TERMINOLOGY

COMMERCIAL TERMINOLOGY

Alligator - Property with negative income.

Annual Property Operating Data (APOD) – Analysis of the income and expenses of an investment property.

Appreciation - Amount of increase in value of a property over a period of time.

Backup Package – Collection of information on a property to be presented by owner or agent at Marketing Session.

Blanket Mortgage - A mortgage with liens against all or a specified amount of assets of a borrower.

Capitalization Rate – Rate of return on investment. Calculated by dividing the net operating income by the investment value.

Capitalized Value – Method of valuing a property by dividing the net operating income by an arbitrary (preferably market) capitalization rate.

Capital Gains – Income over and above the tax basis generated from the sales of an investment property.

Carryback – Not the Derby winner, but amount of purchase price seller is willing to finance.

Cash Flow – Discretionary funds remaining on an investment after all expenses and mortgages have been paid.

Crank – The amount of loan potential on a piece of real estate, or other mortgageable asset.

Creative Financing – Methods of financing assets when normal banking channels are not available or not competitive.

Dealer - A term used by the Internal Revenue Service to distinguish between an investor who gets long term investment tax breaks and one who makes a living dealing in properties.

Debt Coverage Ratio – The comparison of debt service to cash flow for a designated payment period. Frequently used by banks in analysis for a loan commitment.

Debt Service – Amount of periodic payments necessary to retire the mortgage(s) on an investment.

Depreciation – Decrease in value in property over time. There are two major kinds of depreciation. The most common is the tax depreciation which is not necessarily a reduction in value of property but tax write off. The other, which is actual, may be through obsolescence, economic conditions, or age and maintenance.

Equity - True value of asset less any encumbrances.

Gross Operating Income (GOI) – Income generated fro an investment property after vacancies but before deduction expenses.

Gross Rent Multiplier – Rate of return. Calculated by dividing the gross rent by the value of the investment.

Haver - Broker/agent that has a property for sale, exchange, or lease.

Hypothecate - Pledging of assets for the security of loans.

Internal Rate of Return (IRR) – A rate of return calculated on a time value of money basis.

Legs - Number of properties/investors within a transaction. Example a straight exchange between two individuals is a two-legged exchange.

Marketing Session – The gathering of real estate brokers/agents for the purpose of marketing properties and ideas.

Mini-Offer – The offering of your idea to make a deal presented to another broker/agent.

Moderate/Moderator - Individual who leads the presentation of a transaction at a marketing session.

Net Operating Income (NOI) – Income generated from an investment property after all expenses have been paid.

Paper - A note and mortgage either created by you or from another entity.

Problem Properties – Properties with problems that may or may not be related to the property. For example, ownership, partnership, negative cash flow, mortgage, and etc.

Profit - Dollars or other equity received above cost of investment at time of sale. Something we all strive for but some politicians think is shameful.

Sale/Leaseback – Method of selling your property but retaining possession through a leases to the new purchaser.

Scheduled Income – Income generated from an investment property before deductions for vacancies and expenses.

Section 1031 – Section of the Internal Revenue Code relating to tax deferred exchanges.

Soft Paper – A mortgage with attractive terms to borrower.

Syndicate - Putting together a group of individuals to purchase a property.

Taker - An investor willing to acquire a property on some terms and conditions.

Tax Basis – An accumulation of purchase price, capitalized additions, less total depreciation. Used in estimating basis for tax purposes.

Tax Deferred Exchange – Method of disposing one investment property and acquiring another investment property without paying capital gains taxes.

Third Party Influences – When a seller takes advice from another party not involved in the ownership of the property.

Vehicle - an abstract term meaning the using of a property, note and mortgage, etc. to move through one deal to obtain a desired result.

Wrap Around Mortgage – Extending a mortgage on a property that has a lesser first/or more mortgage(s) existing that will stay in place. Generally, the borrower pays one mortgage payment to the holder of the wrap mortgage and he pays the underlying mortgage payment(s).

“Don’t pay taxes….exchange!”