Amortization

Amortization refers to the process of spreading out a loan into a series of fixed payments over time. When it comes to real estate, this typically means a mortgage loan on a property. The payments are divided into two parts: the principal, which is the original amount borrowed, and the... Read more

Appreciation

In the real estate investment industry, appreciation refers to the increase in the value of a property over time. This can occur for a variety of reasons, such as general inflation, increased demand, improvements to the property, or changes to the area around the property that make it more desirable.... Read more

Asset

An asset typically refers to a piece of real estate property that the REIT owns and manages. These assets can include a wide range of property types, such as office buildings, shopping centers, apartments, warehouses, hotels, or healthcare facilities. These assets are purchased and managed by the REIT with the... Read more

Base Rent

In the real estate investment industry, Base Rent refers to the minimum amount of rent that is due under a lease agreement, not including any additional charges or costs that could be incurred. These additional charges might include operating expenses, property taxes, insurance, maintenance costs, and utilities, depending on the... Read more

Bond

In the context of the real estate investment industry, the term bond typically refers to a type of debt security in which an investor loans money to an entity, such as a corporation or government, which borrows the funds for a specific period of time at a fixed interest rate.... Read more

Building Code

Building codes are sets of regulations that govern the design, construction, alteration, and maintenance of structures. They specify the minimum requirements to adequately safeguard the health, safety, and welfare of building occupants. Building codes play a vital role in the real estate industry. Before an investor purchases a property, they... Read more

Built-To-Suit

Built-To-Suit refers to a method of commercial leasing in which the landlord or developer constructs a building to the tenant's specifications. In a built-to-suit arrangement, a tenant will generally have significant input into the design, layout, and finishes of the building, as the property is intended to suit their specific... Read more

Business Trust

A Business Trust is a type of unincorporated business organization which operates much like a corporation. The trust is managed by trustees for the benefit of its owners, who are known as beneficiaries. These beneficiaries hold "units" in the trust, which are similar to shares of stock in a corporation.... Read more

CAM (Common Area Maintenance)

Common Area Maintenance (CAM) is a critical concept in the real estate investment industry, particularly in the realm of commercial real estate. In a commercial lease, CAM charges are costs that are passed on to the tenant by the landlord for the maintenance and upkeep of common areas that are... Read more

CapEx

CapEx, short for Capital Expenditures, refers to the funds used by a company to acquire, upgrade, and maintain physical assets such as property, buildings, or equipment. CapEx could be significant repairs or improvements that increase the property's value or extend its life, such as replacing the roof, installing a new... Read more

Capital Expenses

Capital expenses, often referred to as CapEx, are substantial costs a business incurs to either buy, maintain, or improve its fixed assets such as buildings, vehicles, equipment, or land. In the context of the real estate investment industry, these are major improvement costs that extend the life of the property... Read more

Capital Gain

Capital gain, within the context of the real estate investment industry, refers to the increase in the value of a real estate property or investment over time. This increase in value, when the property is sold, results in a profit for the investor, which is known as a capital gain.... Read more

Capital Gain or Loss

Capital gain or loss in the real estate investment industry refers to the difference in the purchase price and the selling price of real property. A capital gain occurs when you sell a real estate property for more than you purchased it. The gain is the amount by which the... Read more

Capital Gain Tax

Capital Gain Tax in the context of the real estate investment industry refers to a type of tax that is levied on the profit (the capital gain) realized from the sale of a real estate property or investment. The tax is only applied when the property is sold, and not... Read more

Capitalization Rate

The capitalization rate, often just called the cap rate, is a metric that is widely used in the real estate investment industry to estimate the potential return on an investment property. The cap rate is calculated by taking the net operating income (NOI) of the property (i.e., the income the... Read more

Cash Flow

Cash Flow refers to the net amount of money that is being transferred into and out of a property investment. This typically includes income generated from the property, such as rental payments, and subtracts any operating expenses and debt service (if applicable). Positive cash flow occurs when the income generated... Read more

