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STAN BOTELLO
Shorewood Realtors
3300 Highland Avenue
Manhattan Beach, CA 90266
310-795-0898
310-546-7561 Ext 463
Stan@SellingBeachProperty.com
Shorewood Realtors
3300 Highland Avenue
Manhattan Beach, CA 90266
310-795-0898
310-546-7561 Ext 463
Stan@SellingBeachProperty.com
Real Estate Glossary
Adjustable Rate Mortgage (ARM): A loan by which the monthly payment may adjust (increase or decrease) over the life of the loan based upon the loans interest rate index, margin, etc. ARMs are tied to indices such as a one-year Treasury note or 6 month Treasury bill. The adjustment periods vary, for example every 6 months or once per year, depending on the terms of the loan.
Adjusted Basis: Generally referred to as the original purchase price of a property (cost basis), plus capital improvements made, minus total depreciation taken, plus costs of sale. Additional costs may be included.
Adjusted Gross Income/Effective Gross Income: On income producing properties, the gross scheduled/rental income plus income generated from other sources, such as parking, laundry facilities, storage, etc.
Amortization: The gradual repayment of a mortgage through monthly payments over a specified period of time. Example, many loans are amortized over a 30 year period of time.
Annual Percentage Rate (APR): The annual total cost of financing, including interest rate, loan fees and other costs. Stated as a percentage of the loan amount.
Appraisal/Appraised Value: An estimate of a property's market value. Many factors are considered in forming an opinion of a property's value, such as comparable properties (comps), condition, location, amenities, etc.
Basis: The Book Value of a property considered for tax reporting purposes.
Boot: Cash received and/or mortgage relief from exchanging one property for another, as in a tax deferred 1031 exchange. Boot is taxable.
Build to Suit Tax Deferred Exchange: Allows the taxpayer to construct improvements on the replacement property during the course of the exchange.
Capital Improvement: An improvement made to a property that will prolong the life of the property; not a repair.
Capitalization Rate (Cap Rate): A percent return on an investment based upon the full price of the property and the property's net operating income (NOI).
Caps: A provision on an adjustable rate mortgage (ARM) limiting how much the interest rate can change over the life of the loan.
Cash Flow: The cash on hand before taxes, after subtracting a property's debt service from its net operating income (NOI). Another term for cash flow is 'cash on cash'.
Closing Costs: Expenses, other than the property, incurred by both sellers and buyers in transferring a property. Common closing costs include escrow fees, title insurance, document recording fees, real estate brokerage fees, etc.
Comparables (Comps): Properties that have recently sold and are similar to a property in which a valuation is being determined. Comps can also include property listings that are currently on the market, have recently expired, etc. A tool in appraising a property's value.
Constructive Receipt: In a tax deferred exchange, having control of the cash proceeds without actual physical possession by the Exchanger.
Cost Basis: Generally referred to as the original purchase price of a property. Usually consisting of the cost of the property and nondeductible buying expenses.
Debt-To-Income Ratio: The ratio of a persons total monthly debt payments to their monthly gross income. A ratio that lenders use to determine if a borrower qualifies for a mortgage.
Debt Service: The total monthly or annual mortgage loan payment consisting of interest and principle.
Debt Service Coverage Ratio: The ratio between a property's net operating income and its debt service/loan payment. A ratio amount established and used by lenders to determine a maximum loan amount.
Deed of Trust: A document in which a borrower conveys title rights of real property to a trustee to be held in trust for the beneficiary of the trust. The lender is the beneficiary.
Delayed Tax Deferred Exchange: After the relinquished property has closed escrow, the replacement property must be identified within the first 45 days, and purchased within 180 days.
Depreciation Allowance: A tax deduction provided to property owners who depreciate their property's improvements/structures. Depreciation is considered the loss in value due to physical wear and tear, outdated improvements, etc.
Direct Deeding: In a tax deferred exchange, the current owner of a property deeds directly to the new owner/buyer. This process does not eliminate the duties of the Intermediary to acquire and transfer the relinquished property and acquire and transfer the replacement property.
Down payment: The portion of a property's sales price that the buyer pays in cash. The buyer's initial investment.
Earnest Money/Deposit: The money that the buyer deposits, usually with an escrow company, that indicates to the seller the seriousness of the buyer to purchase the property. The deposit becomes part of the buyers down payment. The earnest money/deposit is usually refundable to the buyer should a contingency of the sale not be met.
Equity: The difference between a property's value and the balance of the mortgage loans still owed on the property.
Escrow: The holding and administration of documents and money by a neutral third party prior to the closing of the sale.
