Glossary

You actively participated in a rental real estate activity if you (and your spouse) owned at least 10% of the rental property and you made management decisions or arranged for others to provide services (such as repairs) in a significant and bona fide sense. Management decisions that may count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and other similar decisions.

An estimate or opinion of property in its current state, which may be in disrepair or scheduled for improvement.

The estimated worth of a property after renovations and improvements have been completed. 

Without guarantees as to condition, as in sale. Premises accepted by a buyer or tenant as they are, including physical defects.

Articles of incorporation, also referred to as the certificate of incorporation or the corporate charter, are a document or charter that establishes the existence of a corporation in the United States and Canada. They generally are filed with the Secretary of State or other company registrar.

Financial manager for completed project. Provides oversight to project manager; ensures project purpose is maintained; manages regulatory agreements and ongoing finances of project.

Provides legal services associated with real estate, project financing and organizational issues.

Creates preliminary and final drawings, develops construction specifications and assist with preliminary cost estimates.

Provides cost certifications and general accounting work.

The price and all the fees required to obtain a property.

A general term applied to public and private sector efforts to help low and moderate income people purchase homes. Usually the programs offer lower cash down payments, eased loan qualifying rules, and/or below market interest rates.

The amount of money left for the investor after all obligations of the transaction and after personal income taxes on the transaction.

A licensed real estate broker or salesperson.

A professional opinion or estimate of the value of the property. Also, the act or process of estimating value.

Signs obnoxiously posted in public typically on power poles and yard signs – “we buy houses cash – any condition.”

Regulations established by local governments describing the minimum structural requirement for buildings includes foundation, roofing, plumbing, electrical, and other specifications for safety and sanitation.

An itemized list of expected income and expenses prepared weekly, monthly, or annually.

A rental property priced for the average American worker.

A situation where buyers have a wide choice of properties and may negotiate lower prices. Often caused by overbuilding, local population decreases, or economic slump.

Permission granted by a local government to build a specific structure or reconfigure an existing building at a particular site.

The physical property; often contrasted with intangibles, sometimes contrasted with cyberspace.

The amount someone offers to pay.

A system in which a record of transactions are maintained across several computers that are linked in a peer-to-peer network.

Instead of conducting a formal property appraisal a real estate broker will provide a professional opinion of value.

A real estate investing term that refers to someone who spends their time trying to locate properties with substantial investment potential.

Details how a transaction is financed. Most commercial real estate acquisitions or developments receive investment from more than one source, and from investors with different goals.

One who contracts to supply specific goods or services generally in connection with development of a property.

In construction, the act of predicting the total costs of labor, materials, capital, and professional fees required to construct a proposed project.

In finance, the availability of money.

The attractiveness of a house or other land improvements as viewed from the street.

A subjective division of buildings by desirability among tenants and investors. Criteria include age, location, construction quality, attractiveness of style, level of maintenance, and so on. The class may be based on standards for market acceptance or the type of construction materials used. Classes based on market acceptance are not equivalent to those based on construction materials.

The ratio of Net Operating Income (NOI) to property asset value.

The charges and fees associated with completing a purchase or sale transaction in real estate. 

Acquisition without financing; buyer pays all cash.

The act of transferring ownership of a property from seller to buyer in accordance with a sales contract.

Local public entity which published records to the public, typically deeds, mortgages, notes, etc.

Local public entity which published records to the public, typically real estate ownership, transfer history, property tax values, etc.

Under United States tax laws and accounting rules, cost segregation is the process of identifying personal property assets that are grouped with real property assets, and separating out personal assets for tax reporting purposes.

Using online fundraising campaigns by everyday people to contribute, support or invest in projects, ideas, startups and businesses.

Any document, claim, unreleased lien or encumbrance that might invalidate or impair the title to real property or make the title doubtful. Clouds on title are usually discovered during a title search.

NAIOP provides advocacy, education and business opportunities by connecting members in a powerful North American network in the commercial real estate development and investment industry.

Non-traditional or uncommon means of buying land or property.

The art of writing or solving codes.

CCIM stands for Certified Commercial Investment Member. The CCIM lapel pin denotes that the wearer has completed advanced coursework in financial and market analysis, and demonstrated extensive experience in the commercial real estate industry. CCIM designees are recognized as leading experts in commercial investment real estate.

