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- This tool, also known as a like-kind exchange, allows investors to defer paying capital gains taxes on a sale. The catch is that they must sell one property and buy a similar one within a set time frame.
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Oct 11, 2022 · Everything from marketing, finding a partner, funding deals, and more... Here are the most important terms that new real estate investors need to understand, with definitions and explanations of why they're important.
- Beginner Guide
Final Thoughts on Buy-and-Hold Investing. Buy-and-hold real...
- Beginner Guide
Jul 13, 2021 · Term: Cap Rate. Definition: Capitalization rate, or cap rate for short, is used to measure the annual rate of return on a real estate investment based on the profit that property is expected to generate. Simply put, it’s the ratio between the net operating income (NOI) and purchase price.
- Introduction
- Adjustable Rate Mortgage
- Amortization
- Annual Depreciation Allowance
- Annual Percentage Rate
- Appraised Value
- Appreciation
- Building Classifications
- Capital Expenditures
- Capitalization Rate
Whether you are new to real estate investing or a seasoned expert, this article can help you understand basic to advanced real estate investing definitions. We will cover the most commonly researched real estate investment terms and their respective definitions. Our intent, is for you to use this real estate investing glossary as a quick, easy-to-u...
Definition
Adjustable Rate Mortgage (ARM) is a mortgage that does not have a fixed interest rate. An ARM can change monthly, based on benchmark interest rates. It’s typical for an ARM to have a fixed rate the first few years of the loan and then changes periodically.
Why It Matters
This is an important real estate investment definition to understand because mortgage payment amounts could fluctuate over the life of the loan due to market conditions. This fluctuation makes it difficult for investors to estimate their budget and potential return on investment.
Definition
Amortization is an accounting technique used to lower the cost value of a finite life or intangible asset incrementally through scheduled charges to income.
Why It Matters
Basically, amortization is how a mortgage is paid down over time. An amortized mortgage isn’t paid evenly over the life of the loan. Instead, each month a little more of your money goes toward the loan principal and less towards interest. Each mortgage payment goes toward a portion of the principal and a portion of the interest.
Definition
Annual Depreciation Allowance is the depreciation of an asset and how much an investor is allowed to deduct or write off every year according to tax code. This is basically the process of deducting costs related to buying and improving an asset or rental property. Instead of one large deduction during the year the property is bought or improved, depreciation deduction is distributed over the “useful life” of a property. Rental property that qualifies for depreciation allowance must meet the f...
Investor Tip
Residential property “useful life” term is 27.5 years, while nonresidential property is 39 years. Depreciation deductions are spread over these lengths of time.
Definition
Annual Percentage Rate (APR) is the annual rate charged for borrowing or earned through an investment. APR is expressed as a percentage that represents the actual yearly cost of funds over the term of a loan. This includes any fees or additional costs associated with the transaction but does not take compounding into account
Example of Calculating APR
Most APR’s are calculated as follows: U.S. Prime Rate + The margin the bank charges = APR
Definition
Appraised value is the evaluation of a property’s value.
Example of Appraised Value / Why It Matters
A professional appraiser is typically hired by the lender during the mortgage origination process and paid for by the borrower. The appraised value determines how much money may be borrowed and under what terms. Loan-to-Value (LTV) is determined by an appraisal.
Definition
Appreciation is the increase in the value of a property over time.
Examples of Appreciation
This happens for a few reasons, a rise in demand or a dip in supply, inflation or interest rate fluctuations. Appreciation also builds equity for the owner. Appreciation one of the top real estate definitions for investors to know.
Definition
Building classifications allow an investor to differentiate buildings and rationalize market data. Investment properties and their value falls into four category classifications, A, B, C or D.
Example of Building Classifications / Investor Tips
An “A” property is more expensive and in higher demand. “A” properties are generally newer, in great condition and in high-demand markets. Older, lower quality construction and in less-desirable areas are classified as B, C or D properties. New investors should consider “B” or “C” properties to balance risk versus reward. “A” properties may have more potential for higher monthly cash flow and return on investment, but the risk is often higher.
Definition
Capital Expenditures (CapEx) are any new purchases or major improvements made that increases the lifespan and value of a property. This also includes any equipment or supplies costs needed to make the improvements.
Examples of CapEx / Why It Matters
New roof, new furnace, new floors, renovating a bathroom, etc. This does not apply to smaller maintenance expenses like, painting, a leaky pipe or carpet cleaning. Capital Expenditures and routine maintenance are taxed differently, so it’s important for investors to understand the difference and list them appropriately on tax forms.
Definition
Capitalization Rate is calculated by the Net Operating Income or NOI (defined below) divided by sale price or value of a property.
Investor Tip
This metric helps buyers determine their expected return on investment, prior to factoring in mortgage financing. A low Cap Rate usually comes with lower risk.
Understanding property investment terms. Being armed with simple explanations for some of the most commonly used property investment terms can allow you to make informed decisions and not be sidetracked by terminology and real estate jargon when considering options for investment in the UK.
Nov 13, 2023 · Whether you’re a veteran agent or a rookie hoping to sound authoritative during your first transaction, you need to be able to succinctly explain common real estate terms and definitions to your clients.
Jan 19, 2024 · Glossary of Real Estate Terms. 1% Rule: A calculation to determine whether an investment property’s cash flow makes it a good buy. To run the 1% rule on a property, calculate 1% of the property’s purchase price to determine the minimum monthly rent to charge.
Sep 27, 2023 · Here are a slew of common investing terms and definitions (in alphabetical order) that investors may benefit from committing to memory. 1. Alpha. Alpha is used to gauge the success of an investment strategy, portfolio, portfolio manager, or trader compared with a relevant benchmark.
