Bīuilding Classifications: Investment properties in the real estate market are divided into four classifications (A, B, C, and D) based on value, allowing investors to determine the value, risk, and profitability of a potential purchase. For more information, click here.Īssumable Mortgage: A financing arrangement in which a buyer assumes the mortgage of the seller after paying the difference between the home price and the mortgage balance. Financing terms are often matched to this hold period to optimize returns.Īppraisal: The process of determining the value of a property through an independent survey, often required by a lender in order to ensure the money being borrowed is a fair amount for the property.Īppraised Value: The appraised value of a property is determined by an independent survey conducted by a lender and is useful in determining how much money can be borrowed for its purchase and under what terms.Īppreciation: A measure of the estimated increase in value of an asset over a certain time frame. It compares the costs of different loans, such as mortgages and other real estate loans. For more information, click here.Īnticipated Hold Period: This is the period of time that an investor anticipates holding each home before looking to liquidate the property. It includes costs related to improving a rental property and is often distributed over the “useful life” of a property rather than as one big lump sum.Īnnual Percentage Rate (APR): The cost of credit expressed as a yearly interest rate. Even though the mortgage repayment amount is the same each month, the amount going towards the principal starts out small, with the majority of the payment going towards interest. For more information, click here.Īnnual Depreciation Allowance: This is the amount an investor is allowed to deduct or write off in taxes every year based on the depreciation of a property. For more information, click here.Īfter Repair Value (ARV): The value of a property after repairs and improvements have been made. For more information, click here.Īmortization: Amortization refers to the amount of principal and interest paid each month over the course of the loan. For more information, click here.Īdjustable-Rate Mortgage (ARM): A mortgage that does not have a fixed interest rate – that is, the interest rate fluctuates based on the benchmark interest rate. For more information, click here.Īffordable Housing: Dwelling units that cost no more than 30% of an area’s median household income as determined by the federal government, local government, or a recognized national affordability index.
The most common qualifications are having a $1M net worth or earning an income of $200,000 for 2 years in a row ($300,000 if married).Īcquisition Cost: The total cost of buying an investment property, including mortgage loan fees, closing costs, inspection fees, etc.Īd Valorem Tax: Ad valorem is Latin for “according to value.” So, unlike excise or transactional taxes, where the tax amount or percentage is constant, ad valorem tax is proportional to the property’s assessed value.
AĪccessory Dwelling Unit: “A smaller, independent residential dwelling unit located on the same lot as a stand-alone (i.e., detached) single-family home,” according the the American Planning Association.Īccredited Investor: A type of real estate investor that is allowed to invest in riskier investments. For more information, click here.ġ031 Exchange: A tax break that allows you to sell a business property or real estate held as an investment and swap it for a new one for the same purpose while deferring the capital gains tax on the sale. For more information, click here.Ģ% Rule: In real estate, the 2% rule advises that for an investment property to have a positive cash flow, the monthly rent should be equal to or greater than two percent of the purchase price. To run the 1% rule on a property, calculate 1% of the property’s purchase price to determine the minimum monthly rent to charge. Numericalġ% Rule: A calculation to determine whether an investment property’s cash flow makes it a good buy. Below is a Real Estate Glossary that defines the key terms that investors should Know.
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