A map that shows legal boundaries and ownership of real property and is used in conjunction with title registration. A cadastral programme is a comprehensive inventory of land in a given region, organized by ownership, description, and valuation for tax purposes.
A land information system based on parcels.
A 3-4 foot deep hole dug into the soil and embedded in bedrock.
A structure’s foundation.
When describing or “running” a boundary, a reference to a course, distance, or monument is made in the surveying or platting of a parcel of land.
A provision in a mortgage or trust deed that allows the mortgagee or beneficiary to pay off the mortgage obligation in full on a certain date or upon the occurrence of specified events.
The capacity of the borrower to redeem or call in a bond.
The chance to purchase real estate. (A put option is a sell option.)
A clause in a mortgage deed that allows the lender to accelerate the debt if a particular event occurs prior to the initial maturity date.
A mortgage delinquency report.
Shopping centre charges that aren’t included in the base rent. These charges pay for things like hallways, parking lots, security and advertising.
The most that a tenant has to pay for its share of the costs of maintaining a common area. Any CAM costs that are more than that amount are paid for by the owner.
A federal regulation passed in 2003 that establishes national rules for commercial e-mails. It applies to any firm that uses e-mail in its marketing activities. CAN-SPAM demands that the subject line clearly and accurately describe the message’s content. The “to” and “from” information must be valid, and customers must be able to “opt out” of receiving future communications. Additionally,
Lease provision that provides the tenant or owner the right, but not the responsibility, to terminate the lease before it expires.
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A clause in a contract that gives the party the right to cancel the contract if a certain event occurs.
- A provision that may be incorporated in a commercial or industrial lease allowing the lessor or lessee the right to terminate the lease term upon the occurrence of specific defined events or occurrences by the payment of definite amounts of money as consideration from one party to the other. Such payment often covers the party whose rights are being canceled’s expenses or losses, such as unamortized costs of special upgrades, brokerage fees, and potential rental loss before the property is re-rented.
The consideration fee given to the landlord, as well as any unamortized cost of upgrades, are deductible income tax expenses in the year the tenant cancels.
If the landlord terminates the lease, the cancellation fee paid to the tenant is considered a capital expenditure by the landlord and is amortized over the remaining lease period. The tenant’s cancellation payment is similar to a sale, and if the lease is for non-depreciable land, it is a capital asset, and the tenant is allowed to report the cancellation fee as a capital gain in the year of receipt.
A clause in a residential lease that allows the landlord to cancel the lease if the fee simple property is sold; otherwise, the new owner must assume title pursuant to the lease.
A provision that makes a sales contract only valid if a previous deal is canceled. Before accepting a “backup offer,” the seller should include a language stating that acceptance is contingent on the earlier accepted contract being written canceled.
A corner is cut off by an angled line or surface.
A projecting beam or overhanging section of a structure that is solely supported on one end, such as a bay window or balcony.
When one floor extends beyond and over a foundation wall, it is called an overhang.
Material used in soils with extremely large pores.
A maximum or restriction on the modifications made to an adjustable-rate loan’s payments, interest rate, or principal.
A column, pilaster, door cornice, molding, or fireplace’s top part.
A weather in the shape of a L that repels water. Waterproofing material was put behind the base flashing to keep water out.
The legal power of individuals or organizations to form a binding contract. A person with full, limited, or no contracting capacity will engage into a contract.
Full contracting capacity: A person’s unrestricted power to enter into legally enforceable contracts. Most people, even illiterates, have full contracting capacity and are referred to be competent parties.
Limited capacity to contract: A person’s ability to engage into a contract that is legally binding on that person only under particular conditions. Minors, for example, have restricted contracting ability, which implies that a minor’s contract is valid only if the minor does not disaffirm a contract formed during while in minority or shortly after achieving majority. Minors’ contracts to obtain such requirements.
No contracting capacity: A person’s incapacity to engage into a legitimate contract under any conditions. Such incapacity can occur when a person has been declared mad or when an executive of a corporation is not permitted to sign a contract on its behalf. Incapacity would also encompass activities of a company that go beyond the authorities granted in the articles of formation.
