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Real Estate Course
Chapter 16 - Commercial & Investment Properties
| Term | Definition |
|---|---|
| Net Operating Income (NOI) | Equal to the Gross income minus expenses (and sometimes debt service). Also referred to as cash flow. |
| Capitalization Rate (Cap Rate) | The percentage which is the sum of the discount rate, the effective tax rate and the recapture rate representing the relationship between net operating income and present value. Formula: Value = Income / Rate |
| Time Value of Money (TVM) | The idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity. |
| Leverage | The use or borrowed capital (mortgage) to increase the potential return of an investment. |
| Cash on Cash Return (CoC Return) | A percentage return on money invested in a property by an investor. Formula: Cash Flow / Down Payment. |
| Usable Square Footage | Space that can be used or occupied by a tenant. Typically does not include elevators, stairs, mechanical spaces, etc. |
| Gross Income | The total amount collected from rents and other income producing opportunities (washing machines, storage, etc.). |
| Pro-forma Statement | An accounting statement that forecasts income and expenses for a period of time, typically five or more years. Pro-forma statements are typically used by investors to estimate their rate of return for a particular property. |
| Rentable Square Footage | Usable area that can be leased/rented to a tenant. |
| Common Areas | Spaces in a commercial building shared by the tenants or residents of the building. Common areas include lobbies, corridors, stairs, elevators, etc. |
| Net Lease | A lease that requires the tenant to pay, in addition to rent, some or all of the property expenses that normally would be paid by the property owner. These include expenses such as real estate taxes, insurance, maintenance, repairs, utilities, and other i |
| Gross Lease | A lease of property whereby the lessor is to meet all property charges regularly incurred through ownership. - Tenant doesn't pay any extra expenses |
| Estoppel | An instrument executed by the mortgagor setting forth the present status and the balance due on the mortgage as of the date of the execution of the certificate. |
| Anchor Stores | A key tenant in retail. Typically one of the larger stores in a shopping mall, usually a department store or a major retail chain (Macys, Nordstrom, etc.). |
| Debt Service | Annual amount to be paid by a debtor on an obligation to repay borrowed money. |
| Before Tax Cash Flow | The net profit/loss calculated by subtracting expenses from income before taxes are paid. |
| After Tax Cash Flow | The net profit/loss realized after taxes are deducted. |
| Lease Escalation Clause | A contract provision allowing for one to pass an increase in costs to another party. Escalation clauses are usually related to influences beyond both parties control, such as inflation. |
| Tax Shelter | Any method of reducing taxable income resulting in a reduction of the payments to tax collecting entities, including state and federal governments. |
| Rate of Return | A profit on an investment over a period of time, expressed as a proportion of the original investment. |
Created by:
drister05
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