Term
| Discounted Cash Flow Model |
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Definition
| A model of valuation for an asset that discounts to present value future expected cash flows |
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Term
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Definition
| Use of debt to finance a portion of a real estate investment |
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| The difference between the value of the asset and the amount of debt and is therefore a residual |
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| The ratio on cash flow after debt service to the difference between the value of property and total financing |
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| The possibility combined with probability that the actual future outcome will differ from the expected outcome |
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| Price attached to an asset by investors |
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| The use of debt at a cost less than the return on the asset increases the return on equity |
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Term
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Definition
Occurs when the cost of debt is greater than the expected return on the asset
-Return on the asset must be used to compensate the lender at a higher rate, reducing the expected return to the equity position |
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Definition
Occurs when the cost of debt equals the expected return on the asset
-Return on equity is not affected by the use of debt |
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Definition
| The excess of the present value of an asset's future cash flows over its current cost. |
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Definition
| return rate specific to a particular asset |
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Term
| Optimal Capital Structure |
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Definition
| Portion of debt and equity that maximizes the value of the property (or the value of both the debt and equity components) |
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Term
| Modigliani-Miller Hypothesis |
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Definition
| In regard to capital structure, the hypothesis that the mix of debt and equity has no effect on the values of the company |
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Definition
| The lender may look only to the property to satisfy the debt |
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Definition
| Attached to a mortgage that allows the lender in a default to seek attachment of other assets owned by the borrower |
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Term
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Definition
| Expenses incidental to a sale of real estate, such as loan origination fees, title fees, appraisal fees, mortgage insurance premiums, etc. |
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Term
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Definition
| The FHA-appraised value or purchase price (whichever is less) plus closing costs, such as origination fees, appraisal fees, and attorney fees |
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Term
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Definition
| The total of all payments on a loan (through payoff) less the original amount of the principal |
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| Mortgages assess borrower a punishment if the mortgage is prepaid, that is, repaid before maturity |
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Term
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Definition
| Requirement by investors that the owner of a property set aside funds to make replacements in items such as air conditioners, appliances, etc. |
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Term
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Definition
| Inherent chance of a property usually based on the riskiness of its cash flows |
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Term
| alternative minimum taxes |
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Definition
| The least amount of federal taxes that a taxpayer must pay if there are substantial tax preference items that would otherwise result in low or no taxes due |
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Term
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Definition
| Compressed marginal tax rates for individuals, created straight-line depreciation only for real estate, and eliminated favorable treatment of capital gains among other things |
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Term
| Property held as principal residence (owner occupied) |
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Definition
Income tax classification for a property that is owned and occupied as a primary owner
-Has some distinct differences from other tax treatments: 1) individuals can deduct mortgage interest up to $1 mullion of acquisition indebtedness plus $100,000 of additional indebtedness for any purpose 2) losses from the sale and most operating expenses are not deductible (only mortgage interest and property taxes are deductible) and 3) depreciation is not allowed |
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Term
| Property held for investment |
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Definition
| Income tax classification for a property that is held strictly for income or investment and the owner has no participation in the operations of the investment |
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Term
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Definition
| Income tax classification for a property held as inventory for resale |
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Term
| Property held for use in trade or business |
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Definition
| Income tax classification for a property, referred to as a Section 1231 asset, that is owned and operated for the purpose of deriving rental income |
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Term
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Definition
| An investment structured so that tax rules and regulations are utilized to enhance its value |
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Term
| Accelerated Cost Recovery System |
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Definition
| A system of depreciation in existence from 1981-1986 in which assets were placed into several classes with various expected useful lives and depreciated under an accelerated rate |
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Term
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Definition
| A category of income established by TRA 1986. Refers to money received from working in a trade or business |
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Term
| Adequacy-of-interest test |
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Definition
| An IRS rule inputs the rate of interest on a loan if the contract rate is less than 110 percent of the applicable federal rate |
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Term
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Definition
| Cash flow from an investment after all taxes have been paid |
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Term
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Definition
| The required rate of return on a commercial project after taxes are considered |
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Definition
| An IRS rule that limits the losses on an investment to the amount the taxpayer has at risk in the investment |
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Definition
| The required rate of return on an investment before considering taxes |
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Definition
| Property in addition to cash used in exchange to purchase another property |
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Term
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Definition
| An IRS rule that limits the tax deductibility of a loss on a capital investment to the amount of gains on other capital investments plus $3,000 of ordinary income |
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Term
