Assignment 5 (Chapter 8) Flashcards
General Partnership
A partnership in which all partners share in both the management and the liabilities of the business. Each partner is jointly and severally liable for the debts of the partnership.
Joint and Several Liability
In a general partnership, each partner can be held responsible for the full amount of the partnership’s debts, not just their individual share.
Gross Lease
A lease agreement where the tenant pays a fixed amount of rent and the landlord covers all property expenses, such as maintenance, insurance, and taxes.
Net Lease
A lease where the tenant pays a base rent plus a portion of the property’s operating expenses, such as taxes, insurance, and maintenance.
Real Estate Investment Trust (REIT)
A company that owns, operates, or finances income-producing real estate, allowing investors to pool their capital to buy shares in a portfolio of properties.
Equity REIT
A type of REIT that owns and operates income-generating real estate, deriving revenue primarily from rental income.
Leasehold Estate
An interest in real property that grants the lessee (tenant) the right to use and occupy the property for a specific period, as stipulated in the lease agreement.
Freehold Estate
An estate in land in which ownership is for an indefinite period, and the owner has full control over the property, subject to any restrictions or liens.
Capitalization Rate
The rate of return on a real estate investment property based on the income that the property is expected to generate. It is calculated by dividing the net operating income by the property value.
Net Operating Income (NOI)
The total income from a property after operating expenses have been deducted, excluding taxes and financing costs.
Capital Cost Allowance (CCA)
The deduction that Canadian taxpayers can claim for the depreciation of property. CCA is used to calculate the taxable income from business or property.
Undepreciated Capital Cost (UCC)
The remaining value of an asset after accounting for depreciation. It is the original cost minus the accumulated CCA.
Debt Service Coverage Ratio (DSCR)
A financial metric used to assess a property’s ability to generate enough income to cover its debt obligations. It is calculated by dividing the net operating income by the total debt service.
Loan-to-Value Ratio (LTV)
A ratio that compares the amount of a loan to the appraised value of the property securing the loan. It is used by lenders to assess the risk of a loan.
Gross Rent Multiplier (GRM)
A metric used to evaluate the value of an income-producing property by dividing the property’s sale price by its gross rental income.
Cash-on-Cash Return
A measure of the annual return on investment, calculated as the annual pre-tax cash flow divided by the total cash invested.
Discounted Cash Flow (DCF)
A valuation method used to estimate the value of an investment based on its expected future cash flows, which are discounted back to their present value.
Internal Rate of Return (IRR)
A metric used to evaluate the profitability of an investment, representing the discount rate that makes the net present value of all cash flows equal to zero.
Straight Line Depreciation
A method of depreciating an asset where the same amount of depreciation is deducted each year over the asset’s useful life.
Matching Principle
The accounting principle that requires expenses to be matched with revenues in the period in which they are incurred to produce the revenues.
Real Property
Land and anything permanently attached to it, such as buildings and structures. Real property is immovable.
Personal Property
Any movable property that is not permanently attached to land or buildings, such as vehicles, furniture, and equipment.
Amortization
The process of gradually paying off a debt over a period of time through regular payments that cover both principal and interest.
Balloon Payment
A large payment due at the end of a loan term, representing the remaining balance of the loan that was not amortized over the loan period.
Easement
A non-possessory right to use or enter someone else’s land for a specific purpose, such as utilities or access. Easements can affect property value and use.
Encroachment
An intrusion onto another person’s property, such as a fence or building that extends beyond the property line. Encroachments can lead to legal disputes and affect property rights.
Zoning Bylaws
Local regulations that dictate how properties in specific geographic zones can be used. Zoning bylaws control land use, building height, density, and other aspects of property development.
Building Codes
Standards and regulations set by local governments to ensure the safety, health, and welfare of the occupants of buildings. Building codes cover aspects such as construction materials, design, and electrical systems.
Gross Income Multiplier (GIM)
A ratio used to appraise the value of an income-producing property, calculated by dividing the property’s sale price by its gross annual income.
Operating Expense Ratio (OER)
A measure of the efficiency of a property in generating income, calculated by dividing operating expenses by effective gross income.
Real Estate Syndication
A partnership or pooling of funds by multiple investors to invest in real estate projects. Syndications allow investors to share the risks and rewards of real estate investments.
Limited Partnership
A partnership consisting of one or more general partners who manage the business and are personally liable for its debts, and one or more limited partners who contribute capital and share profits but have limited liability.
Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that can change periodically based on a specified index, leading to changes in the monthly payment amount.
Fixed-Rate Mortgage
A mortgage with an interest rate that remains constant for the entire term of the loan, resulting in stable monthly payments.
Property Management Agreement
A contract between a property owner and a property management company outlining the responsibilities and duties of the manager, including rent collection, maintenance, and tenant relations.
Leasing Agreement
A contract between a landlord and a tenant that specifies the terms and conditions of the rental arrangement, including rent amount, lease term, and responsibilities of both parties.
Accumulated Depreciation
A contra-asset account that represents the total depreciation taken on an asset since it was placed into service. It is subtracted from the asset’s cost to get its book value.
Contra-Asset Account
An account that is used to reduce the value of a related account. Accumulated depreciation is a contra-asset account that reduces the value of property, plant, and equipment on the balance sheet.
Lease Option
An agreement in which a tenant has the option to purchase the leased property at a predetermined price within a specified period. This provides flexibility for both the tenant and the landlord.
Lease Assignment
The transfer of a lease from one tenant to another, where the new tenant takes over the rights and responsibilities of the original tenant under the lease agreement.
