Exam 1 - Vocabulary Flashcards
Discounting
The process for equating the fututre benefits from a real estate investment to an equivalent (present) value.
Compounding
Calculation of future value, given assumptions about the amount or amounts invested and the rate that is paid on the invested amounts.
Agglomeration economies
The emergence of specialized resources in a locality in response to demand from multiple industries. Generally associated with large cities.
Appraisal Approaches
Cost (Replace/Reproduction), Market (Comparables), Income
Capital Expidentures
Expidentures for replacements and alterations to a building (or improvement) that materially prolong its life and increases its value.
Contract Rent vs Market Rent
Contract - What is actually stated on contract and tenant is currently paying
Market - The current market rent which may be a lower or higher amount than contract rent.
Cash on Cash Rate (Return)
BTCF/Equity Invested
Direct Capitalization
The process of estimating the value of a property by dividing a properties annual net operating income by an overall capitalization rate
Value = NOI / Cap rate
Economic Base
The set of economic activities that a city provides for the world beyond its boundaries.
ex. Regional Sales Office
Equity Divedend Rate
AKA Dividend rate/yield or Cash on Cash return
The “capitalization rate” for equity.
BTCF / Original Equity(Down Payment)
Highest and Best Use
The highest and best use of a property
- legally permissable
- physically possible
- financially feasible
Deficiency Judgemenrt
The legal right of lenders to file suit against borrowers when the proceeds from a foreclosure sale do not fully pay off an outstanding loan, as well as any late fees and charges.
Adjustable Rate Mortgage
Mortgage rate tied to LIBOR rate (income producing), prime rate (residential), US treasury constant maturity rates (most common)
Balloon Mortgage
Loan charecterized by an amortization term taht is longer than the loan term. Because the lona balance will not be zero at the end of the loan term. A balloon payment is necessary to pay of the remaining balance in full.
Before Tax Equity Reversion
The net sale proceeds less the outstanding balance on the mortgage loan
Depreciation Useful Lives
27.5 residential income 39 commercial 3 for private residential office equipment 7 sidewalks 15
Wrap Around Mortgage
???
Market Value
Current price an educated and willing buyer would pay right now under normal conditions in open market
Replacement cost
Cost to build a new building that is same or better
Reproduction cost
Cost to build an exact replica
Operating Expense
The expenses that are necessary to operate and maintain an income producing property.
Mortgage
A lien on real property as security for debt.
Note
The document (contract) defining the exact terms of a debt obligation and the liabilty of the borrower for the obligation.
Bankruptcy
Chapter 7 - The traditional form wherein the court simply liquidates the assets of the debtor and distributes the proceeds to creditors in proportion to their share of the total claims.
Chapter 11 - A court supervised “work-out” for a troubled business.
Chapter 13 - Similiar to chapter 11 but applies to household, that allows the petitioner to propose a repayment plan to the court.
UP front points
Discount points
Financial Leverage
The use of mortgage debt to help finance a capital investment
Yield vs Cap Rate
Cap rate does not account for appreciation, equity and tax benefits
Yield rate accounts for net sales proceeds
1031 Exchange
Like Kind exchange to deffer taxes on sold properties.