Amounts of money or property invested in an asset with the purpose of generating wealth; conversely, the excess of production over consumption.
That money and/or property that constitutes the wealth possessed or utilized by a person or business operation; a person’s or firm’s acquired riches
This is the loan’s original amount less the interest charge.
A regulated institution (such as a bank or building society) is required to maintain a particular minimum amount of capital in proportion to its risk profile. These regulated businesses may be able to achieve the capital adequacy requirement by securitizing their assets and removing them from their balance sheet without recourse, obviating the need to retain capital for the securitized assets.
This is a sort of loan in which the borrower repays a certain amount of money on a monthly basis until the loan is fully paid off, plus interest.
Except for those specifically enumerated by the Commissioner of Internal Revenue, all assets held by a taxpayer (whether or not related to the person’s trade or business). Assets that are fixed or permanent in nature, or those used in the operation of a business or trade.
Except for property held principally for sale to consumers in the ordinary course of one’s trade or company by a taxpayer. Capital assets include the taxpayer’s own dwelling, land held for investment, stocks, securities, and company machinery or equipment.
An upgrade to a property that will persist longer than a repair. Rather than being expensed, this item is added to the property’s base.
An outlay of finances that extends the usable life of a capital asset or increases its value.
The cost of a capital enhancement that increases the asset’s life. A capital investment on depreciable property must normally be amortized throughout the life of the property or that portion of the property to which the improvement pertains. Repairs and expenses are not presently tax deductible.
Expenditures for replacements and changes to a structure (or improvement) that considerably extend its life and worth.
There are some improvements to a property that can’t be written off as an operating expense right now. A new roof, tenant improvements, or a parking lot are all examples of things that can be added to the property’s basis and then depreciated over the holding period. This is different from cash outflows for expenses like new paint or plumbing repairs, which can be written off in the year they happen (operating expenses).
Raising loan or equity capital for real estate initiatives.
When an asset is sold, the capital gain is realized.
the profit between your purchase and sale prices, which is now liable to capital gains tax.
The amount of money that comes from the sale of a piece of property that is more than what the buyer paid for it.
The taxable gain on the sale of a capital asset. The capital gain is the difference between the sales price and the property’s basis, after accounting for closing expenses, capital improvements, and permitted depreciation.
A capital gain is deemed long-term if the asset has been owned for more than 12 months and short-term if the asset has been owned for 12 months or less. Short-term profits are taxed like regular income, but long-term gains are taxed at rates ranging from 5% to 28%.
With all of the recent changes to the tax law, it is critical to understand how sales are taxed. This is determined by other sources of income, the length of time the asset has been held, and the type of asset. Keeping records is critical.
The revenue or profits obtained from the sale of real estate are taxed at a lower rate than earned income.
This is the profit a seller makes on a sold asset.
When you sell a capital asset, you get taxable income. It is the sales price minus the cost of sale, adjusted basis, suspended losses, excess cost recovery, and recapture of straight-line cost recovery.
The tax rate applied to the part of the taxable gain on sale that is related to an increase in the property’s market value.
For properties owned for at least one year, there is a tax on net capital gains, which is now half the amount of income tax.
50% off the CGT due, as long as you’ve owned the property for at least a year (and provided various other conditions have been met).
Products that are intended to be used in the creation of other goods or services.
The growth in an asset’s worth over time.
The amount of money that a property may reasonably be expected to bring in if it were sold at the time of a municipal valuation.
Any building created as a permanent improvement to real property; any improvement done to increase the usable life of a property or its value. A roof replacement, for example, is considered a capital improvement, whereas screen door maintenance is not. Other common capital upgrades include a new boiler, a paved driveway, landscaping, and major renovation.
An object that adds to the value of a home.
A loss incurred as a result of the selling of a capital asset.
A loss incurred as a result of the disposal of a capital asset, securities (such as stocks), or bonds. If the taxpayers’ capital losses exceed their capital gains, the excess can be used to offset taxable income such as wages, up to a $3,000 yearly maximum, or $1,500 if married filing separately. If their net capital loss exceeds their yearly limit, the excess can be carried over to the following taxable year until the loss is entirely deducted.