Exchange Period: In a tax deferred exchange, the replacement property must be acquired on or before the following dates: 180 days from the transfer of the relinquished property, or the date the tax return is due for the tax year in which the relinquished property is transferred. The taxpayer has the right to request an extension to file their tax return, however, the entire exchange period cannot exceed 180 days.
Exchanger: The taxpayer(s) of real property making a tax deferred exchange.
Fixed-Rate Mortgage: A loan on which the interest rate and monthly payment do not change.
Gross Rent Multiplier (GRM): The relationship between a property's price and the gross rental income that it generates. Used to establish a property's value within a specific geographic area.
Gross Operating Income (GOI): On income producing properties, the gross amount of money collected after vacancy and credit losses are taken.
Gross Scheduled Income/Gross Rental Income: Total gross rental income before any vacancy or credit losses are taken.
Growth Factor: Interest earned during the Tax Deferred Exchange process.
Hazard Insurance: An insurance policy that protects a property against fire, wind or other hazards.
Homeowner's Warranty: A policy held by the owner of a newly purchased property that covers certain repairs such as plumbing and heating. The policy is in affect for a specific period of time usually for one year.
Identification Period: In a tax deferred exchange, the replacement property(s) must be identified within 45 days of the close of escrow/closing of the relinquished property.
Intermediary: An Intermediary is a company that acts as the accommodator in a tax-deferred exchange.
IRS Code (sec.) 1031 Tax Deferred Exchange: Defined as an exchange in which the taxpayer (exchanger) transfers property held either for the productive use in a trade or business or for investment and subsequently receives another property to be held either for productive use in a trade or business or for investment.
Lease: A contract or written agreement, which grants possession of a specific property or part of a building for a specified period of time in exchange for rent.
Lessee: A tenant who leases property from a landlord/lessor.
Lessor: A property owner/landlord who leases property to a tenant/lessee.
Like-Kind Property: Real property exchanged for another property if both properties are held for the productive use in trade or business or for investment purposes.
Loan-To-Value Ratio: The ratio of the loan amount on a property and the property's value or purchase price.
Margin: On an adjustable rate mortgage (ARM), the margin is the lenders profit usually 2-3 percent. The margin is added to the index to arrive at the note rate.
Mortgage: A property lien and financing instrument that secures real property as security for a loan.
Mortgagee: The lender in a mortgage agreement.
Mortgagor: The borrower in a mortgage agreement.
Note: A document signed by a borrower, which acknowledges the debt of a loan and promising repayment under specific terms and conditions.
Net Operating Income: The amount of money collected after all expenses have been paid, excluding debt service.
Operating Expenses: Usually given as a percentage of the gross scheduled/rental income. Typical expenses include taxes, insurance, utilities, management, grounds maintenance, etc. Debt service is not included.
Origination Fee: A fee that lenders charge borrowers for making a mortgage loan.
PITI: Principal, interest, taxes and insurance. In qualifying buyers, lenders prorate taxes and insurance on a monthly basis and add them to the loans monthly principal and interest. Combined, they represent the amount of money needed to cover the primary components of a monthly mortgage payment.
Points: A loan fee charged by lenders to increase their return on the transaction. A point is equal to one percent of the mortgage loan amount.
Principal: The loan amount on a property or the amount still owed.
Private Mortgage Insurance (PMI): Insurance issued by private insurers to lenders to protect the lender against loss if a borrower defaults on a mortgage with a low down payment.
Pro Forma Information: Hypothetical information that may be used on property listings. As an example, a property listing may report both actual and pro forma rents, rents that are considered potential or possible.
Relinquished Property: The property being sold/exchanged by the Exchanger.
Replacement Property: The property being purchased/acquired by the Exchanger.
Reverse Tax Deferred Exchange: Allows the purchase of the replacement property before selling the relinquished property. The relinquished property must be identified within 45 days after escrow has closed on the purchased property and must close escrow no later than 180 days.
Seller Financing: A financing agreement made by the seller for all or part of the financing needed by the buyer to purchase the seller's property.
Sequential Deeding: In a tax-deferred exchange, the relinquished property is deeded to the Intermediary and the Intermediary deeds the property to the buyer.
Simultaneous/Concurrent Exchange: A tax deferred exchange when both the relinquished and replacement properties close escrow the same day.
Tenants In Common (TIC) Tax Deferred Exchange: An IRS Code (sec.) 1031 exchange into a fractional ownership of institutional grade real estate investment. TIC exchanges are structured and offered by investment companies who specialize in the acquisition, management and sale of income producing investments.
Title: A legal document establishing the right of ownership of a property.
Title Insurance: Insurance that protects both buyer and lender against losses over the ownership of a property.
Underwriting: The approval process used by lenders to evaluate a loan application to determine if it meets the lender's standards.