Two dwelling units under one roof.

A written document, properly signed and delivered, that gives TITLE to real property.

A deed wherein legal title in real property is transferred to a trustee, which holds it as security for a loan between a borrower and lender.

Money paid in good faith to assume performance of a contract. If the person who put up the deposit fails to perform, the deposit is forfeited, unless conditions in the contract allow a refund.

A pricing strategy that prices goods, commodities or services based on time; matching demand to supply in order to maximize top-line revenues for the organization.

The basic concept is simple: the value of a dollar today is worth more than a dollar in the future. The value of an asset is simply the sum of all future cash flows that are discounted for risk.

A claim against, limitation on, or liability against real estate is an encumbrance. Encumbrances include liens, deed restrictions, easements, encroachments, and licenses. An encumbrance can restrict the owner’s ability to transfer title to the property or lessen its value.

Purchase and immediate resale of property within hours or days at a quick profit. Often has a negative connotation.

The intentional use of deception to cause another person to suffer loss.

Buying a house that needs repair and fixing it up before reselling it for a profit in a fixed period of time, typically 90 – 120 days.

A legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the lender by forcing the sale of the asset used as the collateral for the loan.

The public sale of a mortgaged property following foreclosure of the loan secured by that property.

Borrowing money to buy property.

1.    Obtaining a mortgage loan on a purchase.
2.    Assumptions of a mortgage from as seller.
3.    Arranging for the seller to take a loan as part of the purchase price.
4.    Arranging an installment sale.

Home heating system.  

The ratio of the price of a real estate investment to its annual rental income before accounting for expenses such as property taxes, insurance, and utilities; GRM is the number of years the property would take to pay for itself in gross received rent.

Responsible for project construction. Builds the project according to plans and specifications.

An accounting of funds from a real estate sale, made to both the seller and the byer separately. Most states require a broker to furnish accurate closing statements to all parties of the transaction.

One that owns or controls another company(ies).

A type of home equity loan that establishes an account that the borrower can draw on as desired. A maximum amount is typically placed on the outstanding debt, similar to a credit car. Interest accrues based on the amount of money actually borrowed, not the amount of the credit line. The product is intended for people who may need to access cash in the future but have no immediate need for a loan.

That which is owned for income production and capital growth potential, rather than for occupancy of use in a business or for personal pleasure or held in inventory.

Real estate is considered an illiquid investment because of the time an effort required to convert to cash.

One in the business of examining Title to Real Estate and/or issuing title insurance.

It means that someone offers investors some units of a new cryptocurrency or crypto-token in exchange against cryptocurrencies like Bitcoin or Ethereum.

IBREA is nonprofit, member-focused trade organization dedicated to implementing Bitcoin and related blockchain technology.

Housing and Urban Development Department.

A loan secured by a second mortgage on one’s principal residence, generally to be used for some no- housing expenditure.

An endeavor that seeks to preserve, conserve and protect buildings, objects, landscapes or other artifacts of historical significance.

Program encourages private sector investment in the rehabilitation and re-use of historic buildings. The federal tax credit allows program participants to claim 20 percent of eligible improvement expenses against their federal tax liability.

A business entity created by two or more parties, generally characterized by shared ownership, shared returns and risks, and shared governance.

A form of seller financing. It is similar to a mortgage, but rather than borrowing money from a lender or bank to buy real estate, the buyer makes payments to the real estate owner, or seller, until the purchase price is paid in full.

A contract in which, for a payment called Rent, the one entitled to the possession of real property (Lessor) transfers those rights to another (Lessee) for a specified period of time.  

A person to whom property is rented under a lease. A tenant.

One who rents property to another under a Lease. A land-lord.

A property owner and tenant agree that, at the end of a specified rental period for a given property, the renter has the option of purchasing the property.

The recorded boundary of a plot of land.

A development in which a developer completes the entire project on behalf of a buyer; the developer turns over the keys to the buyer at completion.

Varied technical services needed to develop and operate project.

Responsible for ongoing management of property. Manages day-to-day operations of project including apartment lease-up, rent collection, property maintenance, and funder compliance reporting.