Capital losses on the sale of a taxpayer’s own dwelling are not recognized.
The financial sector of the economy is responsible for allocating financial resources among consumers and businesses in need of financing.
How much money is available and how much people want to spend on real estate and other investments.
The fraction of an overall capitalization rate that is made up of the owner’s capital investment being recovered.
The difference between the value at the start of the measurement period and the value at the end of the measurement period.
The risk connected with the investor’s funding arrangement. Increased utilization of mortgage debt (financial leverage) in particular raises the riskiness of the equity investor’s return.
Any tax on a change in the value of capital. This includes taxes on capital gains, estates, and inheritances. This is different from a tax on income.
The capital sum that a property might be expected to realize in normal circumstances if offered for sale on reasonable terms and conditions at the time of valuation. Also see Income Return, Capital Return, and Total Return.
The valuation method in which a yield is applied to an income to determine its market value. Also known as income capitalisation. Also see Capitalisation Rate.
The process of figuring out how much a business is worth by discounting its stable net operating income at the right rate.
The process of converting a revenue stream into a property value.
A mathematical technique for translating net income into a value indicator, as utilized in the income approach to valuation. The mentioned value is calculated by dividing the property’s net revenue by an acceptable (capitalization) rate of return.
The par value of a corporation’s shares plus the face value of existing bonds and loans.
The proportion chosen for use in the income method to improving property valuation. The CAP rate is intended to reflect the recapture of the initial investment during the economic life of the improvement in order to offer investors with an appropriate rate of return (yield) on their original investments as well as the return of the invested equity. In other words, if the property includes a depreciating building, the CAP rate provides for the return of invested capital in the building by the end of the economic life (the recapture rate that allows for future depreciation of the building) as well as the return on the investment in the land and the building (similar to yield).
For instance, if a building has a 50-year economic life, the annual recapture rate is set at 2%. If the investment rate of return is 8% and the recapture rate is 2%, the overall capitalization rate for the building is 10%.
The conditions under which the particular investment is operated, as well as the availability of capital, current interest rates, and risk, all determine the optimal CAP rate. If the property makes $100,000 per year and the cap rate is 9%, the following formula is used to determine how much the property is worth to the investor: $1, 111, 111 = $100,000 + 0.09. Only an expert appraiser can choose the right CAP rate; a 1% discrepancy in the proposed CAP rate can result in a value estimate variance of 122%.
The capitalization rate (CAP rate) is a measurement of an investment’s risk; the higher the risk, the higher the CAP rate; the lower the risk, the lower the CAP rate.
Divide net operating income by the expected value or resale price to get the current rate of return.
A gauge of a property’s value based on current rent, as well as an indicator of investor expectations. It’s computed by dividing the year’s net operating income (NOi) by the property’s valuation.
The link between a real estate investment’s net income and its monetary value. This correlation is often stated as a percentage.
The percentage derived by dividing the revenue generated by a property (or a defined stake in a property) by the property’s value or sale price ( or the specified interest in the property). (See also total capitalization rate.)
The percentage rate at which a future flow of money is transformed into a present-value amount.
This is a portion of the investment that the investor will get each year from the property’s net income.
A percentage that shows how much money a property that makes money will make in the future. It is calculated by dividing the net operating income by the purchase price. Also called the “cap rate.”
To increase a property’s tax base by a certain amount.
To supply money; to finance.
An accounting technique in which a firm reports a cost as a capital asset rather than charging it to the year’s expenses. This is often done with capital expenditures, such as a new roof.
Mortgages are a sort of variable rate loan, but they have an interest rate cap above which payments cannot increase.
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A project’s ability to attract a percentage of total demand within a specific market sector. It is also known as the penetration rate.
A slang word for a group inspection tour of listed homes by a broker’s sales personnel in various regions of the nation.
A roofed structure with at least one side exposed to the elements. A carport is often constructed by extending the roof of a home to one side and is primarily intended or used for motor vehicles. This phrase is typically associated with little one- and two-family homes. A garage in a multifamily property may have one or more sides open to the elements.