Vacancy Rate/Allowance and Credit Loss: Usually stated as a percentage of the Gross Scheduled/Rental Income. An income deduction due to vacancies and uncollected rents.
Yield/Return on Equity: The percent return on the down payment and as compared with the property's cash flow.
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Adjustable Rate Mortgage (ARM): A loan by which the monthly payment may adjust (increase or decrease) over the life of the loan based upon the loans interest rate index, margin, etc. ARMs are tied to indices such as a one-year Treasury note or 6 month Treasury bill. The adjustment periods vary, for example every 6 months or once per year, depending on the terms of the loan.
Adjusted Basis: Generally referred to as the original purchase price of a property (cost basis), plus capital improvements made, minus total depreciation taken, plus costs of sale. Additional costs may be included.
Adjusted Gross Income/Effective Gross Income: On income producing properties, the gross scheduled/rental income plus income generated from other sources, such as parking, laundry facilities, storage, etc.
Amortization: The gradual repayment of a mortgage through monthly payments over a specified period of time. Example, many loans are amortized over a 30 year period of time.
Annual Percentage Rate (APR): The annual total cost of financing, including interest rate, loan fees and other costs. Stated as a percentage of the loan amount.
Appraisal/Appraised Value: An estimate of a property's market value. Many factors are considered in forming an opinion of a property's value, such as comparable properties (comps), condition, location, amenities, etc.
Basis: The Book Value of a property considered for tax reporting purposes.
Boot: Cash received and/or mortgage relief from exchanging one property for another, as in a tax deferred 1031 exchange. Boot is taxable.
Build to Suit Tax Deferred Exchange: Allows the taxpayer to construct improvements on the replacement property during the course of the exchange.
Capital Improvement: An improvement made to a property that will prolong the life of the property; not a repair.
Capitalization Rate (Cap Rate): A percent return on an investment based upon the full price of the property and the property's net operating income (NOI).
Caps: A provision on an adjustable rate mortgage (ARM) limiting how much the interest rate can change over the life of the loan.
Cash Flow: The cash on hand before taxes, after subtracting a property's debt service from its net operating income (NOI). Another term for cash flow is 'cash on cash'.
Closing Costs: Expenses, other than the property, incurred by both sellers and buyers in transferring a property. Common closing costs include escrow fees, title insurance, document recording fees, real estate brokerage fees, etc.
Comparables (Comps): Properties that have recently sold and are similar to a property in which a valuation is being determined. Comps can also include property listings that are currently on the market, have recently expired, etc. A tool in appraising a property's value.
Constructive Receipt: In a tax deferred exchange, having control of the cash proceeds without actual physical possession by the Exchanger.
Cost Basis: Generally referred to as the original purchase price of a property. Usually consisting of the cost of the property and nondeductible buying expenses.
Debt-To-Income Ratio: The ratio of a persons total monthly debt payments to their monthly gross income. A ratio that lenders use to determine if a borrower qualifies for a mortgage.
Debt Service: The total monthly or annual mortgage loan payment consisting of interest and principle.
Debt Service Coverage Ratio: The ratio between a property's net operating income and its debt service/loan payment. A ratio amount established and used by lenders to determine a maximum loan amount.
Deed of Trust: A document in which a borrower conveys title rights of real property to a trustee to be held in trust for the beneficiary of the trust. The lender is the beneficiary.
Delayed Tax Deferred Exchange: After the relinquished property has closed escrow, the replacement property must be identified within the first 45 days, and purchased within 180 days.
Depreciation Allowance: A tax deduction provided to property owners who depreciate their property's improvements/structures. Depreciation is considered the loss in value due to physical wear and tear, outdated improvements, etc.
Direct Deeding: In a tax deferred exchange, the current owner of a property deeds directly to the new owner/buyer. This process does not eliminate the duties of the Intermediary to acquire and transfer the relinquished property and acquire and transfer the replacement property.
Down payment: The portion of a property's sales price that the buyer pays in cash. The buyer's initial investment.
Earnest Money/Deposit: The money that the buyer deposits, usually with an escrow company, that indicates to the seller the seriousness of the buyer to purchase the property. The deposit becomes part of the buyers down payment. The earnest money/deposit is usually refundable to the buyer should a contingency of the sale not be met.
Equity: The difference between a property's value and the balance of the mortgage loans still owed on the property.
Escrow: The holding and administration of documents and money by a neutral third party prior to the closing of the sale.
Exchange Period: In a tax deferred exchange, the replacement property must be acquired on or before the following dates: 180 days from the transfer of the relinquished property, or the date the tax return is due for the tax year in which the relinquished property is transferred. The taxpayer has the right to request an extension to file their tax return, however, the entire exchange period cannot exceed 180 days.
