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TermDefinition
- 1% RuleThe 1% Rule is the rent to expense ratio a property must have in order to produce positive cash flow. Rent on an investment property must be at least 1% of the purchase price to get a positive ROI. The 1% rule is more of a rule of thumb as opposed to a hard-and-fast rule.
- 2% RuleThe 2% rule suggests that a rental property is a good investment if the money from rent each month is equal to or greater than 2% of the purchase price. Much like the 1% rule, the 2% rule is another rent to expense ratio that rental property owners can use to determine if the investment will be cash flowing or not. The 2% rule is another rule of thumb as opposed to a hard-and-fast rule.
- 1031 ExchangeA 1031 Exchange is an investment strategy that allows investors to defer paying capital gains taxes on an investment property when it is sold. As long as another like-kind property is purchased with the profit gained by the sale of the first property, according to the IRS. There are several rules and guidelines to qualify and complete a 1031 Exchange, so it’s highly suggested to utilize a real estate investment expert or an attorney specializing in real estate.
- A/C CondenserThe outside fan unit of the Air Conditioning system. It removes the heat from the freon gas and converts the gas back into a liquid and pumps the liquid back to the coil in the furnace.
- A/C DisconnectThe main electrical ON-OFF switch near the A/C Condenser.
- AbandonmentThe surrender or relinquishment of a real estate property, including a piece of land or a housing unit.
- AbatementAn official reduction, allowance or rebate. An abatement pro rata is a proportionate reduction of the amount of each of a number of debts or claims as where a fund or estate is insufficient for repayment of all in full.
- Ability to RepayThe financial capacity to make good on a debt. The requirement that mortgage originators substantiate that potential borrowers can afford the mortgage and considers factors such as the borrower’s income, assets, employment status, liabilities, credit history, and the debt-to-income ratio.
- ATRThe financial capacity to make good on a debt. The requirement that mortgage originators substantiate that potential borrowers can afford the mortgage and considers factors such as the borrower’s income, assets, employment status, liabilities, credit history, and the debt-to-income ratio.
- Absentee OwnerAn individual or corporation that legally owns a particular property without occupying it or actively managing it. This does not always mean the property is deemed vacant since the property owner could have tenants currently living on the premises. The term absentee owner is intended to distinguish between property owners that are hands-on with their investment versus those who are largely hands-off.
- Absorption RateThe proportion of newly completed units that are or have been leased, usually over a given period (such as 3 months).
- AbsorptionsThe net change in the total number of apartment homes leased.
- Abstract of TitleA document summarizing activity associated with the title of a property. In chronological order, begins with when the property was first recorded as owned and continues through the present, tracking each transaction including the initial grant deed and each instance the property title changed hands, as well as other key details, such as any liens against the property.
- AbstracterThe person or company engaged in making abstracts.
- AbstractingThe process of making and compiling an abstract.
- Acceleration ClauseA provision of a mortgage or note which provides that the entire outstanding balance will become due and payable in the event of default.
- Access RightsThe right of ingress to and egress from a property that abuts upon an existing street or highway. Details will be shown on Certificates of Title of both parties granting and receiving the right.
- AccessibilityThe degree to which a certain building or site allows access to persons with disabilities.
- Accessory Dwelling UnitIt is used to designate any additional legal residence that is incorporated into a single-family home.
- In-Law ApartmentIt is used to designate any additional legal residence that is incorporated into a single-family home.
- ADUIt is used to designate any additional legal residence that is incorporated into a single-family home.
- Accredited InvestorA type of real estate investor that is allowed to invest in riskier investments. 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).
- Accrued InterestInterest earned but not yet paid.
- Accumulated DepreciationThe asset’s depreciation from the acquisition phase to the latest depreciation results in dollar amount.
- Acquisition CostThe total cost of acquiring an asset. This may include stamp duty, legal fees, building report, valuation fees, survey fees and any other due diligence costs directly related to the acquisition. Generally allowed for in a discounted cash flow approach, but not in a traditional capitalized income approach.
- Acrylic PaintA type of paint with high pigment levels and good color retention. Acrylic paint is made up of a synthetic resin and is similar to latex. It is fast-drying, and the end result can be compared to a watercolor or oil painting.
- ActiveAn active status means the property is currently available for sale.
- Active ContingentActive contingent is a status provided to a property listing when the seller has accepted an offer from a buyer, given that certain circumstances are met before completing the sale.
- Active InvestingA method that requires extensive effort and time from the investor who is directly involved in the investment. An active investor will typically own and manage the property themself.
- Actual Cash ValueThe price which property will realize on the open market, after all reasonable efforts have been made to secure a purchaser who will pay the highest price. The expression actual cash value as applied to real estate is synonymous to market value.
- Actual dimensionsThe exact measurement of a piece of lumber. For instance, a 2X4 is actually 1 ½-inches thick and 3 ½-inches wide.
- Ad ValoremLiterally means "in proportion to value". A tax duty or fee applied at the proportional rate. The total amount payable thus varies with the value or the product, service or property to which it is applied.
- ADA CompliantRefers to meeting accessible Design Standards imposed by the ADA (Americans with Disability Act, the federal legislation that mandates goods, services and programs to people with disabilities on an equal basis with the rest of the public). These standards can required modifications to exterior access (e.g., parking, entrance ramps, exterior doors), and most rooms within a dwelling, such as kitchens, bathroom, bedrooms, and even closets, to provide features that make a home more user-friendly for the disabled to live.
- AdaptorA fitting used to join pipes and other plumbing components.
- AddendumAn addendum is an additional document that can modify an original lease or purchase agreement.
- AdditionAn addition includes either new rooms or square footage that is added to a home.
- Adjustable Rate MortgageMortgage for which the interest rate adjusts periodically up or down through a set index. The initial interest rate usually is lower than that for fixed-rate mortgages, but monthly payments can go up or down when the rate is adjusted.
- Floating Rate MortgageMortgage for which the interest rate adjusts periodically up or down through a set index. The initial interest rate usually is lower than that for fixed-rate mortgages, but monthly payments can go up or down when the rate is adjusted.
- ARMMortgage for which the interest rate adjusts periodically up or down through a set index. The initial interest rate usually is lower than that for fixed-rate mortgages, but monthly payments can go up or down when the rate is adjusted.
- Adjustable ShelvesMost wall cabinets over 12 or 15 inches in height have shelves that can be adjusted to various heights depending on what you plan to place in the cabinets. The shelves in base cabinets are usually fixed in place.