A

Absolute Net - This term or 'slang' describes an investment property where all expenses are passed on from the owner/landlord to the tenant. The tenant is responsible for paying: annual taxes, all utilities, insurance, common areas/grounds maintenance, maintenance of the interior of the building and maintenance of the roof.

Actual Valuation - The County Assessor estimates what the market value of a property is based on a survey of recent (within the past 18 months) sales of comparable properties. Each year in April, the Assessor's Office sends out a letter informing the property owner as to the valuation of their property. Typically, the property owner may protest this valuation between the dates of May 1st and June 1st and appeal for a re-evaluation.

A.P.O.D. - This stands for "Actual Property Operating Data" and is a standardized form which a property owner and/or real estate broker fills out listing rental income and all expenses of operating a property including loan servicing, utilities, maintenance, taxes, uncollected rents, etc. The 'bottom line' is the Cash Flow, either positive or negative. This is how one evaluates the 'investment value' of a property.

B

C

Cap Rate - This is a method of evaluating the value of 'Investment' real estate. It is computed by dividing the 'Net Income' ( Annual income minus annual expenses) by the price of a Property. If an investor wants a 7% Cap Rate; or a 7% return on investment, then the formula works as follows: Divide .07 by the Annual Net income to get what the purchase price should be.

Credit Tenant - Lets say that investor B owns a Blockbuster Video or a KinderCare Child Care Center. He owns the real estate but not the business. Then his tenants in this case would be The Blockbuster Corporation and KinderCare Associates, Inc. He receives a rent (lease) check each month from these companies versus from an individual.

Code 1031 Exchange - The I.R.S., allows owners of real estate held for income generation to sell the property and defer any Capital Gains and/or 'Recapture Costs' from depreciating the property as long as they replace the property with alternative revenue generating real estate within a prescribed time period.

D

Delayed Exchange - This is another form of an I.R.S. Code 1031 Tax Deferred Exchange. An Investor or Owner of real estate held for 'investment purposes' (such as for use in the owner's business or to lease to a user; i.e., a warehouse) sells the real estate. He/she wants to avoid paying the Feds and the State a Capital Gain Tax. At time of closing and transfer of the deed to a new owner, the present owner turns over all proceeds from the sale to a 'Qualified Intermediary'. He/she then has 45 days to identify a replacement property or properties and 180 days from closing to purchase the replacement(s).

Depreciation - A property owner may depreciate real estate held for investment purposes (not a personal residence or 2nd home) over a term of ownership for a period of 21 years. A tax accountant or C.P.A. may prepare an annual write off or itemized tax deduction for the property Owner to claim on his annual Federal and State Income Tax Form.

E

Entitlement - This refers to a process of adding value to an undeveloped parcel of ground or a parcel of ground to be re-developed (i.e., a farm or a golf course) by obtaining permission from a County of State Planning Commission and/or a City Council to change the zoning of the parcel. Said zone change then permits to owner(s) to put the parcel to a 'higher and better' use.

F

Full Service - This typically describes how rents are collected for office space. The office building owner computes what the annual expenses are to maintain the building interior and exterior, the roof, the parking facilities, the grounds, elevators, etc. The owner then computes how much he will charge the tenant per square foot. If the tenant occupies 2,000 square feet and the rent is $15.00 per square foot, then the annual rent would be $30,000.00. Divide that figure by 12 and the rent becomes $2,500.00 per month with heat, electricity, parking, use of common facilities included IRS.

G

H

I

I.R.S. Code 1031 Exchange - The I.R.S., allows owners of real estate held for income generation to sell the property and defer any Capital Gains and/or 'Recapture Costs' from depreciating the property as long as they replace the property with alternative revenue generating real estate within a prescribed time period.

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M

M.A.I. Appraiser - This is the highest designation awarded to a real estate appraiser and stands for membership in the Master Appraisal Institute.

N

Net, Net Net, Net Net Net - These terms refer to how a tenant is obligated to pay for space they are renting. For instance, a warehouse tenant may be paying $8.00 per square foot, Net Net. This means that the tenant pays a fee per square foot plus a pro-rated portion of the annual real estate taxes (Net) and all utilities (Net).

O

P

Pure Net - This term or real estate 'slang' refers to an 'Investment' property (i.e., like a Burger King Restaurant or a Strip Shoppette) where the tenant and business owner pays all expenses: taxes, utilities, interior and exterior maintenance, grounds and parking maintenance. The building / real estate owner maintains only the integrity of the roof.

Phase Study - Buyers of Property (Such as: Strip Shopping Center, Former Gas Station, Abandoned Industrial Building/Site) want to do a soils study and also want to know a history of how the property was used in the past. Often this can be tracked with old aerial photos and/or city and county records of construction permits and at assessments. For instance, a builder of condominiums in a location which was once a municipal airport would want to know whether there was soils contamination from spilled aircraft fuel, etc. The E.P.A. may require the developer to replace soils before construction permits would be issued. This process could be prohibitively expensive.

Q

R

Re-Capture - When a property owner elects to depreciate real estate held for investment; i.e., income generating purposes, they take an I.R.S. allowed depreciation annually and then itemize this deduction against their taxable income. When the property is sold, I.R.S. then takes the accumulated deductions during the period of ownership and then adds that to any realized gain in equity from appreciation. The Federal and State governments extract a tax on the 'gain' and the accumulated depreciation from the taxpayer. A way to avoid this is to sell the property and participate in an I.R.S. Code 1031 Exchange.

Reverse Exchange - The I.R.S. recently approved this form of Tax Deferred Exchange. Lets say the owner of a Warehouse has out grown the space and there is no room to expand. His/her Realtor finds a suitable parcel of ground where a larger warehouse may be constructed. The Warehouse owner buys the ground, takes out construction financing and proceeds to build a new Warehouse. He moves in, then sells his old Warehouse. All of the funds for the acquisition of the building site and construction on the new warehouse are held in escrow and accounted for by a 'Qualified Intermediary' such as '103 1 Exchange Associates'.

S

S.R.A. Appraiser - This is a designation which can only be obtained through many years of Commercial or Residential appraising experience. It signifies membership in the: Society of Registered Appraisers.

Sale / Lease Back - National and local Franchisers such as: Blockbuster, Burger King, Eckerd's Drug, Kinder Care scout locations, buy ground then build a facility with their specific 'identity' recognizable in the architecture. They then offer the improved real estate for sale to an investor. After the sale, the Franchiser then leases the property back.

Simultaneous Exchange - While not typical, this is an I.R.S. approved method wherein an owner of investment real estate sells the property and purchases a replacement property and closes on the Sale and New Purchase on the same day.

T

Tax Protest - This is a 'right' given to property owners (Commercial and Residential) to Protest their tax valuation to the County Assessor and pleas for a re-evaluation. Usually This process is allowed between May 1st and June 1st each year. The property owner must Provide verifiable evidence that their property is over assessed by bringing examples of Comparable sales to the protest meeting.

U

V

W

Water Rights - these are deeded rights purchased from a 'Water Board' by farm / ranch Property owners for the purposes of irrigating crops and watering animals. A property Can be sold with these rights included of excluded. The water rights may be sold or Leased to a person, company or entity other that the property owner.

X

Y

Z