Cash-On-Cash Return

Cash-on-cash return is a financial metric commonly used in the real estate investment industry to measure the return on investment (ROI) directly received from an investment property. It is calculated by dividing the annual pre-tax cash flow by the total cash invested. This metric helps investors to evaluate the business... Read more

Commercial Property

Commercial property refers to real estate properties that are primarily used for business purposes. These properties are leased out to provide workspace rather than living space, generating a steady stream of income for the property owner. Commercial properties can come in several forms, including: Office Buildings: These can range from... Read more

Debt Service

Debt service generally refers to the cash that is required to cover the repayment of interest and principal on a debt for a particular period. In the context of the 1031 exchange industry, the concept of debt service is crucial. A 1031 exchange, as per the U.S. tax code, allows... Read more

Deed

A deed is a legal document that signifies ownership of a property. The deed includes information about the seller (grantor) and buyer (grantee), as well as a detailed description of the property. When the property is sold, the seller signs the deed over to the buyer. There are different types... Read more

Dividend

In the real estate investment industry, a dividend refers to a distribution of earnings made by a real estate investment trust (REIT) or a similar type of company to its shareholders. Dividends are usually issued as cash payments, but can also be in the form of additional shares of stock... Read more

DownREIT

A DownREIT is a type of property transaction that can be used as a tax-deferred exit strategy when selling real estate. It combines the benefits of a property sale and a tax-deferred exchange. A property owner (the "down" part of DownREIT refers to the "drop" in property) forms a joint... Read more

DSCR

DSCR stands for Debt Service Coverage Ratio. This is a key financial metric used by lenders and investors to assess the financial health and cash flow of a real estate project. The ratio provides a measure of the cash flow available to pay the current debt obligations of a property.... Read more

Due-On-Sale Clause

A "Due-On-Sale Clause" is a provision in a mortgage or deed of trust contract with a lender that states the loan must be paid in full upon the sale or transfer of the property. This clause helps the lender mitigate risk by preventing the mortgage from being transferred when the... Read more

Equity REIT

An Equity Real Estate Investment Trust, or Equity REIT, is a type of company within the real estate investment industry that owns, operates, and manages income-producing real estate. This real estate may include a wide variety of properties, such as office buildings, shopping malls, apartments, hotels, and warehouses. Investors can... Read more

Gross Lease

A gross lease refers to a specific type of commercial lease arrangement where the tenant pays a fixed rental amount, and the landlord assumes responsibility for most, if not all, of the property's operational expenses. This contrasts with a net lease, where the tenant might be responsible for some or... Read more

Gross Rent Multiplier (GRM)

The Gross Rent Multiplier (GRM) is a valuation metric used in the real estate investment industry. It's calculated by dividing the purchase price of a property by its gross annual rental income before expenses. GRM = Purchase Price / Gross Annual Rental Income The Gross Rent Multiplier is used to... Read more

Ground Lease

A ground lease refers to an agreement in which a tenant is permitted to develop a piece of property during the lease period, after which the land and all improvements are turned back over to the property owner. The lessee (tenant) pays the lessor (landowner) for the use of the... Read more

Hybrid REIT

A Hybrid Real Estate Investment Trust (REIT) is a type of REIT that combines the investment strategies of both equity REITs and mortgage REITs. Equity REITs: These trusts invest in and own properties, generating income primarily through rent received from these properties. Equity REITs profit from the long-term appreciation of... Read more

Income Property

Income property refers to a property purchased or developed to earn income through renting, leasing, or price appreciation. This type of property usually provides a return on investment through either rental income or capital gains when the property is sold. Income properties can include residential, commercial, and mixed-use buildings. Residential... Read more

Interest

Interest refers to the charge for the privilege of borrowing money, typically expressed as an annual percentage rate. It can also refer to a share or a right in a property or in an investment. Here's a bit more detail on how interest works in real estate investment: Mortgage Interest:... Read more

Internal Rate Of Return (IRR)

Internal Rate of Return (IRR) is a financial metric that is widely used in the real estate investment industry to evaluate the profitability and potential returns of an investment over time. It represents the annualized effective compounded return rate which equates the present value of cash inflows to the initial... Read more

