Section 17 Vocabulary Flashcards
Appreciation
Appreciation is the gain in value that is achieved because the economy is getting better and things are worth more.
Asset
Anything that has value. With a home, it is the land, building, improvements etc. With a business, it is the entire business with all of the resources of that business.
Basis
Your basis is the cost of the property. This is the original purchase price plus the fees to buy. However, the basis is then adjusted by taking into consideration that there have been costs to improve the property or capital improvements. These costs are added to the basis. Then by subtracting depreciation already taken on tax statements, you have your adjusted basis or your “cost of the property.”
Captial Gain (Loss)
The amount the property is sold for minus the selling expenses such as real estate commissions and minus the adjusted basis (not already depreciated on federal taxes). If this is a positive amount, then it is a profit. If it is a negative amount, then it is a loss.
Cash Flow
Your cash flow is defined as the remaining income after you deduct expenses (including taxes) and debt repayment from the income generated from the investment. The resulting cash flow can either be positive, meaning you are making money, or negative, meaning you are losing money.
Going Concern Value
An operating business has a value that may differ from the value of its assets. The business ‘goodwill’ and factors affecting that business both inside the business and outside contributing factors (i.e. road work) all play a part in the valuation of the business.
Goodwill
The reputation of a business is often a huge part of the value and sale of a business. This is known as goodwill and is involved with the sale of a business compared to regular real estate.
Leverage
An investor is said to be leveraging their investments when instead of using all of their own money to purchase a property, they borrow all or part of the funds to make the investment.
Liquidation Analysis
The value of selling off the assets including the real estate and shareholder stocks is added to the cash on hand in order to lessen the debt obligations.
Liquidity
The term liquidity refers to how fast something can be turned into cash – literally cold, hard cash.
Personal Property
Personal property (or chattel, or personalty) includes any property that is not real property. Personal property usually consists of items having a limited life, which are easily movable from one place to another.
Tax Shelter
Investing in something that will shield some portion of income from taxes.