Exchanger: The taxpayer(s) of real property making a tax deferred exchange.
Fixed-Rate Mortgage: A loan on which the interest rate and monthly payment do not change.
Gross Rent Multiplier (GRM): The relationship between a property's price and the gross rental income that it generates. Used to establish a property's value within a specific geographic area.
Gross Operating Income (GOI): On income producing properties, the gross amount of money collected after vacancy and credit losses are taken.
Gross Scheduled Income/Gross Rental Income: Total gross rental income before any vacancy or credit losses are taken.
Growth Factor: Interest earned during the Tax Deferred Exchange process.
Hazard Insurance: An insurance policy that protects a property against fire, wind or other hazards.
Homeowner's Warranty: A policy held by the owner of a newly purchased property that covers certain repairs such as plumbing and heating. The policy is in affect for a specific period of time usually for one year.
Identification Period: In a tax deferred exchange, the replacement property(s) must be identified within 45 days of the close of escrow/closing of the relinquished property.
Intermediary: An Intermediary is a company that acts as the accommodator in a tax-deferred exchange.
IRS Code (sec.) 1031 Tax Deferred Exchange: Defined as an exchange in which the taxpayer (exchanger) transfers property held either for the productive use in a trade or business or for investment and subsequently receives another property to be held either for productive use in a trade or business or for investment.
Lease: A contract or written agreement, which grants possession of a specific property or part of a building for a specified period of time in exchange for rent.
Lessee: A tenant who leases property from a landlord/lessor.
Lessor: A property owner/landlord who leases property to a tenant/lessee.
Like-Kind Property: Real property exchanged for another property if both properties are held for the productive use in trade or business or for investment purposes.
Loan-To-Value Ratio: The ratio of the loan amount on a property and the property's value or purchase price.
Margin: On an adjustable rate mortgage (ARM), the margin is the lenders profit usually 2-3 percent. The margin is added to the index to arrive at the note rate.
Mortgage: A property lien and financing instrument that secures real property as security for a loan.
Mortgagee: The lender in a mortgage agreement.
Mortgagor: The borrower in a mortgage agreement.
Note: A document signed by a borrower, which acknowledges the debt of a loan and promising repayment under specific terms and conditions.
Net Operating Income: The amount of money collected after all expenses have been paid, excluding debt service.
Operating Expenses: Usually given as a percentage of the gross scheduled/rental income. Typical expenses include taxes, insurance, utilities, management, grounds maintenance, etc. Debt service is not included.
Origination Fee: A fee that lenders charge borrowers for making a mortgage loan.
PITI: Principal, interest, taxes and insurance. In qualifying buyers, lenders prorate taxes and insurance on a monthly basis and add them to the loans monthly principal and interest. Combined, they represent the amount of money needed to cover the primary components of a monthly mortgage payment.
Points: A loan fee charged by lenders to increase their return on the transaction. A point is equal to one percent of the mortgage loan amount.
Principal: The loan amount on a property or the amount still owed.
Private Mortgage Insurance (PMI): Insurance issued by private insurers to lenders to protect the lender against loss if a borrower defaults on a mortgage with a low down payment.
Pro Forma Information: Hypothetical information that may be used on property listings. As an example, a property listing may report both actual and pro forma rents, rents that are considered potential or possible.
Relinquished Property: The property being sold/exchanged by the Exchanger.
Replacement Property: The property being purchased/acquired by the Exchanger.
Reverse Tax Deferred Exchange: Allows the purchase of the replacement property before selling the relinquished property. The relinquished property must be identified within 45 days after escrow has closed on the purchased property and must close escrow no later than 180 days.
Seller Financing: A financing agreement made by the seller for all or part of the financing needed by the buyer to purchase the seller's property.
Sequential Deeding: In a tax-deferred exchange, the relinquished property is deeded to the Intermediary and the Intermediary deeds the property to the buyer.
Simultaneous/Concurrent Exchange: A tax deferred exchange when both the relinquished and replacement properties close escrow the same day.
Tenants In Common (TIC) Tax Deferred Exchange: An IRS Code (sec.) 1031 exchange into a fractional ownership of institutional grade real estate investment. TIC exchanges are structured and offered by investment companies who specialize in the acquisition, management and sale of income producing investments.
Title: A legal document establishing the right of ownership of a property.
Title Insurance: Insurance that protects both buyer and lender against losses over the ownership of a property.
Underwriting: The approval process used by lenders to evaluate a loan application to determine if it meets the lender's standards.
Vacancy Rate/Allowance and Credit Loss: Usually stated as a percentage of the Gross Scheduled/Rental Income. An income deduction due to vacancies and uncollected rents.
Yield/Return on Equity: The percent return on the down payment and as compared with the property's cash flow.