Real Estate Glossary I [Part 3]
Property that is being held for the purpose of sale or usage.
A list of items with descriptions. Many real estate agents suggest that their clients add an inventory of the things that will be included in the sale of a house or condo to the sales contract. This makes it less likely that there will be confusion about which items in the seller’s home will be given to the buyer. Of course, an inventory should be part of the sale of a property that brings in money, like a building with furnished apartments, and the agent should check the inventory.
A list of the goods that are in stock and ready to be sold in the normal course of business. Stock-goods sales profits are taxed the same way as other income.
The quantity available of a particular good, or a record of such a thing.
A landowner’s claim to force a government to use eminent domain on the grounds that regulation has essentially seized the whole worth of a property.
A just compensation action launched by a person whose property has been effectively taken, significantly interfered with, or taken without just recompense. For example, if a governmental authority announces that it will condemn an owner’s property but then takes an unreasonable amount of time to take the property, the owner can file a lawsuit to demand a condemnation and payment for the taking. If the noise of low-flying government aircraft interferes with the owner’s use of the land, inverse condemnation, or a taking of property for which compensation must be paid, may occur. Another case in point is when some public works are carried out, causing damage to a private owner, but no condemnation action is taken by a public entity. Inverse condemnations are so-called because they are initiated by an owner seeking compensation from the condemning body, and the payment is for land that was not explicitly condemned.
Courts have ruled that zoning actions that simply reduce the market value of property do not constitute a compensable action on an inverse condemnation theory as long as a reasonably viable economic use exists. Before there has been an actual take or physical interference with the subject property, an inverse condemnation claim is not available.
Inverse condemnation is the inverse of eminent domain and happens when a public institution indirectly “condemns” private property by acting (e.g., through a restricted use rule such as downzoning) or neglecting to act when it should have, resulting in property loss or damage. The taking is accomplished by actions rather than legal action. It makes no difference whether the act or omission to act was negligent.
Putting off present needs in favour of future wants.
Commitment of money or other assets with the hope of gaining financial reward.
Any action that entails incurring considerable current expenditures in exchange for the right to gain future advantages. An investment of money or anything of value in exchange for uncertain income or profit.
Money invested in a property with the expectation of profit, assuming a reasonable degree of safety and ultimate recovery of principal; especially for long-term use rather than speculation.
An asset that a company owns but doesn’t need to run its business. Land and/or buildings that are owned to get rental income now or in the future, keep or increase the value of the property, or both. It isn’t kept to use in making or selling goods or services, for running the business, or for administrative purposes. It’s also not kept to sell in the normal course of business. 21 See also Surplus Asset and Operational Asset.
A contract, transaction, or scheme in which a person invests money in a shared venture and is lead to believe that profits will come purely from the promoter’s or a third party’s efforts.
The sale of real estate through investment contracts is considered the sale of a security, necessitating compliance with federal and state securities regulations.
Investments rated AAA, AA, A, and BBB that are appropriate for regulated institutional investors.
How much interest was paid to buy or keep an investment property. This doesn’t include interest paid on a personal home or an interest from a passive activity. Investment property includes anything that brings in money, like interest, dividends, annuities, or royalties. It also includes any trade or business in which the taxpayer doesn’t participate much, as long as it isn’t considered a passive activity. Investment interest can be deducted up to the amount of income from the investment. Any extra interest from investments is carried over to the next year.
Investment interest limitation
Internal Revenue Code provision that limits the amount of investment interest that may be deducted in a single taxable year on loans used to support investments.
Investment life cycle
The length of time that a property has been owned.
As defined by the Internal Revenue Code, an asset is one that is held primarily for the purpose of obtaining an investment return, particularly capital appreciation, as opposed to one that is held for use in one’s trade or company. Real estate investment opportunities include raw land and built lots.
Property purchased for the purpose of generating current income and capital appreciation.
Rather than a primary dwelling, a piece of property that generates revenue or serves as an investment.
That type of real estate property in which a person would invest in order to earn a profit.
the monthly (or annual) rate of return on an investment generated by rental and/or selling.
The likelihood that future cash flows or nonmonetary expenses and benefits will deviate from projected values.
Investment tax credit
A credit against income taxes generated as a result of investing in eligible assets.
A tax break depending on the cost and useful life of specific assets acquired.
The current value of the stock position and the present value of the debt position added together. The present value of a stock holding is computed after taxes and takes into account the tax repercussions for a given investment.
The worth of a property to a certain investor, depending on his or her personal criteria, discount rate, expectations, and so on.
Value to a particular investor is determined by factors such as the investor’s needs, tax bracket, and financing options.
