Chapter 13: Basic Real Estate Investment Flashcards
after-tax cash flow
Money left after income taxes have been paid.
The amount of cash remaining after the owner has reported all income from the property less appropriate tax deductions and any taxes due.
anticipated revenue
A synonym for potential or projected or scheduled gross income used when developing an operating statement
appreciation
opposite of depreciation;
An increase in the worth or value of a property due to economic or related causes, which may prove to be either temporary or permanent
before-tax cash flow
The money left after debt service has been subtracted from the net operating income and before income tax is paid; also called cash throwoff or cash flow after debt service
cash flow
The net spendable income from an investment, determined by deducting all operating and fixed expenses from the gross income. When expenses exceed income, a negative cash flow results
cash-on-cash rate of return
Derived by dividing the before-tax cash flow by the owner’s cash investment; equity dividend rate
cash throwoff
The money left after debt service has been subtracted from the net operating income and before income tax is paid; also called before-tax cash flow or cash flow after debt service
corporation
An entity or organization, created by operation of law, whose rights of doing business are essentially the same as those of an individual. Can own and sell real estate in its own name. Ownership in the corporation is achieved through the purchase of stock certificates. The entity has continuous existence until it is dissolved according to legal procedures.
effective gross income (EGI)
The anticipated income from a rental property resulting from potential gross income minus an allowance for vacancy and bad debts
equity buildup
That portion of the loan payment directed toward the principal rather than the interest, plus any gain in the property value due to appreciation
equity dividend rate
Derived by dividing the before-tax cash flow by the owner’s cash investment; cash-on-cash rate of return
general partnership
A typical form of joint venture in which each general partner shares in the administration, profits, and losses of the operation
inflation
The gradual reduction of the purchasing power of the dollar, usually related directly to the increases in the money supply by the federal government
leverage
The use of borrowed money to finance any investment
limited liability company (LLC)
A hybrid business entity with combined characteristics and benefits of a limited partnership and an S corporation
limited partnership
A business arrangement whereby the operation is administered by one or more general partners and funded, by and large, by limited or silent partners, who are by law responsible for losses only to the extent of their investments
liquidity
The ability to sell an asset and convert it into cash, at a price close to its true value, in a short period of time
operating statement
A detailed statement prepared on a periodic basis showing the financial picture of a business through the revenues and expenses; profit and loss statement.
partnerships
An association of two or more individuals who carry on a continuing business for profit as co-owners. Under the law, a partnership is regarded as a group of individuals rather than a single entity.
projected or potential gross income (PGI)
The amount of rental income the property could produce with 100% occupancy and with all tenants paying full rent; also called scheduled gross income
real estate investment
n
real estate investment trust (REIT)
Trust ownership of real estate by a group of individuals who purchase certificates of ownership in the trust, which in turn invests the money in real property and distributes the profits back to the investors free of corporate income tax
reserves for replacement
An amount of money budgeted for replacements of short-lived components of an investment property, such as appliances
return on investment (ROI)
An annual percentage derived from dividing cash invested into net after-tax income
scheduled gross income (SGI)
The amount of rental income the property could produce with 100% occupancy and with all tenants paying full rent; also called potential gross income
syndicate
A combination of people or firms formed to accomplish a business venture of mutual interest by pooling resources. In a real estate investment syndicate, the parties own and/or develop property, with the main profit generally arising from the sale of the property
