Archives: Glossary Terms

The manner in which the investment in a property is to be returned to investors, normally stated as a rate or dollar amount per unit of time.

A process of reflecting future income in present value and used to determine the value of property by considering its net income and a percentage of reasonable return on the investment. The value of an income property can be determined by dividing annual net operating income by its capitalization rate.

The rate of interest, made up of the interest rate (return on the investment) plus the recapture rate (return of the original investment), which is considered a reasonable return on the investment and used in the process of determining value based upon net income. It may also be described as the yield rate that is necessary to attract the money of the average investor to a particular kind of investment. In the case of land improvements which depreciate, to this yield rate is added a factor to take into consideration the annual amortization factor necessary to recapture the initial investment in improvements. This amortization factor can be determined in various ways (a) See straight-line depreciation method, (b) See Inwood Tables and (c) See Hoskold Tables.

An estimation of the present lump sum value of an income stream. See Capitalization rate.

Financing in which the seller takes back a note for part of the purchase price secured by a junior mortgage, a wraparound mortgage or a land contract..

Charges for holding property such as the expense of property tax on vacant land or on property under construction.

In a tax-deferred exchange, the adjusted tax basis of the property surrendered that is used to determine the tax basis of the property acquired. See Basis.

The conversion of the price a piece of property sold for with either favorable or unfavorable financing into the price the property would have sold for had the seller accepted all cash in the transaction.

The net income generated by a property before depreciation and other non-cash expenses.

An accounting method that calls for income and expenses to be booked when the amount is received or the obligation is paid. See Accrual method.