A preferred stock is a class of ownership in a corporation that has a higher claim on its assets and earnings than common stock. Preferred shares generally have a dividend that must be paid out before dividends to common shareholders, and the shares usually do not carry voting rights.

A way to invest in real estate to augment income considerably well without having to necessarily stress out one’s self. You are not actively involved in generating profits or income from real estate; you are a passive investor.

A legally binding agreement to operate a business together in the real estate investment industry.

The current value of a future sum of money or stream of cash flows given a specified rate of return. Future cash flows are discounted at the discount rate, and the higher the discount rate, the lower the present value of the future cash flows.

A Securities and Exchange Commission (SEC) regulation governing private placement exemptions. Reg D allows usually smaller companies to raise capital through the sale of equity or debt securities without having to register their securities with the SEC.

An exemption from registration requirements – instituted by the Securities Act – that apply to public offerings of securities that do not exceed $5 million in any one-year period.

In law, land and everything more or less attached to it. Ownership below to the center of the earth and above to the heavens. Distinguished from personal property.

Somewhat similar to a car lease. The seller has given his tenant the right to buy the house at some point in the future, usually one to three years out, for a price that is agreed upon today. Generally, the tenant will pay a fee, called option money, that will keep open the option of buying.

Focuses on one or more issues, with an intention to make a financial, positive social and environmental impact.

Rehabilitate – to restore a structure to a condition of good repair.

To change the appearance and functional utility of a building. This may include painting, repairing, and replacing of fixtures and equipment.

Actual amounts collected from tenants for the use of space; does not include miscellaneous income e.g, laundry income or special fees). To avoid confusion, it is preferable to qualify rental income as actual, potential, or effective.  

Property acquired by a lender through foreclosure and held in inventory.

Invested in overall viability of project as living community. Involved in long-term sustainability of development’ legal right to fully participate in revitalization.  

A real estate investment trust is a company that owns, and in most cases operates, income-producing real estate. REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centers, hotels and timberlands. Some REITs engage in financing real estate.

A mortgage that became delinquent because the borrower was behind on payments by at least 90 days, but it is “performing” again because the borrower has resumed making payments.

Value added to a property due to improvements as a result of work performed personally by the owner.

The rental income or expense or the net operating income expected to be reached upon completion of construction or after a major renovation.

One who performs services under contract to a general contractor.

Apartments, nursing homes, or single-family dwellings that receive a government subsidy.  

In multifamily residential property, a suite of rooms making up a entrance and some methods of individuality from other units in the building or complex. 

Real Estate located in an urban area, generally characterized by relatively high-density development and extensive availability of city water and sewer services.

Defined by the U.S Bureau of the Census as a community with a population of 2,500 or more.

A charge levied upon person or things by a government.

The percentage of all units or space that is unoccupied or not rented. On a pro-forma income statement projected vacant rate is used to estimate the vacancy allowance, which is deducted from potential gross income to derive effective gross income.  

Estimated worth or price.  

Inspection of premises by a buyer or tenant prior to closing or taking possession.

Costs to build the property, including building permit fees, materials, labor, site preparation, infrastructure, and landscaping.

Ensure the viability of the community and neighborhood. To represent needs of community as part of development team.

A calculation to ensure the property has enough income to cover its debt obligation based on the relationship between the net operating income (NOI) of a property to the amount of debt service the NOI must be used to pay.

Interior design, architect and engineering fees.

Guides the development process. Provides services necessary to acquire and construct/rehabilitate the project; may continue as owner/co-owner once project is completed.  

Cost to pay the developer for staff time and labor to complete the property, including profit for the risk taken and resources expended.

The portion of the agreed-upon developer fee that the developer is not paid as a development expense and instead remains as a loan in the rental property. The deferred developer fee may be recovered from the developer’s share of operating cash flow. Once the property is complete, the developer will receive a fraction of the cash flow over time. So, after the property pays its obligations, from the remaining funds, a portion would go to the developer.

Investing private capital to acquire or develop a multifamily property in exchange for a range of financial returns on that investment (Williams 2015). Tax credit equity is when investors provide up front capital for an affordable multifamily development in exchange for federal tax credits, paid out over 10 or 15 years. Developer equity is when a developer fronts its own capital for a return usually from the property’s cash flow (remaining funds after paying monthly debt obligations, operating costs, and other financing priorities).