Landlord

A landlord refers to an individual, business, or entity that owns property and leases it to another party, known as a tenant, for a specified period of time. The property can be residential, commercial, or industrial, and the lease agreement outlines the terms and conditions under which the tenant may... Read more

Lease

A lease refers to a contractual arrangement between two parties: the lessor (owner or landlord) and the lessee (tenant). The lease agreement stipulates the terms and conditions under which the property (which can be residential, commercial, or industrial) is rented by the lessee. Here's a more detailed explanation of the... Read more

Lease Rate

The Lease Rate refers to the cost of renting a particular property. It is the amount that a tenant must pay to the property owner or landlord for the right to use and occupy the property. The lease rate is often expressed on a per-square-foot basis and may be quoted... Read more

Lease Renewal

A Lease Renewal refers to the process of extending the term of a lease agreement between the landlord (which could be a real estate investor or property management company) and the tenant. This typically involves a review of the terms and conditions under which the property was originally leased and... Read more

Lease Term

A Lease Term refers to the period for which a lease agreement is valid between the landlord and tenant. It is a specific duration of time during which the tenant has the legal right to occupy the property under the conditions stipulated in the lease agreement. Lease terms can vary... Read more

Lease Termination

In the real estate investment industry, Lease Termination refers to the ending of a lease agreement between the landlord (often the real estate investor or owner) and the tenant before the originally agreed-upon expiration date. Lease Termination can happen for various reasons, including: Mutual Agreement: Both parties may agree to... Read more

LTV

LTV stands for "Loan-to-Value." It's a ratio that compares the amount of a loan to the appraised value or market value of the property that will secure the loan. Essentially, it represents the percentage of the property's value that is financed through a loan. The LTV ratio is an important... Read more

Market Value

Market Value refers to the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably and assuming the price is not affected by undue stimulus. It represents an unbiased... Read more

Mixed-Use Property

Mixed-use property refers to a real estate development that combines different uses within a single property, typically blending residential, commercial, cultural, institutional, or industrial functions. This can be a highly efficient use of space and may lead to a more vibrant, pedestrian-friendly environment. In the real estate investment industry, mixed-use... Read more

Mortgage

A mortgage refers to a legal agreement by which a financial institution, such as a bank or mortgage lender, lends money to a borrower at interest. In exchange, the lender takes the title of the borrower's property as collateral until the mortgage is paid off in full. Loan Agreement: The... Read more

Mortgage REIT

A Mortgage Real Estate Investment Trust (REIT) is a type of company within the real estate investment industry that focuses on owning, financing, or investing in mortgages and mortgage-related securities. Unlike Equity REITs, which directly own and manage real estate properties, Mortgage REITs deal with the financing side of real... Read more

Mortgage-Backed Securities

Mortgage-Backed Securities (MBS) are a type of investment product that plays a significant role in the real estate investment industry. Mortgage-Backed Securities (MBS) are financial instruments that are backed by a pool of mortgages, typically residential but sometimes commercial. These mortgages are bundled together into a security, and the interest... Read more

Multi-Family Property

A Multi-Family Property refers to a type of residential property that consists of multiple individual housing units within a single building or complex. These units may be condominiums, apartments, townhouses, or other similar housing structures that are designed to accommodate more than one family or tenant. Investors in multi-family properties... Read more

Net Lease

A net lease is a lease agreement where the tenant is responsible for paying not only the rent but also some or all of the property's operating expenses. These expenses may include property taxes, insurance, maintenance, utilities, and other related costs. The net lease is typically used in commercial real... Read more

Net Operating Income (NOI)

Net Operating Income (NOI) is a key metric in the real estate investment industry that represents the total revenue generated from a property, minus the operating expenses. It is used to evaluate the profitability and potential return on investment for a real estate asset. Here's a breakdown of what NOI... Read more

