RE/MAX City Space

Absorption rate: The rate at which properties are able to be leased or sold in a given area.

Cap rate: The ratio of the net income produced by a property (after expenses, but independent of financing) and its price.

Capital Asset: All tangible property which cannot easily be converted into cash and which is usually held for a long period, including real estate, equipment, etc.

Commercial Property: Real estate zoned for business or industrial use.

Debt Service Coverage Ratio: DSCR. A measurement of a property’s ability to generate enough revenue to cover the cost of its mortgage payments. It is calculated by dividing the net operating income by the total debt service. For example, a property with a net operating income of $50,000 and a total debt service of $40,000 would have a debt service ratio of 1.25, meaning that it generates 25% more revenue then required to cover its debt payment.

Equity (aka net worth): Total assets minus total liabilities. In real estate, it is the difference between what a property is worth and what the owner owes against the property

Future Property Value: Represents the Fair Market Value of the property in the current year, assuming property improvements and value escalation.

GRM: Gross Rent Multiplier is the ratio of the price of a property to its annual rental income before all expenses, including property taxes, property management, insurance, etc.

Gross Lease: A property lease in which the landlord agrees to pay all expenses which are normally associated with ownership, such as utilities, repairs, insurance, and (sometimes) taxes.

Housing Market Index: An index of several hundred home builders that measures demand for new homes. Values from the index range from 0 to 100, with 50 indicating an average demand for new homes. This index is an important indicator of the housing market, which is itself an important indicator of the overall economy.

Income Property: Real estate developed or bought for the purposes of generating income.

Loan to Value: LTV. The ratio of the fair market value of an asset to the value of the loan that will finance the purchase. Loan-to-value tells the lender if potential losses due to nonpayment may be recouped by selling the asset

Net Income Multiplier: The price of an asset (usually current price) divided by the net income it generates in a given period of time. Usually refers to rental property, for which the time period over which this multiple is considered is generally a month. It is a useful measure for judging how effective an asset is at generating income, compared to its market price.

Net Lease: A property lease in which the lessee agrees to pay all expenses which are normally associated with ownership, such as utilities, repairs, insurance and taxes. also called closed-end lease.

PITI: Acronym for principal, interest, taxes, and insurance, the four components of a mortgage payment.

Pre-tax Annual Cash Flow: Measures the total cash returned to the Investor during the calendar year, after financing costs, but before taxes. The figure is independent of first-year down payment and closing costs, or final year sale proceeds.

Pre-tax Annual Cash-on-Cash Return: Measures the annual total cash received by the Investor relative to the total investment in the property, before taxes.

PMI: Private Mortgage Insurance. Mortgage insurance provided by nongovernment insurers that protects a lender against loss if the borrower defaults.

Post-tax Annual Cash Flow: Post -tax Annual Cash Flow measures the total cash returned to the Investor during the calendar year, after financing costs and taxes. The figure is independent of first-year down payment and closing costs, or final year sale proceeds.

Post-tax Annaul Cash-on-cash Return: Measures the annual total cash received by the Investor relative to the total investment in the property, after taxes.

REO: Property which is in the possession of a lender as a result of foreclosure or forfeiture.

Short sale: A procedure in which a lender allows a mortgagor to avoid foreclosure by selling the property for less than outstanding balance of the loan.