Investment value of equity
After-tax cash flow and after-tax equity reversion are valued using a discounted cash flow approach.
An investment’s growth in terms of money invested. Usually expressed as a percentage increase or return.
Large, relatively new, and completely leased commercial buildings in major metropolitan centres, often worth more than $10 million, and sought by institutional investors such as pension funds and international investors.
Any individual or company that invests in real estate to utilize in a trade or business or to generate money.
A person or a business that invests in a cash transaction.
Investor note financing
Investor promissory notes are financed.
Those land improvements that are not visible to the naked eye. They are general improvements to the land itself that are difficult to identify and assess because they have merged with the land, for example, cutting and filling, reclamations, timber treatment, and pest and noxious weed eradication.
When a property’s title passes to the state because the owner dies without any heirs, the state takes ownership of the property as a result of a lien foreclosure auction, adverse possession, a bankruptcy petition, or a condemnation under the authority of eminent domain.
A tax word that refers to the loss of property due to demolition or condemnation. A conversion of this type is deemed a “sale” and is taxable unless the revenues of the condemnation award or insurance payments are reinvested in similar property. If a property is condemned and the owner replaces it, the basis in the replacement property is the same as the basis in the condemned property, except that it is increased by any debt assumed above the amount of the condemnation award, and gain is recognised to the extent that the award exceeds the price paid for the replacement property. Section 1033 of the Internal Revenue Code requires that replacement property for commercial or investment property be purchased within two to four years of the end of the tax year in which there was a threat of condemnation, depending on the kind of property.
A statutory lien, such as a real estate tax lien, judgment lien, or mechanic’s lien.
A lien that is imposed on property without the owner’s consent.
Before calculators and computers were common, appraisers often used a set of interest tables to figure out the present value of an annuity for a number of years at different interest rates. One of the many ways Inwood tables can be used is to figure out how much a leasehold interest is worth when the income stream (cash flow) stays the same. They are also called the “Inwood coefficients.”
The idea behind the system is that the present value of an annuity is not the sum of equal annual payments that will be made in the future. The annuity is only worth the amount that, if deposited today at a fixed rate of interest compounded annually, would allow one annual payment to be withdrawn at the end of the year.
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The Investment Property Databank is a database of investment properties.
A deal that can’t be broken by the people who made it.
IRR of the differential
The rate of return calculated by subtracting the cash flows of one investment from those of another.
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that which is irreversible
A contract that can’t be broken or changed. Most state licensing laws require a broker who doesn’t live in the state to sign a document saying that he or she will be bound by the outcome of any lawsuits brought against the broker.
A sprinkler system for the lawn.
Quasi-political districts established under special state statutes to supply water services to district property owners and given the authority to levy fees to fund district operations.
The Internal Revenue Service of the United States of America.
A map made up of lines (isolines) that link locations with the same attribute value.
A party who has given permission for securities to be created and sold to investors.
Taxpayer expenditures mentioned in Internal Revenue Code Sections 161 through 1 95 that can be deducted from adjusted income to arrive at taxable income.
Bank for Islamic Development
The Board of Islamic Financial Services.
A lease is an Islamic finance phrase. A common arrangement used in Islamic real estate finance. Ijara al Sukuk are securitisations that utilise this structure.
In the money
When the price of the underlying instrument is above the striking or exercise price for a call option and below the strike price for a put option, the option is said to be in the money. The more an option is in the money, the higher its price. When options are anticipated to expire in the money, they are said to be “deep in the money.”
In the pool
A loan tranche that is included in the pool of loans to be securitized.
Independent commission on banking
The UK Government created a commission in June 2010 to investigate structural and non-structural reforms to the UK banking sector in order to foster stability and competitiveness.
A critical component of SPEs. This is a member of the borrowing or issuing entity’s board of directors, where a vote is necessary for certain significant acts of the entity, such as declaring bankruptcy. This takes authority of the entity away from related principals.
Indirect property fund
A fund that only invests in indirect real estate.
Indirect property investment
Shares or units in a corporation or partnership that has legal and/or beneficial title to real estate, such as REITs and PUTs.
The return on an investment is computed by dividing the current income by the investment’s acquisition price.
Inability to pay debts when they become due. Although not specifically defined in the Insolvency Act of 1986, a company is deemed unable to pay its debts if: I a statutory demand has been served on it and not paid on time, (ii) it has failed to pay a judgement debt, (iii) the court is satisfied that it is unable to pay its debts as they fall due (the cash-flow test), or (iv) the court is satisfied that the value of its assets is less than the amount of (the balance sheet test). If a firm is unable to pay its debts, a creditor may petition the court for compulsory liquidation.
