixed rent and the landlord pays all property-related operating expenses.
  50. Net Lease
    A lease agreemen tin which the lessee pays some or all of the property-related operating expenses.
  51. Percentage Lease
    A lease in which the landlord is fully or partially compensated for rent by a percentage of the tenant's sales.
  52. Ground Lease
    A lease in which a tenant leases a parcel of vacant land and pays for all improvements made on the site.
  53. Break-Even Point
    The point at which a project's cumulative net costs and cumulative net cash flow are equal.
  54. Cash-on-Cash Return
    A ratio derived by dividing the actual income received from an enterprise by the actual cash invested in the enterprise. Also known as teh equity-dividend rate.
  55. Return on Equity
    The net profit after taxes divided by the net worth, which yields the total percentage of equity gained through an investment.
  56. Internal Rate of Return
    A measure of investment performance; the rate of return on capital that is generated or capable of being generated within an investment or portfolio over a period of ownership; similar to the equity yield rate.
  57. Leverage
    The tactic of obtaining a large benefit from small improvements in the major cost centers; also, the use of stocks or borowed funds to obtain returns on an investment.
  58. Appreciation
    An increase in value such as the value of real estate property.
  59. Liability
    The dollar value of everything a company or individual owes, including loans, bonds, future lease payments, and other debt.
  60. Default
    An act or omission that constitutes the failure to meet a promise, discharge an obligation or perform under an agreement with other parties.
  61. Fee Simple Estate
    A freehold estate that provides the most legal rights and powers available. It constitutes the maximum legal ownership with the largest number of rights and privileges recognized by law.
  62. Substitution
    The appraisal principle that states that when several similar or commensurate commodities, goods, or services are available, the one with the lowest price will attract the greatest demand and widest distribution.
  63. Reconciliation
    The process of reviewing and analyzing the different estimates from the approaches to value. Also called correlation.
  64. Income Capitalization
    The process of converting NOI into a value estimate.
  65. Capitalization Rate
    An income rate that reflects an investor's analysis of risk. It is used to convert a single year's net operating income expectancy into a price or value. An investor's cap rate is also considered the desired rate of return. Also called the cap rate.
  66. Building Residual Technique
    An appraisal technique in which an income stream attributable to the land is deducted from the property's net operating income.
  67. Flotation Cost
    A cost associated with obtaining financing.
  68. Debt Service
    The periodic loan payments made by a borrower to a lender. Debt service consists of interest on the debt and, in most cases, repayment of the principal.
  69. Conduit
    An organization that acquires mortgages originated by others for the specific purpose of reselling mortgages in the form or securities.
  70. Debt Service Coverage Ratio
    A measure of the ability of a project to meet its debt service requirement. The debt service coverage ratio is determined by dividing the NOI during any given period of time by the debt service for the same period of time.
  71. Construction Loan
    A loan for the purpose of financing the construction or substatial renovation of buildings and other improvements.
  72. Mortgage
    A legal instrument that grants a lien on real property to secure the performance of an obligatin, usually the payment of debt.
  73. Contract
    A legally enforceable agreement between two or more parties under which each party acquires certain rights from the other parties in the agreement.
  74. Deed of Trust
    A legal instrument, similar to a mortgage, that involves a third party trustee who acts for the benefit of the lender.
  75. Contract for Deed
    A contract similar to a mortgage and a deed of trust, except that the lender of the funds is also the seller of the property.
  76. Mortgage
    A legal instrument that grants a lien on real proeprty to secure the performance of an obligation, usually the payment of debt.
  77. Lien
    A claim upon another's property as security for the satisfaction of a debt or other obligation.
  78. Mortgage Lien
    A type of specific lien in which one particular property is pledged.
  79. Mechanic's Lien
    A lien tha thas been awarded to a party contracted to build or otherwise improve property.
  80. Commercial Mortgage Backed Securities
    A debt obligation backed by a commercial mortgage. CMBS give investors an opportunity to participate in the ownership of typically a pool of commercial mortgages with a proportionate interest in the cash flows created.
