Dictionary

Appraisal: An evaluation of a property's value by a certified appraiser.

Appreciation: The increase in the value of a property over time.

Amortization: The process of paying off a loan over time in regular payments.

Asset Management: The process of managing a real estate investment's operations, including financial and physical aspects.

Assignment: The transfer of rights or property from one party to another.

Assessed Value: The value assigned to a property by a public tax assessor for taxation purposes.

Broker: A licensed professional who arranges transactions between a buyer and a seller for a commission.

Buy-to-Let: The purchase of a property to rent it out to tenants.

Cap Rate (Capitalization Rate): The ratio of a property's net operating income (NOI) to its purchase price or current market value.

Cash Flow: The total amount of money coming in (rent, income) and going out (expenses, mortgage) from a real estate investment.

Closing Costs: Fees and expenses paid at the closing of a real estate transaction.

Comparable Sales (Comps): Recently sold properties that are similar in size, condition, location, and amenities to the property being evaluated.

Construction Loan: A short-term loan used to finance the construction of a property.

Conveyance: The legal process of transferring property from one owner to another.

Cost Approach: A method of determining a property’s value based on the cost of replacing or reproducing the property.

Deed: A legal document that represents the ownership of property.

Depreciation: The decline in a property’s value due to wear and tear, age, or obsolescence.

Discount Rate: The rate of return used in a discounted cash flow analysis to determine the present value of future cash flows.

Distressed Property: A property that is under foreclosure or being sold by a motivated seller under time constraints.

Down Payment: The upfront payment made when purchasing a property, usually a percentage of the total purchase price.

Due Diligence: The process of thoroughly investigating a property before completing a transaction.

Easement: A legal right to use another person's land for a specific purpose.

Encumbrance: A claim, lien, or restriction on a property that can affect its transfer or use.

Equity: The difference between the market value of a property and the amount owed on its mortgage.

Escrow: A neutral third party that holds funds or property until certain conditions are met in a transaction.

Estate: The ownership interest or rights in a property.

Eviction: The legal process of removing a tenant from a property.

Exit Strategy: A plan for selling or otherwise disposing of a real estate investment.

Fair Market Value: The price at which a property would sell under normal conditions on the open market.

Fix-and-Flip: A strategy where an investor buys a property, renovates it, and sells it for profit.

Foreclosure: The process by which a lender repossesses a property due to the borrower’s inability to make mortgage payments.

Gross Rent Multiplier (GRM): A formula used to estimate the value of an income-producing property based on its gross rental income.

Ground Lease: A lease agreement that allows the tenant to use a piece of land for a long period of time.

Hard Money Loan: A short-term, high-interest loan primarily used for real estate transactions.

HMO (House in Multiple Occupation): A property rented out to three or more tenants who share common facilities like kitchens and bathrooms.

Income Property: Real estate purchased for the purpose of generating rental income.

Interest Rate: The cost of borrowing money, usually expressed as a percentage of the loan amount.

Joint Venture (JV): A partnership between two or more parties to jointly invest in and develop a real estate project.

Landlord: The owner of a property who rents it to tenants.

Lease: A contract granting a tenant the right to occupy a property for a specified period in exchange for rent.

Lease Option: A rental agreement that includes an option to purchase the property at a later date.

Lien: A legal claim on a property as security for a debt or obligation.

Listing Agreement: A contract between a property owner and a real estate broker to market and sell the property.

Loan-to-Value (LTV) Ratio: The ratio of a loan amount to the appraised value or purchase price of a property.

Market Value: The estimated price a property would sell for on the open market.

Mixed-Use Development: A real estate development that combines residential, commercial, and sometimes industrial spaces in one project.

Mortgage: A loan used to purchase real estate, secured by the property itself.

Mortgage Broker: A professional who arranges loans between borrowers and lenders.

Net Operating Income (NOI): The income generated by a property after operating expenses have been deducted but before mortgage payments.

Offer: A formal bid to purchase a property at a specific price.

