After-tax cash flow in real estate refers to the net cash flow from an income-producing property after accounting for income taxes. It includes the tax savings from any losses that can be offset against other income.
The process of combining two or more adjoining parcels of land into one larger tract, often increasing its total value.
The Cap Rate, or Capitalization Rate, is a fundamental metric used in real estate to determine the rate of return on an investment property based on the income it is expected to generate.
Capitalization rate, often abbreviated as cap rate, is a rate of interest or discount rate used to convert a series of future payments into a single present value. In real estate, the rate includes annual capital recovery in addition to interest.
Cash-on-Cash Return is a method of yield computation used for investments. It calculates the return on investment by dividing the annual dollar income by the total dollar invested. For example, a $10,000 investment that pays $1,000 annually has a 10% cash-on-cash return.
Commercial property refers to real estate intended for use by retail, wholesale, office, hotel, or service users, or for manufacturing or other industrial purposes. Examples include shopping centers, office buildings, hotels and motels, resorts, and restaurants.
A converter is an active real estate entrepreneur who changes the ownership and/or physical configuration of property.
A Delayed Exchange, also known as a Section 1031 Exchange or Tax-Free Exchange, allows investors to defer capital gains taxes on the sale of an investment property by reinvesting the proceeds into a similar property within a specified time frame.
Distressed property refers to real estate that is under foreclosure or impending foreclosure due to insufficient income production. Such properties often require unique strategies for recovery, including potential workouts.
An Equity Real Estate Investment Trust (REIT) that invests directly in properties and earns income from their ownership and operation.
The Equity Yield Rate measures the rate of return on the equity portion of an investment, accounting for periodic cash flow and proceeds from resale, but excluding income taxes.
Flipping involves buying and then quickly reselling real estate, securities such as IPOs, or other assets for a profit. It relies on the volatility of prices and market efficiency.
A Ginnie Mae pass-through security is backed by a pool of mortgages and guaranteed by the Government National Mortgage Association (GNMA), passing through to investors the interest and principal payments of homeowners.
A real estate valuation metric calculated by dividing the sales price of a property by its gross rental income, typically used to estimate the value of income-producing properties.
In real estate brokerage jargon, a handyman special refers to a property that is in need of repairs, often marketed as a fixer-upper. The implication is that the property is a bargain for someone who can accomplish the repairs economically.
The term 'highest and best use' in real estate appraisal refers to the financially, legally, and physically possible use that, at the time of appraisal, is most likely to produce the greatest net return to the land or buildings over a given period.
The Income Approach is a real estate appraisal method that estimates the value of a property by its anticipated future income. This approach is particularly useful for income-generating properties such as rental buildings, commercial properties, and investment properties.
Income property refers to real estate acquired specifically for the income or cash flow it generates. It can be owned individually, by a company, or be part of a limited partnership, with buyers often aiming for long-term capital gains upon sale.
The initial yield represents the gross initial annual income generated by an asset divided by the initial cost of that asset. It is commonly used in real estate and investment analysis to measure the initial return on investment.
Detailed overview of investment properties, including definitions, examples, FAQs, related terms, and resources for further study.
Land banking refers to the process of purchasing land that is not currently needed for use but is expected to be utilized or gain value in five to ten years. This practice is often employed for real estate investment and urban development purposes.
Modernizing refers to making various improvements and updates to a property, such as installing new equipment, making cosmetic enhancements, and removing outdated features. This process enhances the functionality and aesthetic appeal of the property.
A Mortgage-Backed Certificate (MBC) is a type of security that is backed by a collection of mortgages. Investors in MBCs receive periodic payments derived from the interest and principal payments made on the underlying mortgages.
Net Operating Income (NOI) is a key metric in real estate and business investment that measures the profitability of an income-generating property before costs like taxes and financing expenses are considered.
Net Operating Income (NOI) is a critical metric in the real estate industry that assesses the profitability and financial health of income-generating properties. By calculating NOI, investors can evaluate the operating performance of properties without considering financing, taxes, or capital expenditures.
An Option to Purchase is a contract that grants one the right (but not the obligation) to buy a property within a set timeframe, for a specified price, and subject to certain conditions.
The Overall Rate of Return (OAR) is a percentage relationship of net operating income (NOI) divided by the purchase price of a property. It is a metric used to assess the profitability of an investment.
Phantom income refers to income that is taxable even though the taxpayer has not received equivalent cash or financial benefit. This situation often arises in leveraged real estate transactions where excess depreciation over mortgage amortization leads to a taxable gain without cash flow.
A certificate that gives the bearer a share in the value of a particular property and a share of the income from it. PINCs can be bought and sold.
A Real Estate Investment Trust (REIT) operates as a company that owns, operates, or finances income-producing real estate, allowing individual investors to earn a share of the income produced through commercial real estate ownership, without actually having to buy, manage, or finance any properties.
A Real Estate Limited Partnership (RELP) is a form of limited partnership that invests in real estate properties, allowing the income and potential profits to pass through to the limited partners while being managed by a general partner.
In a projection of investment performance, the assumed selling price a property could fetch at the end of the projection period.
Residential property refers to real estate designated for human habitation, including both single-family homes and multi-family buildings. These properties are typically zoned for private living and can encompass houses, apartments, townhouses, and condominiums.
A Single Property Ownership Trust (SPOT) allows investors to own shares in a specific property, entitling them to a direct share of the property's income and capital. This forms part of a securitization process and is similar to a Property Investment Certificate (PINC).
A tax-free exchange, often facilitated under Section 1031 of the Internal Revenue Code, allows for the exchange of one investment property for another while deferring capital gains taxes.
Tenancy in Common (TIC) is a form of ownership arrangement in which two or more individuals hold an undivided interest in property. TICs can also facilitate tax-free exchanges under Section 1031, although some investors feel the value received may not always be adequate.
Unearned increment refers to the increase in the value of real estate that occurs without any effort or investment from the property owner. This often results from factors such as population growth, economic development, or improvements in the surrounding area.