The excess cash flow generated by a fund that will be dispersed to limited partner investors and the general partner sponsor in accordance with the conditions of the offering memorandum and limited partnership agreement. For example, a fund may agree to distribute 80 percent of the remaining cash flows to investors while keeping 20%. The carried interest of the investor is referred to as 80%, while the carried interest of the fund sponsor is referred to as 20%.
A kind of financing in which the seller accepts a note for a portion of the purchase price, which is secured by a junior mortgage (a second or third mortgage), wraparound mortgage, or contract for deed.
It’s a tool that banks use to assess borrowers for mortgages.
The maximum level of growth density or usage that an environment may tolerate without experiencing unwanted or permanent damage.
The ongoing expenditures of property maintenance, such as taxes, insurance, utilities, and interest. These expenses are frequently split between the buyer and seller during the closing of a real estate transaction.
Property ownership costs accrued up to the time the property is developed. Typical carrying charges include a developer’s fees for paying property taxes and interest on land purchase and construction loans while the property is under construction. Also known as “front money.”
If a developer has a pending development and little or no revenue to absorb tax deductions, the developer should capitalize the carrying expenses. If the land is unimproved or unprofitable, the developer can capitalise yearly truces, mortgage interest, and other genuine carrying charges over a ten-year period. The decision to capitalize is made each year when filing a tax return. The developer must deduct the expenditures when the project is done.
Those expenses incurred as a result of owning a property.
Refers to commercial loans in which the lender “carves out” certain personal responsibilities in a nonrecourse loan. Rather than providing the borrower with a blanket exemption from personal culpability, the lender makes an exception for defaults caused by environmental issues, fraud, misapplication of money, bankruptcy, or enabling an uncontested involuntary bankruptcy filing.
The Case-Shiller Index, developed by Fiserv and released monthly by Standard & Poor’s, contains numerous evaluations of the average change in house values in 20 separate and two composite retail markets. It is calculated using data from single-family house repeat sales. Transactions are examined to rule out potential distorting variables such as non-arm’s-length (no family members) sales, significant improvements to the property, when the property type has been altered, and suspected incorrect data. Known as the S&P/Case-Shiller Home Price Indices.
These are windows that open outwards to the left or right and are hinged on the side.
Part of a window sash that is enclosed.
When cash is received, revenue is recognized, and when cash is paid out, expenses are recognized.
A change made to a similar property sale that was funded in a way that was not typical of the market. The adjusted sales price should be the amount that would have been paid if conventional financing had been employed. A transaction with the seller carrying back a no-interest loan, for example, would be adjusted lower using cash equivalency rules.
After service and operating costs have been subtracted, the surplus revenue pouring into a property investment or business is frequently charted monthly.
Spendable income from an investment after subtracting all operational and fixed expenditures, including principle and interest, from gross income. The amount of cash obtained from the operation of an income-producing property during a specific time period after debt service and operational expenditures, but before depreciation and income taxes." “Net true after-true” "An allowance for income tax related to income is included in cash flow, or cash available for distribution. Cash throw-off is another term for pre-tax cash flow.
Cash flow is not the same as “net profit.” To calculate net profit, the owner deducts depreciation but does not subtract loan amortization.
The actual shelter offered during ownership and the expected growth in the property value that may be obtained upon sale are two advantages of investing in renovated, income-producing real estate. As a result, even if monthly cash flow is negative, an investment might be lucrative. Real estate tax shelters were severely reduced in the 1986 Tax Reform Act.
The discrepancy between the income generated by the property and the expenses incurred. The owner’s net spendable income is represented by this cash flow.
After running expenses and debt, the residual income generated by an investment property.
The net cash received in a given period, taking into account net operating income, debt service, capital expenses, loan proceeds, sales revenue, and any other sources and uses of cash.
For properties, real estate taxable income is found by taking the net operating income, minus the interest on the mortgage and construction loan, minus the cost recovery for improvements and personal property, and minus the amortization of loan points and leasing commissions. Next, multiply the real estate’s taxable income by the marginal tax rate to get the amount of tax owed (savings). Then, the annual debt service is taken away from the net operating income to get the cash flow before taxes (CFBT). Lastly, the cash flow after taxes (CFAT) is calculated by taking the cash flow before taxes (CFBT), subtracting the tax liability (savings), and adding the investment tax credit. The Cash Flow Analysis Worksheet can be used to figure out a property’s gross operating income, net operating income, real estate taxable income and tax liability or (savings), CFBT, and CFAT.