Off-Market Property: A property not publicly listed for sale but available for purchase.

Operating Expenses: The costs associated with maintaining and managing a property, excluding mortgage payments.

Owner-Occupied: A property that is owned and used as a residence by the owner.

Passive Income: Earnings generated from rental properties without active involvement from the investor.

Pre-Approval: A lender’s preliminary approval for a loan based on a borrower’s financial profile.

Prime Location: A highly desirable area where property values are generally higher.

Principal: The original loan amount or the remaining balance of a loan, excluding interest.

Private Equity Real Estate: Real estate investment capital sourced from private investors or investment funds.

Property Management: The operation, control, and oversight of real estate on behalf of the owner.

Property Tax: A tax levied by local governments based on the assessed value of a property.

Real Estate Agent: A licensed professional who facilitates the buying, selling, or renting of properties.

Real Estate Investment Trust (REIT): A company that owns, operates, or finances income-producing real estate and allows investors to buy shares.

Refinancing: Replacing an existing mortgage with a new one, often to reduce the interest rate or extend the loan term.

Rent Control: Government regulations that limit the amount of rent a landlord can charge or how much rent can increase over time.

Rental Income: Money received by a property owner from tenants renting space on their property.

Return on Investment (ROI): The ratio of profit to the amount invested in a property.

Section 8: A government housing assistance program in the U.S. that provides rental subsidies for low-income tenants.

Short Sale: The sale of a property for less than the outstanding mortgage balance, usually to avoid foreclosure.

Subdivision: A parcel of land that has been divided into smaller lots, typically for residential or commercial development.

Tenant: A person or entity that rents or leases a property from a landlord.

Title: The legal documentation that proves ownership of a property.

Title Insurance: Insurance that protects the buyer and lender against potential legal disputes over the ownership of the property.

Underwriting: The process by which a lender evaluates the risk of providing a mortgage to a borrower.

Vacancy Rate: The percentage of all available rental units that are vacant or unoccupied at a particular time.

Valuation: The process of determining the market value of a property.

Zoning: Laws that regulate the use of land and property development within a particular area.

Yield: The income return on an investment, typically expressed as a percentage of the investment’s cost or market value.

Equity Buildup: The increase in the equity of a property due to appreciation or the reduction of loan principal.

Absorption Rate: A measure of how quickly homes are sold in a specific market during a given time period.

Anchor Tenant: A major tenant in a shopping mall or commercial development that drives traffic to the location.

Base Rent: The minimum rent due under a lease before any additional charges or escalations.

Bridge Loan: A short-term loan used to finance a property until permanent financing can be obtained.

Build-Out: Customizing the interior space of a commercial property to suit a tenant’s needs.

Capital Expenditures (CapEx): Funds used to upgrade, improve, or extend the life of a property.

Common Area Maintenance (CAM): The cost of maintaining shared areas in a commercial property, such as hallways and parking lots.

Earnest Money: A deposit made to a seller showing the buyer's good faith in completing the transaction.

Rent-to-Rent (R2R): An investor rents a property from a landlord, typically at a lower rate, and then sublets the property or rooms to tenants at a higher rent. The investor profits from the rent difference. Often used with HMOs (Houses in Multiple Occupation).

Lease Option: The investor rents a property with the option to purchase it at a later date for an agreed price. This structure gives the investor control over the property while deferring the purchase decision, allowing them to profit from rental income or capital appreciation.

Serviced Accommodation: An investor rents a property, furnishes it, and offers it as short-term accommodation to guests (e.g., Airbnb or Booking.com). The investor earns higher rental income from short-term stays than from traditional long-term tenants.

Guaranteed Rent: The investor offers a landlord a fixed rental payment, regardless of whether the property is occupied, and then sublets the property to tenants. The investor profits if the rental income exceeds the guaranteed rent.

Management Agreement: The investor manages a property on behalf of the landlord and takes a percentage of the rental income in exchange for overseeing tenant management and maintenance.