NOI Margin

NOI, or Net Operating Income represents the total income a property generates after accounting for all operational expenses, but before accounting for mortgage interest and capital expenditures. It gives an investor or property owner a clear picture of the property's operating profitability. The "NOI Margin" is a metric that helps evaluate... Read more

Non-Traded REIT

A Non-Traded REIT stands for a Non-Traded Real Estate Investment Trust. It is a type of REIT (Real Estate Investment Trust) that is not listed on a national securities exchange, which means that it is not publicly traded. Here's a more detailed definition in the context of the real estate... Read more

Occupancy Rate

The Occupancy Rate is a metric used to evaluate the extent to which rental property is utilized. It is typically expressed as a percentage and represents the proportion of rented or occupied units to the total units available. Occupancy Rate=(Total Number of Units / Number of Occupied Units)×100 For instance,... Read more

Operating Expenses

Operating Expenses refers to the costs associated with the operation, maintenance, and management of a property. These are the expenses a property owner incurs to keep the property running, not including any mortgage payments or capital expenditures. Some common operating expenses in real estate include: Property Taxes: Paid to the... Read more

Operating Partnership Unit (Op Unit)

In the Real Estate Investment Trusts (REITs) industry, an Operating Partnership Unit (Op Unit) is a type of ownership interest. Here's a detailed explanation: Real Estate Investment Trusts (REITs): REITs are entities that own, operate, or finance income-producing real estate across a range of property sectors. Publicly traded REITs are... Read more

Percentage Rent

Particularly in the context of retail and commercial leases, percentage rent is a rental arrangement where the tenant pays a base rent plus a percentage of their gross income (or gross sales) to the landlord. This type of lease arrangement is especially common in shopping centers and malls where landlords... Read more

Principal

In a Real Estate Investment Trusts (REITs) and Delaware Statutory Trusts (DSTs), the term principal is a key financial concept that refers to the original amount of money invested by an individual or entity. It is crucial to understand this term as it forms the foundation upon which any potential... Read more

Private REIT

A Private REIT (Real Estate Investment Trust) is a type of REIT that is not publicly traded on a stock exchange. It is, as the name suggests, private. Structure: Like all REITs, a Private REIT is a company that owns, operates, or finances income-producing real estate. They allow multiple investors... Read more

Property Management

Property Management refers to the administration, oversight, and operation of real property, either residential or commercial, on behalf of the property owner. The primary role of a property manager is to serve as an intermediary between landlords (or property owners) and tenants (or lessees) and to manage the day-to-day tasks... Read more

Publicly Traded REIT

A Publicly Traded REIT refers to a Real Estate Investment Trust that has shares listed and traded on a recognized stock exchange. REITs are companies that own, operate, or finance income-producing real estate across a range of property sectors. By law, REITs are required to distribute a significant portion (usually... Read more

Real Estate Cycle

The real estate cycle refers to the recurring fluctuations in the growth, stability, decline, and recovery of real estate markets over time. Just as with many other types of economic cycles, the real estate cycle is influenced by a variety of macroeconomic factors and can vary in length and intensity.... Read more

Redemption

Redemption refers to the act of an investor exiting an investment, usually a real estate investment trust (REIT), private real estate fund, or a Delaware statutory trust (DST). This process involves selling the investor’s shares or interest in the investment back to the issuing entity or another investor. Here’s a... Read more

Refinancing

Refinancing refers to the process of obtaining a new mortgage to replace the original mortgage on a property. This is typically done to take advantage of better loan terms or to extract equity from the property. Refinancing in Real Estate Investment Purpose: Investors often refinance properties to: Secure a lower... Read more

REIT

REIT, or Real Estate Investment Trust, is a company that owns, operates, or finances income-producing real estate across a range of property sectors. These real estate companies have to meet a number of requirements to qualify as REITs. Most REITs trade on major stock exchanges, and they offer a number... Read more

REIT Index

A REIT (Real Estate Investment Trust) index is a type of benchmark that tracks the performance of a portfolio of REITs. REITs are companies that own, operate, or finance income-generating real estate across a range of property sectors. These companies need to meet a number of regulatory requirements to qualify... Read more