  81. Consumer Price Index
    A monthly survey issued by the US Department of Labor's Bureau of Labor Statistics to statistically report the effect of inflation on the purchasing power of the US Dollar.
  82. Income Stream
    The sum of all sources of income from a property.
  83. Contract Rent
    The actual rent agreed upon under the terms of a lease.
  84. Contract Rent
    The actual rent agreed upon under the terms of a lease.
  85. Economic Rent
    The current market rental rate.
  86. CAM (Common Area Maintenance) Charges
    Fees charged directly to tenants by owners for upkeep of common areas.
  87. PPI (Producer Price Index)
    A measurement of price change from the perspective of the seller rather than the buyer.
  88. Percentage Rent
    Rent that is usually based on a percentage of the gross sales or revenue of the tenant.
  89. Kiosk
    A structure used as a permanent, temporary, or seasonal sales booth. Kiosks are generally located in the middle of a mall.
  90. Fixed Expense
    An expense over which a business has little control. Examples include insurance premiums and ad valorem taxes.
  91. Variable Expense
    An expense influenced by occupancy levels and the quality of professional management.
  92. Operating Expenses
    Costs and expenses incurred by a landlord in operating and maintaining a building; they include fixed and variable expenses.
  93. Present Value
    The discounted value of a stream of future cash flows, computed at a specified rate of return.
  94. Inwood Coefficient
    The present worth of an income stream d on a single discount rate.
  95. Discounting
    The calculation of the reduction of future payments to a present value.
  96. Annuity
    A contract for income payable at regular intervals and at specified amounts.
  97. Present Value
    The discounted value of a stream of future cash flows, computed at an expected rate of return.
  98. Internal Rate of Return
    The actual rate of return on a series of cash flows generated by an investment.
  99. Net Present Value
    The difference between the present value of capital outlays and the present value of all future cash flow benefits.
  100. Basis
    The purchase price of an asset to determine annual depreciation or cost recovery, and gain or loss on the sale of the asset.
  101. Goodwill
    A value attributed to the overall business entity because of its location, reputation, and specialized site features.
  102. Diminimus Rule
    Low-dollar items that may qualify for capitalization can be expensed to eliminate the additional record keeping. Also called the materiality test.
  103. Tax-Deferred Exchange
    A transaction in which property is exchanged and the resulting gain is not taxed.
  104. Comparison Grid
    A spreadsheet used to compare similar properties and to make adjustments for differences among those properties for the purpose of estimating value.
  105. General-Use Property
    A property that is readily adaptable to the use of a variety of tenants.
  106. Special-Use Property
    A property that has one highest and best use because of some special design. Two examples are airports and hospitals.
  107. REO (Real Estate Owned) Property
    Property acquired by a lender through a trustee's sale (nonjudicial foreclosure), a judicial foreclosure, or a deed in lieu of foreclosure as a result of a borrower's default under the terms of the note and deed of trust.
  108. Hoteling
    A space-saving method employed by companies with a high number of field staff. Work spaces are very basic and are shared among staff whose in-office time is limited.
  109. Loss Factor
    A percentage, based on common areas shared by tenants, used to calculate the difference between the net (usable) and the gross (billable) square footage.
  110. Absorption Rate
    The rate at which properties for sale or lease can be marketed within any given market area. Studies of absorption rates are used to forecast sales or leasing rates to substantiate a development plan or to justify financing.
  111. Capital Expenditure
    A cost incurred by acqauiring or upgrading an asset that produces revenue. Capital expenditures are expected to produce a return in the form of increased proejct value that appears on a corporate balance sheet. They may include tenant build-out costs, renovation costs, capital repair items, and commissions.
  112. Life Cycle Costing
    The application of systems analysis to compare alternative capital expenditures that are expected to produce benefits over a period of time greater than one year.
  113. Present Value
    The discounted value of a stream of future cash flows, computed at a specified rate of return.
  114. Core Competency
    A unique capability that gives an individual or a business a competitive advantage. What one does well.
  115. Flipping
    The resale of property very soon after purchase.
Card Set
Real Estate Investment & Finance (Vocabulary)
BOMI's Real Estate Investment & Finance Course