Real Estate Investment Terms

Below is a glossary of investment terms you are going to come across at sometime in your real estate ventures. It is by no means a complete list, but with your help it will be one day. If there is a term you are looking for that is not here reach out to us so that it can be added.

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Abstract of Judgment
The summary of a court judgment that creates a lien against a property when filed with the county recorder

Abstract of Title
Historical summary of all of the recorded instruments and proceedings that affect title to a property.

Accelerated Cost Recovery System
A tax calculation that provides greater depreciation in the early years of ownership of real estate or personal property. Usually, depreciation is base upon 39 years for non residential commercial property and 27.5 years for residential property (even multifamily). When you accelerated this process you have a study of the property done to accelerated that depreciation and take a higher dollar amount over fewer years.

Acceleration Clause
A loan provision giving the lender the right to declare the entire amount immediately due and payable upon violation of another specific loan provision, commonly referred to as the Due on Sale Clause.

Acquisition Cost
The price and all fees required to obtain a property.

Adjustable Rate Mortgage (ARM)
An adjustable-rate mortgage, is a type of mortgage in which the interest rate applied on the outstanding balance varies throughout the life of the loan. Normally, the initial interest rate is fixed for a period of time, after which it resets periodically. The interest rate resets based on a benchmark or index plus an additional spread, called an ARM margin.

Adjusted Cost Basis
The cost of any improvements the seller makes to the property. Deducting the cost from the original sales price provides the profit or loss of a home when it is sold.

Adjusted Tax Basis
The original cost or other basis of the property, reduced by depreciation deductions and increased by capital expenditures.

Adjustment Period
The amount of time between interest rate adjustments in an adjustable-rate mortgage.

Alienation
The voluntary and absolute transfer of title and possession of real property from one person to another.

Alligator Property
When the cost of mortgage payments, property taxes, insurance and maintenance on a rental property is greater than the income it brings in. Leads to negative cash flow. Usually occurs when buyer overpays for a property or purchases near the max value.

Amortized Loan
Loan that is repaid in a series of installments each of which contains a portion that is applied to reduce the principal amount of the loan and a portion that is applied to pay interest with each successive payment allocates a larger portion to principal reduction and a smaller portion to interest payment until the outstanding balance is ultimately reduced to zero.

Annual Cap
Maximum amount the interest rate on an adjustable rate mortgage can be raised or lowered in the course of one twelve month period.

Appreciation
Appreciation refers to the increase in the value of a property over time. Appreciation is usually projected as a percentage of the property’s value over the course of a year. Appreciation can be cause by supply and demand, inflation, or valued that has been added to a property.

Arrears
Mortgage payment includes interest for prior month, or overdue payments in default.

As-Is
Without guarantees as to condition.

Assessed Value
The value established for property tax purposes. Multiply the assessed value by the millage rate to see the property taxes.

Assignee
The person to whom an agreement or contract is sold or transferred.

Assignment
The method by which a right or contract is transferred. One person finds and locks up the property but does not close on the property, instead that person assigns the contract to someone else and that person closes on the property.

Assignor
The person who assigns or transfers an agreement or contract to another.

Assumable Mortgage
An existing mortgage which allows the next purchaser of a property to be liable for the payments and other obligations of the note and mortgage. Depending on the type of loan, the assumption of the obligation by this next purchaser may or may not require a qualification and approval process and may or may not release the original mortgagor (borrower) from further liability. A written release from the mortgagee (lender) is required to relieve the original mortgagor of responsibility.

Attornment
A tenant’s formal agreement to be a tenant of a new landlord.