The amount of capital that an insurer is willing and/or able to devote to a particular risk or class of risks, given its capital structure.
An agreement that oversees the relationship between senior and junior loan holders. While this is expressed as an agreement, it is normally implemented as a deed.
Interest cover ratio (ICR)
A ratio used to estimate the ease with which a Borrower or Securitisation Issuer can pay interest on a Loan or category of Securities. Typically determined by dividing the amount of income a Borrower or Issuer earns by the amount of interest the Borrower or Issuer is obligated to pay in a given month.
Interest only strip (IO Strip)
If the interest rate on the underlying loans is higher than the interest rate on the issued securities backed by the same, the surplus is withdrawn and added as a new class, the IO strip. Typically sold for a small percentage of the total security price, these can be quite volatile. For example, if there is a substantial amount of pre-payment, the interest stream to pay the IO strip may be removed, reducing the IO strip’s life span.
Interest paid versus interest impacted
This provision in the CMBS structure specifies how and when losses are allocated, such as before or after principal payment. This has a significant impact on the yield on the most junior notes.
Interest payment date
The day on which the loan’s interest is paid. IPD is a common abbreviation.
The time interval between two Interest Payment Dates. Interest accrues on a Loan during an Interest Period and is paid on the Interest Payment Day that falls at the end of the Interest Period.
Interest payments and other non-principal receipts, such as finance charges, are collected from underlying debt instruments.
Interest rate hedge
A Derivative that shields the Protection Purchaser from Interest Rate Risk. Generally, the Protection Buyer will pay the Protection Seller interest at a fixed rate, while the Protection Seller will pay the Protection Buyer interest at a variable rate.
The difference between the total amount of interest payments received from borrowers and the total amount of interest accrued on the certificates.
A Basel II credit risk calculation approach that allows banks to employ internal methodologies and procedures to predict, assess, and regulate risk rather than relying on external assessments.
Internal credit enhancement
Mechanisms built into the securitisation structure that aim to improve the credit quality of senior classes of securities, most typically by channelling asset cash flow in ways that protect those senior classes against deficits.
Internal rating based approach
The Basel Accords established this as a unified framework for translating a particular set of risk components or inputs into minimum capital needs. The framework supports both fundamental and advanced approaches. Banks assess the chance of default associated with each borrower in the foundation method, while bank supervisors provide other inputs. A bank with a sufficiently developed internal capital allocation procedure is permitted to contribute other necessary inputs under the advanced approach.
The person or entity in charge of managing a portfolio of assets on behalf of the Portfolio’s owner. An Investment Manager is usually in charge of actively managing the Portfolio and making investment decisions. In the context of a real estate portfolio, this may also include performing the duty of Property Manager. Also see Asset Management.
The time that begins on the initial closure date of a private equity fund (when capital contributions are initially accepted) and lasts for the period (usually two to three years) agreed upon with the firm’s investors (often with some provisions for transactions in process at the end of the period).
Investment property databank
A source of performance data and analysis to real estate owners, investors, and managers.
Mortgage loan prepayment due to default.
The Forum for Investing in Real Estate.
Internal Rate of Return; used in capital budgeting to quantify or compare profitability. It is the discount rate that equalises the net present value of all cashflows from a single project.
Former Federal Reserve chairman Alan Greenspan invented the term to characterise unsustainable investor exuberance that drives asset values to heights that are not justified by fundamentals.
International Swaps and Derivatives Association, the primary organisation that promulgates industry-standard Swaps and Derivatives paperwork, is a global trade group for privately negotiated derivatives.
ISDA master agreement
A Derivative transaction umbrella agreement that is updated and supplemented by a Schedule.
Issue credit rating
A rating agency’s assessment of an obligor’s creditworthiness in relation to a specific financial obligation, a specific class of financial obligations, or a specific financial programme (including MTN programmes and CP programs). The creditworthiness of guarantors, insurers, the currency of the obligation, and other kinds of credit enhancement are all relevant elements in determining the issue credit rating.
Issuer collection account
The servicer deposits payments from the borrower into an account opened in the Issuer’s name at the Issuer’s cash management bank.
Issuer credit rating (ICR)
An obligor’s overall financial capacity to pay its financial obligations as determined by a rating agency. This is essentially a creditworthiness assessment. An ICR assesses the obligor’s general ability and desire to meet its financial obligations when they become due. This does not apply to any specific financial commitments, unlike the issue credit rating.
A letter of credit issued by a bank.
Istisna’ –ijara structure
A construction-lease financing structure is an Islamic finance phrase.
A building contract is an Islamic finance word. One of the 14 admissible sukuk categories specified by the AAOIFI.