Some Real Estate terms as reviewed by DC Fawcett – part 2

Investment real estate

Definition

Investment real estate is a real estate which serves as a source of income or investment rather than acting as a mere residence.

Elaboration

Many people have multiple residential properties many of which they use for rental income purposes. Taxes levied on investment real estate are different from residential real estate. Investment real estate enables capital gain. Examples of investment real estate are land and building which are leased, residential apartments which are rented and so on.

DC Fawcett -real-estate-terms-2

Absorption rate

Definition

Absorption rate is the rate at which available homes are sold for a specific amount during a given time period.

Elaboration

It is inversely proportional to the months of supply. Suppose if there are 200 homes to be sold and 10 are sold then the absorption rate = 10/200 = 5 %. An absorption rate of 20% and above indicates a good market. The absorption rate will not include additional homes which enter the market.

ABC index or asset backed securities

Definition

Is defined as a basis for the overall mortgage value of borrowers with weak or subprime credit.

Elaboration

Subprime credit means credit of those who cannot maintain a proper repayment agenda. This could be due to many reasons such as divorce, medical emergencies, loss of job and so on.  ABC index was created by Market. A decline in ABC index means more risk associated with subprime mortgages.

Acceleration clause

Definition

Acceleration clause is a statement which gives the lender full rights to make the borrower pay off the loan in case of violation of contract.

Elaboration

Generally, loans on homes have an acceleration clause which is activated as soon as a transgression occurs on the part of the borrower such as failure to stick to payment schedule and so on. When the acceleration clause is triggered, the lender must immediately pay the balance loan amount including the interest accrued on the principal before the acceleration clause is set off.

Acquittance

Definition

It is a written document conveying that the debtor has been released from the debt.

Elaboration

An acquitance usually provides the borrower with a written statement that he has completely paid the loan amount.

Add on factor

Definition

It is the number of usable square feet area divided by the number of rentable square feet area in a commercial real estate lease.

Elaboration

Rentable square feet is the total of the usable space plus the common or shared area. It is also called as the partial floor factor or a load factor.

Adjustment Date

Definition

Is the date on which financial adjustments will be made to the contract as agreed by all the parties involved.

Elaboration

It is the date on which the mortgage funds are cleared. For example Sharadha obtains a mortgage of $30,000 at 10% interest. The mortgage is dispersed on October 2nd and the first payment is due on November 2nd. Then the adjustment date is November 2nd

Conclusion

These are some general real estate terms as reviewed by DC Fawcett which will be very useful for real estate investors.

 

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