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Glossary
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Commonly Used Words at EasyRA.com
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ALLOCATION
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The percentage of the Purchase Price that either the value of the Personal Property or the value of the Real Estate is allowed to be depreciated for Income Tax purposes.
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ANNUAL OPERATING EXPENSE
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The yearly costs associated with owning the Income Producing Property, exclusive of Vacancy, Maintenance, Management and Reserves.
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APPRECIATION
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The increase in value of an asset, usually due to higher replacement costs.
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AVERAGE COST PER UNIT
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The indivisible Purchase Price of each income producing unit.
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AVERAGE INCOME PER UNIT PER MONTH
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The indivisible Scheduled Gross Income for each income producing unit per month.
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AVERAGE EXPENSE PER UNIT PER MONTH
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The indivisible Expense of each income producing unit per month.
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AVERAGE LOAN PAYMENT PER UNIT PER MONTH
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The indivisible total monthly loan payments for each income producing unit per month.
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AVERAGE PROFIT/LOSS PER UNIT PER MONTH
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The indivisible profit for each income producing unit per month.
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APPRECIATION
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The effect that inflation has on the Income Producing Property.
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CASH BENEFITS
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The Cash returned as a result of owning the Income Producing Property.
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CASH FLOW
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The amount of Cash leftover or needed to be supplied by Owner after all of the bills are paid from the actual income collected. Cash Flow can be calculated on either a monthly or yearly basis.
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CASH ON CASH RETURN
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The rate of cash returned compared to the Total Cash Required.
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CASH REQUIRED
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See Total Cash Required.
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CLOSING COSTS
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The combination of settlement costs, bank fees and pre-paid items.
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DEBT COVERAGE RATIO
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Indicates the amount of risk of the investment. The single most important factor that every banker uses to determine if the borrower will get a loan and how much it will be. The single most important factor that a Buyer should consider when purchasing income producing property. If all other aspects are accurate and the debt coverage ratio is not at least 1.2, the Buyer will have cash flow problems. The further below 1.2, the bigger the cash flow problems. Suggestion: do not buy if the debt coverage ratio is less than 1.2 or, if you really want the property, use easyRA to change variables, realistically, of course, until you reach a 1.2 debt service ratio.
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DEPRECIATION
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Used for the purpose of replacing or repairing the various improvements of an Income Producing Property.
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DOWN PAYMENT
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The total amount of the Buyer's deposit money, either required by the Lender or voluntarily deposited by the Buyer.
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EQUITY BENEFITS
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The Mortgage Equity, Appreciation and/or beneficial Tax Consequences returned as a result of owning the Income Producing Property, as compared with the Cash returned as a result of owning the Income Producing Property.
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GROSS MONTHLY RENT MULTIPLIER
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The number of months needed for the monthly Scheduled Gross Income to equal the Purchase Price.
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GROSS OPERATING INCOME (GOI)
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The amount of money remaining after the Vacancy, Maintenance, Management and Reserves are deducted from the Scheduled Gross Income.
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GROSS YEARLY RENT CAP RATE
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The percentage rate that the yearly Scheduled Gross Income returns related to the Purchase Price.
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GROSS YEARLY RENT MULTIPLIER
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The number of years needed for the yearly Scheduled Gross Income to equal the Purchase Price.
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INVESTMENT PROJECTION
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A prediction of the performance of an Income Producing Property based on raw data which is integrated and then used to predict the probability of profit or loss.
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LOAN-TO-VALUE
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The percentage of the Mortgage amount related to the Purchase Price.
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LTV
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See "LOAN-TO-VALUE".
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MAINTENANCE
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The daily repairs needed to keep the improvements functioning for their intended use.
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MANAGEMENT
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The daily activities needed to keep the improvements functioning for their intended use.
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MORTGAGE #1
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The amount of the first mortgage, or LTV of the first mortgage, expressed as a percentage.
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MORTGAGE #2
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The amount of the second mortgage, or LTV of the second mortgage, expressed as a percentage.
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MORTGAGE #3
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The amount of the third mortgage, or LTV of the third mortgage, expressed as a percentage.
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MORTGAGE EQUITY
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The amount of principal paydown that has occurred because of making amortizing mortgage payments.
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NET MONTHLY RENT MULTIPLIER
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The number of months needed for the monthly Scheduled Gross Income to equal the Purchase Price.
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NET OPERATING INCOME
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The amount of money remaining after the Annual Operating Expenses are deducted from the Gross Operating Income.
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NET YEARLY RENT CAP RATE
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The percentage rate that the yearly Net Operating Income returns related to the Purchase Price.
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NET YEARLY RENT MULTIPLIER
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The number of years needed for the yearly Net Operating Income to equal the Purchase Price.
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PERSONAL PROPERTY DEPRECIATION
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All improvements have a tendency to deteriorate or depreciate. Accountants determine how much personal property is included in the Purchase Price and how long it takes to depreciate the personal property.
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PURCHASE PRICE
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The agreed upon sale price as described in an Agreement of Sale.
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REAL ESTATE DEPRECIATION
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All improvements have a tendency to deteriorate or depreciate. Accountants determine how much improved real property is included in the Purchase Price and how long it takes to depreciate the improved real property.
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RESERVES
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The long term repairs needed to keep the improvements functioning for their intended use, ie. Roofs.
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SCHEDULED GROSS INCOME
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The amount of money collected if all income producing units are fully occupied and paid all of the rent due for an entire year.
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SELLER CONCESSION
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An amount of money or a percentage of the Purchase Price that the Seller credits to the Buyer at the time of settlement. The mortgage companies usually limit the Seller Concession to a maximum of six (6) percent of the Purchase Price. If you have a Seller Concession in your Purchase, accommodate it by reducing the Closing cost accordingly. For example, if Closing costs would normally be six (6%) percent of the Purchase Price and the Seller Concession is four (4%) percent, then make the easyRA Closing costs two (2%) percent of the Purchase Price. If the Seller Concession is $5,000 and the Purchase Price is $105,000, then $5,000/$105,000=.0476 or about 4.75% making the easyRA Closing costs one and a quarter (1.25%) percent of the Purchase Price (6% - 4.75% = 1.25%).
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TAX CONSEQUENCES
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The amount of income taxes, etc. paid or saved due to ownership of an asset.
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TAXABLE INCOME
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The profit or loss declared, for income tax purposes, due to ownership of an asset.
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TOTAL BENEFITS RETURN
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The combination of all cash and equity benefits related to the total cash required.
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TOTAL CASH REQUIRED
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The combination of Down Payment and Closing Costs required by Buyer to complete the Purchase of the Property.
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TOTAL DEBT SERVICE
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The combination of the monthly payments due on all mortgages and/or loans because of the purchase of the asset.
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VACANCY
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Created when the tenant moves out of the income producing unit.
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VMMRA
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Vacancy, Maintenance, Management, and Reserves Allocation
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