Installment Purchase Agreement: An agreement where the investor purchases a property by paying the seller in installments over time rather than through a traditional mortgage. The investor gains control of the property during the payment period.

Assisted Sale: The investor helps a property owner sell a property by funding or managing necessary improvements. In return, the investor shares in the increased sale price or profits from the improved value of the property.

Vendor Finance: The seller provides financing for a portion of the purchase price, allowing the buyer to acquire the property without needing full traditional financing. The buyer repays the seller over time.

Option Agreement: The investor secures the right, but not the obligation, to purchase a property at a later date for an agreed price. This structure allows the investor to control the property without owning it, awaiting favorable market conditions or financing.

Corporate Let: The investor rents out properties to companies, which then use the properties to house their employees or clients. This arrangement often provides a more stable and long-term rental income than traditional tenant lets.

Deal Packaging: The investor identifies and sources property deals, packages them with all necessary information and due diligence, and sells these deals to other investors for a sourcing fee. The investor profits from sourcing and facilitating the transaction.

Commercial Lease-to-Residential Conversion: The investor leases a commercial property and converts it into residential units, either to rent out or sell. This strategy often involves gaining necessary planning permissions and managing the conversion.

Flip-to-Let: The investor purchases a property, renovates it to add value, and then rents it out rather than selling. This combines the strategies of property flipping and buy-to-let, offering both immediate rental income and future capital appreciation.

Buy, Refurbish, Refinance (BRR): The investor buys a property, refurbishes it to increase its value, and then refinances the property to extract equity. The extracted equity can then be used to fund further investments, allowing the investor to grow their portfolio.

Rent-to-Buy: Similar to rent-to-rent, but with an additional option for the tenant to eventually purchase the property. The investor leases the property with the intent to sell it to the tenant at an agreed future price.

Property Sourcing for Investors: The investor identifies and negotiates off-market or below-market-value property deals and sells these leads to other investors for a sourcing fee. The sourcer profits from finding and facilitating the deal.

HMO Conversion: The investor rents or purchases a property, converts it into a House in Multiple Occupation (HMO), and rents out individual rooms to multiple tenants. This structure can generate higher rental yields than renting to a single tenant.

Serviced HMO: A variation of the HMO model where the investor offers additional services such as cleaning, laundry, or utilities. This allows the investor to charge a premium rent and cater to short-term tenants or professionals.

Deferred Consideration: The buyer agrees to pay the property seller part of the purchase price at a later date, often after meeting certain conditions or achieving project milestones, enabling the buyer to use less capital upfront.

Equity Partner: A party in a JV that provides capital in exchange for an ownership stake in the property and a share of profits.

Debt Partner: A partner who provides financing in the form of a loan to the JV, typically with fixed interest payments rather than profit-sharing.

Profit Sharing: The distribution of profits among JV partners, usually in proportion to their contributions or based on a pre-agreed formula.

Capital Contribution: The amount of money or assets that each partner contributes to the JV, which can include cash, property, or services.

Management Partner: The partner responsible for managing the day-to-day operations of the JV, such as overseeing property management, renovations, or leasing.

Silent Partner: A partner who invests capital but does not take an active role in managing the JV. They share in the profits but have limited involvement in decision-making.

Risk Sharing: The division of potential risks among JV partners, such as financial loss or liability, which is typically shared in proportion to capital or effort contributed.

Exit Strategy: A predetermined plan for how and when the JV will end, such as selling the property, refinancing, or buying out a partner.

Joint and Several Liability: A legal term that means each JV partner is individually responsible for the entire debt or obligation of the venture, not just their share.

Operating Agreement: A legal document that outlines the roles, responsibilities, contributions, and profit-sharing arrangements between JV partners.

Waterfall Distribution: A method of distributing profits in a specific sequence, where different partners receive returns based on a priority system or performance thresholds.

Preferred Return: A guaranteed minimum return that one partner (usually the equity partner) receives before other profits are distributed among the partners.

Syndication: A structure in which multiple investors pool funds together to invest in a real estate deal, with a lead partner (the syndicator) managing the project.

