Glossary.

A provision of the Internal Revenue Code (IRC) that allows an investor to defer capital gains taxes while relinquishing control of a property held for business or investment purposes. The investor may defer capital gains taxes on the disposition of a property while acquiring shares in a REIT.

A provision of the Internal Revenue Code (IRC) that allows a business or the owners of investment property to defer federal taxes on some exchanges of real estate.

To be considered an accredited investor, an individual must have a net worth of at least $1 million, excluding their primary residence, or an annual income of at least $200,000 for the past two years, or $300,000 if combined with a spouse’s income.

Amortization is an accounting technique used to periodically lower the book value of a loan or an intangible asset over a set period of time.

An increase in the value of a financial asset that can occur for a number of reasons, including increased demand or weakening supply, or as a result of changes in inflation or interest rates.

An asset-backed security (ABS) is a type of financial investment that is collateralized by an underlying pool of assets—usually ones that generate a cash flow from debt, such as loans, leases, credit card balances, or receivables.

Basis points, otherwise known as bps or “bips,” are a unit of measure used in finance to describe the percentage change in the value of financial instruments or the rate change in an index or other benchmark. One basis point is equivalent to 0.01% (1/100th of a percent) or 0.0001 in decimal form.

Bona fide is a term that states that someone’s actions or negotiations are in good faith, meaning that any damage to the property or anything else that could lower or depreciate the value of the home must be made known to the buyer before the purchase is complete.

Boot is cash or other property added to an exchange to make the value of the traded goods equal.

The rate of return that is expected to be generated on a real estate investment property.

Funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment.

The measurement of the annual return the investor made on the property in relation to the amount of mortgage paid during the same year.

Class A buildings are the highest quality in the market and are normally located in central business districts, or densely populated urban centers within major cities.

Class B buildings don’t offer the same luxurious amenities or centralized location as Class A buildings; however, they normally provide adequate facilities and middle-of-the-line experiences.

The term “core” refers to class A real estate located in high-quality locations with high-quality tenants that is purchased with little to no debt.

Core plus is an investment management style that permits managers to augment a core base of holdings, within a specified-objective portfolio, with instruments that have greater risk and greater potential return.

Cost segregation is a tax planning tool that gives real estate investors the option to accelerate the depreciation of their investment properties.

Debt is something, usually money, owed by one party to another.

A Delaware Statutory Trust is a real estate ownership structure where multiple investors each hold an undivided fractional interest in the holdings of the trust.

In the context of corporate finance, DSCR is a measurement of a firm’s available cash flow to pay current debt obligations. It shows investors whether a company has enough income to pay its debts.

The term depreciation refers to an accounting method used to allocate the cost of a tangible or physical asset over its useful life. Depreciation represents how much of an asset’s value has been used.

Also known as the realization multiple, the DPI is calculated by dividing a private equity fund’s cumulative distributions by its paid-in capital.

The difference between the worth and the amount owed on a piece of property.

The equity multiple is defined as the total cash distributions received from an investment, divided by the total equity invested. Essentially, it’s how much money an investor could make on their initial investment.

Fannie Mae and Freddie Mac are federally backed mortgage companies created by the United States Congress. Together, these agencies make the mortgage market more liquid, stable, and affordable by providing liquidity and guarantees to thousands of banks, savings and loans, and mortgage companies in the U.S.

A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task.

The internal rate of return (IRR) is a metric used in financial analysis to estimate the profitability of potential investments.

An interest-only mortgage is a type of mortgage in which the borrower is required to pay only the interest on the loan for a certain period.

Your interest rate is an amount of money that is added to the loan. It is how the lender makes a profit from the loan and is compensated for the risk taken when approving the loan.

IRA allows individuals to direct pre-tax income toward investments that can grow tax-deferred.

Leverage refers to the total amount of debt financing on a property relative to its current market value.

Financial liquidity is the measurement of how quickly an asset can be converted to cash. Liquidity impacts companies, individuals, and markets.

Loan terms refers to the terms and conditions involved when borrowing money.

The loan-to-value (LTV) ratio is an assessment of lending risk that financial institutions and other lenders examine before approving a mortgage.

Real estate market tiers categorize cities as primary markets, secondary markets, or tertiary markets depending on the stage of development of their real estate markets.

MOIC measures investment returns by comparing the value of an investment on the exit date to the initial investment amount.

Net Asset Value is the net value of an investment fund’s assets less its liabilities, divided by the number of shares outstanding. NAV is the price at which the shares of the funds registered with the U.S. Securities and Exchange Commission (SEC) are traded.

NOI is a before-tax figure, appearing on a property’s income and cash flow statement, that excludes principal and interest payments on loans, capital expenditures, depreciation, and amortization.

Non-recourse finance is a type of commercial lending that entitles the lender to repayment only from the profits of the project the loan is funding and not from any other assets of the borrower.

An LLC operating agreement is a document that customizes the terms of a limited liability company according to the specific needs of its members.

Opportunity zones generally represent economically distressed communities that are in need of investment and revitalization.

A paydown is a reduction in the overall debt achieved by a company, a government, or a consumer.

A preferred return is a profit distribution preference whereby profits, either from operations, a sale, or a refinance, are distributed to one class of equity before another until a certain rate of return on the initial investment is reached.

Generically, a security trading above its intrinsic or theoretical value is trading at a premium (in contrast to a discount).

Private equity, at its most basic, is equity shares representing ownership of, or an interest in, an entity that is not publicly listed or traded. Private equity is a source of investment capital from high-net-worth individuals and firms.

A private placement memorandum is a legal document that states the objectives, risks, and terms of an investment involved with a private placement.

A real estate pro forma uses current or potential rental income and operating expenses to help potential investors understand the risks and benefits of purchasing a property.

Qualified business income is defined as the net amount of qualified items of income, gain, deduction and loss with respect to any trade or business.

Arbitrage in investments refers to an investing strategy that capitalizes on market inefficiencies to trade nearly risk-free.

The net gain or loss of an investment over a specified time period, expressed as a percentage of the investment’s initial cost.

REIT is a company that owns, operates, or finances income-generating real estate. Modeled after mutual funds, REITs pool the capital of numerous investors.

The return on cost is used to determine how profitable an investment is. ROC is calculated by dividing the potential net operating income by the purchase price plus the cost of renovation.

SOFR is a benchmark used to determine borrowing rates for banks and consumers.

A provision of the Internal Revenue Code (IRC) that allows an investor to defer capital gains taxes while relinquishing control of a property held for business or investment purposes. The investor may defer capital gains taxes on the disposition of a property while acquiring shares in a REIT.

The strike rate defines the interest rate at which the cap provider begins to make payments to the cap purchaser. The lower the strike rate, the more likely that a cap provider will need to make a payment during the term of the cap.

A submarket is a smaller part of a larger real estate market. Submarkets are often identified as neighborhoods or suburbs within the larger MSA.

Tenancy in Common (TIC) is a legal arrangement in which two or more parties share ownership rights in a real estate property or parcel of land.

A provision of the Internal Revenue Code (IRC) that allows a business or the owners of investment property to defer federal taxes on some exchanges of real estate.

A trust is a fiduciary arrangement that allows a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries.

TVPI provides insight into a fund’s performance by showing the fund’s aggregate returns as a multiple of its cost basis.

Underwriting is the process through which an individual or institution takes on financial risk for a fee.

Properties are considered “value-add” when they have some level of management or operational problems, require some physical improvements, and/or suffer from capital constraints.

Xeriscaping is the practice of landscaping with slow-growing, drought-tolerant plants to conserve water and reduce yard trimmings.