The absorption rate in real estate is a measure of how quickly available properties or units are sold or rented out in a specific area during a certain time frame. It's usually calculated by dividing the total number of available units by the number of units that have been sold or rented in the period. For instance, if there are 100 apartments for sale and 25 are sold in a month, the monthly absorption rate is 25%. This rate helps understand the demand in the market; a high absorption rate indicates strong demand, while a low rate could suggest less demand and potentially lower prices or longer times on the market.
An individual or entity recognized by financial regulations as sufficiently knowledgeable and financially sophisticated to engage in transactions involving securities that may not be registered with financial authorities. Requirements often include a high net worth (exceeding $1 million, excluding the value of one's primary residence), substantial annual income (exceeding $200,000 for an individual or $300,000 jointly with a spouse in each of the prior two years and reasonably expecting the same for the current year), or holding a general partner, executive officer, or director position in the company issuing the unregistered securities.
An ACH payment is a type of electronic transfer between bank accounts through the Automated Clearing House network, making it fast, secure, and convenient for direct deposits, bill payments, and other recurring transactions.
The upfront fee typically paid to the general partner or the management company orchestrating the purchase of a real estate asset.
Active investing is when an investor takes a hands-on approach, buying and selling stocks, real estate, or other assets with the aim of beating the market. Unlike passive investing, where the strategy is to hold onto investments and match the market's performance over time, active investors use their own research and analysis to make decisions, often trading more frequently. This approach requires more knowledge and carries higher risk, as it aims to outperform standard market indexes or benchmarks through active management and decision-making.
The process of spreading out a loan into a series of fixed payments over time, with part of each payment applied towards the principal amount and the interest. A typical commercial property loan has a 25 year amortization.
A major or well-known tenant in a property whose presence secures the viability of the property and attracts other tenants.
A tax deduction that allows property owners to recover the cost of a tangible asset over its useful life. It acknowledges that assets like buildings, equipment, and vehicles wear down or become obsolete over time. For example, if you buy a rental property (excluding the land) for $200,000 and the IRS has determined the useful life of the property to be 27.5 years (for residential real estate), you can deduct approximately $7,273 ($200,000 divided by 27.5) from your taxable income each year for 27.5 years to account for the property's depreciation.
is the annual rate charged for borrowing or earned through an investment, and it includes any fees or additional costs associated with the transaction. The APR provides consumers with a bottom-line number they can easily compare with rates from other lenders. For example, if you take out a loan of $100,000 with an APR of 5%, this means that over the course of one year, you will pay $5,000 in interest and fees for that loan. However, since the APR includes fees, the actual interest rate on the money borrowed might be lower than 5% when those fees are separated out.
Apartment syndication is a real estate investment where investors join forces to buy and manage a large property, like an apartment complex. They form a legal entity to share ownership and profits or losses. A sponsor or general partner handles day-to-day operations and property management, compensated through fees and profit shares. This approach allows individuals to invest in large-scale properties for potential income but involves complexity and risk
Refers to a property's value as assessed by a qualified appraiser. This estimate takes into account multiple characteristics like the property's position, current state, dimensions, and included features. This appraised figure is commonly utilized for establishing a property's worth for transactions, tax assessments, and determining insurance coverage.
Appreciation refers to the rise in an asset's value over time, influenced by factors like inflation, enhancements made to the property, or shifts in market dynamics. In the realm of real estate, appreciation is typically gauged by the difference between the initial buying price and its present market worth.
An asset management fee is what investors pay professional managers or firms to oversee their investment portfolios. These fees are usually a percentage of the total assets managed and are charged periodically, like monthly or quarterly. They're meant to pay for the manager's expertise and time spent managing the investments. The fees can vary based on how complex the assets are and the level of service offered. Since these fees can add up over time, investors should carefully evaluate them against the benefits received and choose a manager or firm that offers good value and service.
This term refers to the total market value of the investments that a financial institution or real estate investment company manages on behalf of its clients. In the context of commercial real estate, AUM includes the total value of all the commercial properties and real estate holdings that a company is managing investment in, including office buildings, retail spaces, apartment complexes, and more. AUM is indicative of the size and reach of a company's investment activities and can reflect both the capital entrusted to the company by its investors, as well as any appreciation or depreciation in the value of its managed assets.
An assumption fee is charged to a buyer for taking over the existing mortgage of a property, avoiding the need for a new loan. This fee, paid to the lender, covers costs like credit checks and document updates. While some lenders may waive this fee for buyers who meet specific qualifications, it typically ranges from a percentage of the mortgage's remaining balance to a flat rate. Assumption can offer benefits, such as lower closing costs, but comes with its own risks and responsibilities, including the chance of higher rates or owing back payments. Buyers should carefully evaluate the mortgage's terms before proceeding.
The average annual return is the expected yearly earnings from a commercial property investment, expressed as a percentage. It includes income like rent and changes in the property's value. Calculated for individual properties or portfolios, it helps assess investment profitability. However, it's not a guaranteed future performance indicator, and actual returns can differ.