Amortization: –A gradual paying off of a debt by regular periodic installments which include interest and principal.
Assign: – To transfer interest to another party.
Assumption: – An assumable mortgage is a type of financing arrangement whereby an outstanding mortgage and its terms are transferred from the current owner to a buyer.
Balloon Payment: -A large payment due at the end of a term of a loan that is not fully amortized, can be either 5, 7 or 10 years.
Capital Expenditure: -This is an expenditure for an asset that will improve or extend the useful life of an existing asset for a period to exceed one year.
Cash on Cash Return: -Rate of return on capital invested in a property. It is calculated by dividing cash flow by the amount of cash invested.
Cash Flow: – All of the property’s cash inflows less any outflows.
Net Operating Income
– Debt Services
– Capital Expenditures
Certificate of Occupancy: -Certificate issued by local governments stating that a property meets building codes for occupancy.
Cost Segregation: – Identifies and reclassifies personal property to shorten the depreciation time and lower tax obligations.
Comparative Market Analysis: – A study performed by a broker or investor that compares similar prices in an area to determine value.
Debt Service: – A calculation used by banks to determine whether a property will be able to cover the mortgage payments. Most lenders require a coverage ratio of 1.2 – 1.3.
DSCR = NOI / Annual Debt Service
Deed: – A signed legal document that transfers the title of an asset to a new holder, granting them the privilege of ownership.
Deferred Maintenance: – Repairs that are left undone on a property.
Due Diligence: – A comprehensive appraisal of a business undertaken by a prospective buyer, especially to establish its assets and liabilities and evaluate its commercial potential.
Due on-sale clause: – Clause that states a loan is due in full if the property is transferred to a new owner.
Earnest money: – A deposit made to a seller that represents a buyer’s good faith to buy a property. The money gives the buyer extra time to get financing and conduct the title search, property appraisal, and inspections before closing.
Easement: – The right to use another’s property for a specific purpose.
Expenses per Unit: – Calculated by dividing operating expenses by # of units.
Emerging Market: –Market that is beginning to expand or grow.
Escrow Account: – An account where money is held by a third party on behalf of two other parties that are in the process of completing a transaction.
For Sale By Owner (FSBO): – A form of a property listing in which the owner sells the property without the use of an agent or broker.
Gross Rent Multiplier: -A quick way to estimating value and determine if a property is price competitively. Market Value / Gross Income
Hard Money Lender: – Lenders who use private money to make loans. These lenders charge higher rates, more fees and expect higher loan to values.
Lien: – Claim against the property for payment of a debt, judgement or a mortgage.
Lis Pendens: – A lawsuit that has been filed and is questioning the title of the property.
Loan points: – A form of prepaid interest to buy down the rate of the loan.
Loan originate fee: – A fee paid to the bank to originate the loan.
Loan to Value: – Relationship between the loan and purchase price. Take the loan amount and divide by the purchase price to calculate the LTV.
Multiple listing Service: – Database that contains properties for sale.
Net Operating Income: – Gross operating income less all operating expenses.
Price per Unit/Door: – Calculation used determine general the price of a property. Take the price of the property and divide by the number of units.
Private Mortgage Insurance: – Also known as PMI, is insurance provided in case the borrower defaults. If your down payment is less than 20%, PMI may be required by the lender.
Pro forma: – This is a projection of what a property will produce in the future.
Property Types: – Brokers rate properties from A to D with A being the highest and D being the lowest rating.
A: Newest, built within last 10 years, clean, amenities, less risk, white collar workers. More expensive and less cash return.
B: Built within last 20 years, find one with more white collar and blue-collar workers, prefer white collar more.
C: Cash flow really well; appreciation is really well. What we focus on Blue collar workers, cash flow great, built within last 30 years, but the problem is a lot of maintenance and depreciation.
D: Stay away from D properties, bad areas.
Purchase Money Mortgage: – a mortgage issued to the borrower by the seller of a home as part of the purchase transaction. Another term for owner financing.
RUBS: – Ratio Utility Billing System. A system of allowing the tenants pay for a portion of the utilities, such as water, gas, electric and garbage.
Section 8: – Government Subsidized Housing.
Title: – A legal document establishing residence of ownership.
Title Insurance: – An insurance policy that protects against loss from arising from an ownership dispute. Every buyer should obtain title insurance when purchasing a property.
Unit Mix: – The bedroom sizes of apartments in a proper. Sizes range from efficiency, to studio, to one bedroom, to two bedroom, to three bedroom. We focus on two bedrooms units and prefer greater quantity of two beds to one beds.
Vacancy Rate: – Percent of all units that are unoccupied in the property.