Capital Call: A request made by the JV for additional capital from the partners, typically to cover unforeseen costs or to fund new phases of a project.

Due Diligence: The process of thoroughly investigating a property or deal before entering into a JV agreement to ensure that all partners understand the risks and opportunities.

Contingency Plan: A backup plan within the JV in case the original investment strategy encounters problems, such as market downturns or financing issues.

Sponsor: The individual or entity responsible for finding the deal, organizing the JV, and often managing the day-to-day operations of the project.

Equity Split: The division of ownership percentages between JV partners, based on their capital contributions or other agreed-upon factors.

Carried Interest (Carry): A portion of the profits from a JV that goes to a partner (typically the sponsor) in exchange for managing the deal, even if they contributed less capital.

Escrow Account: A third-party account where funds from the JV are held until certain conditions are met, such as closing a property purchase or meeting project milestones.

Term Sheet: A non-binding agreement that outlines the basic terms and conditions of the JV, serving as a preliminary agreement before the formal contract is signed.

Limited Partner: A JV partner who contributes capital but has limited liability and decision-making power in the operation of the venture.

General Partner: A partner in the JV who takes an active management role and often has unlimited liability for the obligations of the venture.

Leveraged JV: A JV in which the partners use borrowed funds (debt) to finance the real estate deal, typically to increase the return on their equity investment.

Pro Rata: The proportional distribution of profits, costs, or liabilities based on each partner’s share of the total JV investment.

Tax Considerations: The tax implications that JV partners need to account for, such as capital gains tax, property tax, or income tax on profits.

Sweat Equity: A non-monetary contribution made by a partner, such as time, effort, or expertise, in exchange for an ownership stake in the JV.

Buyout Clause: A clause in the JV agreement that allows one partner to purchase the other partner's interest, typically triggered by certain conditions or events.

Development JV: A joint venture focused specifically on developing new real estate projects, where one partner typically provides capital and the other manages the construction and development process.

Financial Modeling: The creation of detailed financial projections for the JV, including cash flows, returns, and risk scenarios, used to evaluate the investment’s potential.

Acquisition Fee: A fee paid to the partner who finds and organizes the JV deal, typically a percentage of the property's purchase price.

Equity Waterfall: A structure for distributing profits among JV partners based on a hierarchy of returns, where certain partners are paid first before others.

Promote: An incentive structure where the sponsor or managing partner receives a higher percentage of profits once the JV reaches specific performance benchmarks.

Hold Period: The amount of time the JV intends to hold the property before selling or exiting the investment.

Reversion Value: The projected value of the property at the end of the hold period, used to estimate the profit when the property is sold.

Net Operating Income (NOI): The income generated by the property after operating expenses are deducted, often used to calculate returns in a JV.

Profit and Loss Statement (P&L): A financial statement that summarizes the revenues, costs, and expenses incurred by the JV over a specific period.

Return on Equity (ROE): A measure of the profitability of the JV, calculated as the amount of profit earned compared to the equity contributed by the partners.

Contingent Liability: A potential financial obligation that may arise in the future depending on the outcome of a particular event, such as a lawsuit or contract dispute.

Project Management Fee: A fee paid to the partner responsible for overseeing the day-to-day management of a JV project, often charged as a percentage of the project’s budget.

Exit Fee: A fee charged by one partner, typically the managing or sponsor partner, upon the sale or liquidation of the property, usually calculated as a percentage of the sale price.

Valuation: The process of determining the current market value of the property held by the JV, often used to assess partner contributions or the overall success of the venture.

Right of First Refusal (ROFR): A contractual right allowing a JV partner the first opportunity to buy out the other partner's interest before it is sold to an outside party.

Waterfall Structure: A tiered distribution mechanism in a JV that defines how returns are distributed among partners, with different levels (or tiers) receiving priority payments.

Operating Costs: The regular expenses required to maintain and operate a property in a JV, such as property management fees, repairs, and utilities.