Updated 23 October, 2022
Real estate investments glossary
The most important concepts for real estate investment.
An asset can be any type of resource that generates wealth, such as an apartment that can be rented, or a share in the stock market. A liability, on the other hand, is an obligation or debt with a third party, for example, the mortgage credit loan, or a consumer credit.
Abbreviation of Capitalization Rate. It is calculated by dividing the Net Operative Income (NOI) with the purchase price of the property.
NOI/Property Value = Cap rate For example: Property market value: $80.000. Net Operative Income: $4.200 $4.200/$80.000 = 5% (Cap rate)
Certificate issued by the real estate company informing the amount of money already paid by the client for the apartment. It is required for mortgage loan application purposes if the financial institution requires it.
Total monthly results after all cash movements, considering rent, loan dividends and other expenses paid in cash. May be either positive or negative.
Rental Income – Loan dividends payment – Other operative expenses = Cash Flow
This figure is the ratio of annual cash flow before taxes to the total amount of cash invested, expressed as a percentage. It is the cash you have left after one year, divided by the cash you have invested.
Annual cashflow before taxes/Total cash invested = cash-on-cash
Happens when the real estate company is unable to cash the check due to form or insufficient funds.
Escrow is when an impartial third party holds something of value during a transaction. When you make an offer on a property, you will pay a portion of the down payment up front. This payment will be held by an impartial third party in a separate bank account until the contract has been negotiated and the transaction has closed.
The profitability of an asset is given by both the rental income that you may receive as the property owner and the market value gain of the property itself. With it, you may calculate the profitability of your investment in a given time period, considering both sources of income, divided by the money that you have invested on the asset.