| Certified historic structures |
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Definition
| A designation given by the Department of Interior to structures that meet certain age and/or site conditions |
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Term
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Definition
| A former method of depreciation that accelerates depreciation in the early years of the life of the asset |
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Term
| gross profit percentage (capital gains percentage) |
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Definition
| Constant percentage applied to each payment as received to determine the taxable portion of the payment |
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Term
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Definition
| The selling of an appreciated property on terms rather than for cash so as to postpone the payment of capital gains taxes on the profits |
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Term
| Investment interest limitation |
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Definition
| An IRS rule that limits the amount of interest on debt used to finance the acquisition of an asset that a taxpayer can deduct to determine taxable income |
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Term
| Low-income housing credit |
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Definition
| A credit against federal taxes for investing in low-income housing |
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Term
| Modified Accelerated Cost Recovery System (MACRS) |
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Definition
| A system of depreciation in effect since 1986 whereby the expected lives of assets were lengthened from previous system |
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Term
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Definition
| Owner holds propert for which all operating expenses, including property taxes, repairs, and other expenses, are paid by the tenant |
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Term
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Definition
| A loan for which the lender may have a claim or lien on the property financed by the loan but not on assets such as the borrower's personal assets |
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Term
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Definition
| A tax concept that requires investors to pay taxes on the effective yield of an investment rather than on the coupon rate of the cash flows when the debt is issued at a below market coupon |
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Term
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Definition
| Most real estate investments are classified as this type of income |
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Term
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Definition
| A loss on a real estate property or any limited partnership |
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Term
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Definition
| A limitation on the amount of a loss that may be available to reduce taxes |
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Definition
| Income from stocks and bonds |
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Term
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Definition
| A decline in value of a portfolio of stock, bonds, and other investments |
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Term
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Definition
| A debt in which the lender in a default can pursue borrower assets other than the named collateral |
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Term
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Definition
| A rule in an installment sale that says if the sale is made to a related person, who in turn sells the property within a two-year period, the original seller must recognize the balance of the gain at the time the related person makes the sale |
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Term
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Definition
| Form of depreciation requiring a constant recovery rate over the recovery period |
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Term
| Sum-of-the-years' digits method |
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Definition
| Form of depreciation in which the numerator is the number of years remaining and the denominator is the sum of the years in the depreciable life |
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Term
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Definition
| Losses remaining after the disposition of an income property that can be used to offset outside income |
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Term
| Tax-deferred exchange rule |
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Definition
| Section 1031 rule defining a tax-deferred exchange |
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Term
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Definition
| Items added to regular taxable income when determining alternative minimum tax |
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Term
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Definition
| Requires that interest be imputed and reported as revenue or expense annually |
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Term
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Definition
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Term
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Definition
| Process of making mortgage loans |
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Term
| Commercial-Mortgage Backed Securities |
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Definition
| A debt instrument by mortgages on commercial properties |
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Term
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Definition
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Term
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Definition
| Stacking of debt and equity to afford a loan |
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Definition
| Retirement plans that promise a certain sum (payment) of money upon retirement |
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Term
| Defined-Contribution plans |
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Definition
| A retirement plan that states a certain amount of money to be placed in the plan when a worker is employed |
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Term
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Definition
| A rule for pension funds that participate in an investment with other QOs such as partnerships which requires that the expenses associated with each entity be allocated in proportion to the ownership percentages |
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Term
| Employee Retirement Income Security Act |
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Definition
| A federal law that regulates the investments that pension and profit-sharing plans can make, and the conduct of their fiduciaries |
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Term
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Definition
| Financial and other institutions that receive workers contributions to retirement and invest them in interest earning assets |
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Term
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Definition
| Debt that is not comprised of public securities |
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Term
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Definition
| Debt available through publicly traded securities |
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Term
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Definition
| Ranking by a ranking agency such as Moody's or S&P's of the quality of a mortgage-backed security |
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Term
| Unrelated business income tax |
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Definition
| A tax law that requires otherwise tax-exempt organizations to pay tax on income earned from any business endeavor not related to its main purpose |
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