Costs that occur during construction related to interest and fees on the construction loan, insurance during construction and other holding costs.

The maximum rent that can be charged to tenants in an LIHTC-assisted unit. It is limited to 30 percent of the applicable income limit less utilities.

The loan amount divided by the property’s value based on the capitalization rate and NOI.

A federal program to subsidize creation and preservation of affordable rental housing.

Additional debt common in market-rate development repaid by property cash flow after the first mortgage debt service is paid. Mezzanine debt typically has a higher interest rate and shorter repayment period than the first mortgage and usually comes from nonbank lenders with more flexibility and higher risk tolerance than banks.

Borrowing funds from a financial institution to finance a multifamily housing development. The borrower must repay the loan by a certain date, typically 30 years in the future. The borrower must also pay interest on the loan to compensate the lender. Mortgage debt typically amortizes over time, so the regular payments include both interest and principal.

The annual income generated by an income-producing property after taking into account all income collected from operations, and deducting all expenses incurred from operations.

Works with federal agencies on regulations affecting the housing industry in areas such as mortgage finance, codes, energy and the environment.

All future cash flows produced by a rental property less the amount of initial cash investment required to purchase the investment property.

Considered in default or close to default. … In banking, commercial loans are considered non performing if the debtor has made zero payments of interest or principal within 90 days, or is 90 days past due.

Funds set aside on a regular schedule for future risks or expenses. For example, the replacement reserve covers replacement of major capital items that occur infrequently. The operating reserve would cover the property’s operating expenses if necessary because of a lower than estimated operating income one month.

A key document used by LLCs because it outlines the business’ financial and functional decisions including rules, regulations and provisions. The purpose of the document is to govern the internal operations of the business in a way that suits the specific needs of the business owners.

Owns the project, represents long-term interest of project. Responsible for the financial status of projects.

A Program created to revitalize economically distressed communities using private investments rather than taxpayer dollars. To stimulate private participation in the Opportunity Zone program, taxpayers who invest in Qualified Opportunity Zones are eligible to benefit from capital gains tax incentives available exclusively through the program.

Fees and expenses related to the mortgage loan and when applicable, fees related to the Low Income Housing Tax Credit.

A “promise to pay.” It contains a maker (the payor) and a lender (the payee).

Financial statement is one based on certain assumptions and projections. For example, a corporation might want to see the effects of three different financing options. Therefore, it prepares projected balance sheets, income statements, and statements of cash flows.

Assemble and lead development team. Provides professional development services on owner’s behalf (e.g. acquire site, negotiate with local government, select technical consultants prepares and submits financing applications.

Funding usually from state or local governments that has a below market interest rate to help close the gap for affordable housing.

All the expenses necessary to develop a multifamily property. This would be acquisition costs, construction costs, design fees, interim costs, permanent financing fees, operating and debt service reserves, developer fees, and project management fees.

Estimate of the lost revenue defines the loss to a property from units that are vacant from a tenant ending a lease or not rentable because of repairs or renovations. In underwriting terms, physical vacancy refers to a percentage of units not available, which economic vacancy refers to revenue lost due to vacancy. For simplicity, this model uses economic vacancy.

Self-directed IRAs may seem like a recent phenomenon, but they have been around since the IRA was established in 1974.  Investing in alternatives to stocks, bonds, and mutual funds has always been allowed by the IRS (see IRS Publication 590). Self-Directed IRAs have not received large attention because many custodians who offer IRAs (banks and brokerage firms) typically offer traditional investments.

Responsible for development of service lan and recipient of service funding. Provides specialized services, such as daily living skills or employment supports, to support long-term resident stability.

Cities with 2 million to 5 million people.

An effective way for investors to pool their financial and intellectual resources to invest in properties and projects much bigger than they could afford or manage on their own.

An effective way for investors to pool their financial and intellectual resources to invest in properties and projects much bigger than they could afford or manage on their own.

A real estate agreement in which the seller handles the mortgage process instead of a financial institution. Instead of applying for a conventional bank mortgage, the buyer signs a mortgage with the seller. Seller financing is also known as owner financing and a purchase-money mortgage.