Real Estate Dictionary
Bargain Properties Properties that can be bought significantly below their market value due to special circumstances, such as foreclosure, tax delinquency, and bankruptcy. Compatibility Recovery Potential The potential of a property for value gains due to the removal of nearby incompatible uses that undermine its value. Complementarity Improvement Potential The potential of a property to become more complementary to neighboring uses. Improvement of complementarity does not necessarily imply increases in values if it is associated with a downgrade of the property. Construction Lag The time that it takes to perceive, plan, and construct a project. This time can range from 18 months to several years, depending on the size and nature of the project. Correlation A statistical measure indicating the extent to which movements in one variable are related to movements in another variable. Debt Coverage Ratio (DCR Development-Driven Value Increases Property-value gains triggered by major urban and transportation development projects, or developments specific to the location of a property, which improve its attractiveness and income-earning potential. Development Patterns Equity Investment The amount of investor’s own money used to finance investments in real estate (purchase and/or development). Encumbrances Encumbrances include claims of use (not ownership) or monetary claims that may burden a property, such as right of way, maintenance agreements, homeowner association assessments, and utility easements. Estimated Rental Value FAR Abbreviation for the ratio of buildable floor area over land area (floor/area ratio). Foreclosure Process Highest and Best Use The most profitable use to which a site can be legally developed. Internal Rate of Return (IRR)The periodic (annual, quarterly, etc.) rate of return of an investment. This is calculated as the discount rate that equalizes the purchase price with the present value of all cash flows expected to be received over a given holding period, including the resale price at the end of the holding period. Leveraged Return or Leveraged IRR
Liens The term “lien” refers to any charge or encumbrance against a property that secures the payment of a debt. For example liens may include past due property taxes, judgments, and other mortgage loans that may burden a property. Market-Driven Value Increases Value increases triggered by increases in demand because of economic growth in the broader market area of a property. Migration Relocation across jurisdictional boundaries, the definition of which varies, depending on the geographic scope and context of the analysis. Within the context of this book, the more appropriate boundaries for examining migration patterns are the metropolitan area boundaries. Mortgage Constant The percent of the original loan amount that needs to be paid periodically in order to fully repay the loan over the term of the loan. Negative Leverage Refers to the negative effect of borrowed funds on an investment's overall return. Assessing the conditions under which a particular loan will result in negative leverage requires analysis through the discounted cash flow model but a quick and rough rule of thumb in the case of fixed-rate loans is that negative leverage occurs when the loan used to finance the purchase of a property is such that the mortgage constant is greater than the investment’s unleveraged return. Net Migration The difference between immigration and outmigration. NCREIF National Council of Real Estate Investment Fiduciaries. Outbidding The phenomenon during which one user is involuntarily displaced by another user who is willing and can afford to pay a higher price. Price Elasticity of Demand The sensitivity of quantity demanded to changes in prices. It is measured as the ratio of the percentage change in quantity demanded over the percentage change in price. If the absolute value of this ratio is less than one, then demand is characterized as price inelastic. Investors looking for markets that will allow for greater price increases in response to increases in demand should be looking for areas and property types with price inelastic demand. Price Elasticity of Supply The sensitivity of quantity supplied to changes in prices. It is measured as the ratio of the percentage change in quantity supplied over the percentage change in price. If the absolute value of this ratio is less than one, then supply is characterized as price inelastic. Investors looking for markets that will allow for greater price increases in response to increases in demand should be looking for areas and property types with price inelastic supply. Primary Trade Area The area from which a retail center or cluster draws primarily its customers. Private Urban Renewal Inner-city neighborhood revitalization primarily originated and carried out by private population and business groups. Public Urban Renewal Inner-city neighborhood revitalization primarily originated and encouraged by the local government. Refinancing Replacement of existing secured loan through another loan using as collateral the property through which the original loan is secured. Refinancing is typically pursued in order to secure a loan with better terms (lower interest rate, shorter or longer term, etc.) or to switch from an adjustable rate mortgage to a fixed-rate mortgage.
Structural Vacancy Rate The minimum vacancy rate needed to allow normal search processes by buyers/renters looking for properties, and landlords looking for buyers/renters. According to empirical studies, this should vary across metropolitan markets, but it is difficult to accurately quantify. Suburban Office Market
Title Insurance Insurance policy issued by a title insurance company that protects the buyer against liens and encumbrances not discovered in the title search. Its cost is typically based on the value of the property under consideration. Unleveraged Return or Unleveraged Internal Rate of Return (IRR) |
This dictionary is an ongoing project and will attempt to go well beyond a simple and short explanation of terms listed. It is also intented to be very comprehensive covering relevant terms from all fields that are associated with real estate investing such as economics, financing, investment, development, management, etc.