Net operating income
- Cost recovery
- Amortization of loan points
Real Estate taxable income × Investor’s marginal tax rate
Tax liability (savings)
Net operating income
- Annual debt service - Cash flow before taxes
- Tax liability (savings) - Cash flow after taxes
The examination of income and expenditures from the start of a project to its completion, usually on a year-by-year basis.
For a property, it is the result of figuring out the effective rental income, plus any other income that isn’t affected by vacancies, minus the total operating costs, minus the annual debt service, funded reserves, leasing commissions, and capital additions.
The Annual Property Operating Data form can be used to figure out a property’s net operating income, cash flow before taxes, gross operating income, and total operating costs.
The structure that is used to figure out the cash flow from operations and the cash from sales.
A yearly financial report that shows the net profit after taxes. A cash-flow analysis is frequently prepared by the property management so that the property owner may assess the return on investment in the property.
The sequence in which the available cash flow is distributed to investors or holders of various classes of issued securities after all expenditures have been paid.
Accounting technique for reporting revenue in the taxable year in which it is actually or constructively received, as well as reporting costs when they are really paid out. Income is constructively received when it is credited, set aside, or otherwise made accessible to the taxpayer without significant constraints or restrictions, allowing the taxpayer to receive it on request. The cash approach is also known as the receipts and disbursements method. It differs from the accrual approach of accounting. For real estate brokerage firms and other service enterprises, the cash basis is the standard way.
The sales price minus the costs of selling, the balance on the mortgage, and the taxes owed on the sale. Also called after-tax sales proceeds.
Is the minimum percentage of total customer deposits that commercial banks must retain as reserves with the central bank.
Before-tax cash flow divided by capital invested in the property; a means of determining how effectively money invested in the property is utilized.
A measure of return that is found by dividing cash flow before taxes by the initial amount of equity invested.
The estimated after-tax cash flow in the first year divided by the initial cash expenditure necessary to buy the investment.
An investment’s rate of return. Divide the cash flow by the down payment to arrive at this figure.
The net cash flow obtained from the property divided by the equity invested in the property yields a measure of the short-term return on property investment.
An indication in a listing that the seller prefers to get the full sales price in cash rather than accepting less by refinancing a purchase-money mortgage or selling under a contract for deed. In other words, carryback financing is not permitted. It might refer to a “cash to mortgage” transaction in which the buyer pays the seller’s equity in cash while assuming or taking subject to the existing mortgage.
A mortgage loan obtained to refinance an existing mortgage loan when the new loan’s size exceeds (by more than 1% ) the amount needed to satisfy the previous loan’s payments, closing expenses, and any outstanding subordinate mortgage loans. The borrower is free to utilize the extra funds as they see fit.
A bill of exchange (check) drawn by a bank on itself as drawer (typically signed by its cashier) and payable on demand, similar to a promissory note executed by the bank. A cashier’s check (or a certified check) is favoured above a regular personal check for closing a deal, and it (or a certified check) is frequently required of the property buyer under the contract conditions.
A cashier’s check, on the other hand, is still susceptible to the maker’s stop-payment order. Only if the maker gets bank certification, not when the payee has the maker’s check certified in the maker’s bank, is the certified check subject to a stop-payment order.
Are commonly used to decorate as well as trim around doors and windows.
After a preferred interest has been given, this type of promoted interest is used to achieve a certain return split between GP and LPs.
A small footing on a bridge or along a massive building’s girder. A catwalk can also be defined as a walkway strung from one girder to another or built over exposed attic joists.
A flexible putty-like material used to seal gaps at permanent connections on a structure to limit air and moisture passage, such as when making building windows waterproof.
Sealant is a term for the techniques and materials used to seal joints or seams in various buildings and some forms of pipes.
Facts or situations that give birth to the right to sue.
Real Estate Glossary C [Part 2]