Residential Property

Residential Property refers to any property that is designed for individuals or families to live in. These properties can range from single-family homes to multi-family properties such as apartment complexes or duplexes. The primary purpose of residential properties is to provide housing rather than to serve a commercial or industrial... Read more

Return On Investment (ROI)

Return on Investment (ROI) is a key performance metric commonly used in various industries, including real estate investment, to evaluate the profitability and efficiency of an investment. In the context of the real estate investment industry, ROI is used to analyze the return or profit made from an investment in... Read more

Securities and Exchange Commission (SEC)

The Securities and Exchange Commission (SEC) plays a pivotal role in the oversight and regulation of various sectors within the financial industry, including real estate investments. The SEC is a U.S. federal agency responsible for enforcing federal securities laws, regulating the securities industry, and ensuring that investors are provided with... Read more

Securities Offering

Securities Offering refers to the process of selling shares or stakes of a real estate investment to investors. These offerings can be public or private and involve the selling of securities, which represent an ownership interest in a real estate project or a pool of real estate assets. Here’s a... Read more

Single-Family Property

A single-family property refers to a residential building that is designed to house one family or household. Unlike multi-family properties like duplexes or apartment buildings, a single-family property stands alone with no shared walls or common areas. Here’s a breakdown of what defines a single-family property in the context of... Read more

Sublease

A sublease is a lease agreement in which the current tenant leases all or part of a rental property to another party, known as the subtenant or sublessee. This often occurs when the initial tenant needs to vacate the property temporarily or permanently before the lease term expires and doesn’t... Read more

Taxpayer

A taxpayer in the real estate investment industry can be either an individual or an entity that bears the responsibility of paying taxes on the income generated from their real estate investments. Individual taxpayers could be homeowners living in their primary residences, responsible for property taxes, and possibly capital gains... Read more

Tenant

In the real estate investment industry, a tenant holds significant importance as an occupier of the property, facilitating various aspects of investment outcomes. Tenants occupy and utilize spaces such as residential, commercial, or industrial properties based on the terms laid out in a lease or rental agreement with the landlord... Read more

Tenant Improvement

Tenant Improvement (often abbreviated as TI) refers to the customized alterations a building owner makes to rental space as part of a lease agreement, to configure the space for the needs of that specific tenant. These improvements can include changes like new flooring, wall partitions, air conditioning systems, restrooms, or... Read more

Tenant Screening

Tenant screening is a crucial process in the real estate investment industry, primarily focused on residential rental properties. It is a procedure undertaken by landlords, property managers, or real estate investors to evaluate prospective tenants who wish to lease a residential property. The objective of tenant screening is to assess... Read more

Title Insurance

Title insurance is a specialized type of insurance that plays a critical role in the real estate investment industry. When a person invests in real estate, they essentially purchase the legal ownership, or "title," of a property. Title insurance is meant to protect the investor (or homeowner) and mortgage lender... Read more

Turnkey Property

In the real estate investment industry, a turnkey property refers to a property that has been purchased, renovated, fully equipped, and is ready for immediate rental. From an investment perspective, these properties are often sold to buyers who are looking for an investment that requires minimal to no additional work... Read more

Underwriting

Underwriting in terms of real estate investments refers to the process by which an individual or entity (usually a lender or an investor) evaluates the risks involved in a particular real estate transaction and assesses the financial health and creditworthiness of the potential borrower or the viability of the real... Read more

Vacancy Rate

The Vacancy Rate refers to the percentage of all available units in a rental property, such as an apartment complex, office space, or shopping center, that are vacant or unoccupied at a particular time. It is a critical economic indicator used to assess the performance of rental properties. To calculate... Read more

Wholesaling

Wholesaling refers to a strategy where the wholesaler contracts a home with a seller and then finds an interested party to buy it. The wholesaler doesn't actually purchase the property themselves; instead, they secure the rights to buy it through a contract and then sell or assign that contract to... Read more

Real Estate Investment Trust Glossary