The difference between the selling price of a single family rental investment property or other property (less selling cost) and its Adjusted Basis.

The compound annual growth rate (CAGR) is a way to measure growth over multiple time periods. It can be considered the compounded growth rate from the initial single family rental investment property value to the ending investment value.

Cap Rate or Capitalization rate is the percentage return calculated by dividing income by the property cost or value. This metric is utilized in single family rental investment property and other types of commercial real estate.

For land or buildings, improvements (also known as capital improvements) are the costs of permanently upgrading a single family rental investment property rather than maintaining or repairing it. Instead of being able to taking an expense deduction for the cost of improvements in the year paid, an investor adds the cost of the improvements to the basis of the property.

Capital Expenditures are generally related to upgrades or material improvements to a single family rental investment property or other property type (new appliances, a new roof, upgrades to existing facilities, etc) that will have a useful benefit beyond the current tax year. CAPEX does not include Repair and Maintenance (R&M) expenses.

Net cash result of a single family rental investment property after subtracting all expenses from revenue and making debt service payments. May also be net of payment of any income taxes.

Cash on Cash is a measure of return on your Initial Investment in a single family rental investment property or other asset type, equal to your net cash flow after loan payments, divided by your Initial cash Investment amount (not including debt utilized at purchase.)

Title of single family rental investment property or other property type is considered clear when the title is without any kind of material lien or levy from creditors or other parties and poses no question as to its legal ownership. A title insurer will typically require clear title in almost all cases to issue a policy. The process of clearing title is typical among real estate transactions.

Language to be included in the Purchase and Sale Contracts single family rental investment property or other property type for both relinquished and replacement property that indicates and discloses that the transaction is part of an intended tax-deferred, 1031 exchange transaction and requires that all parties cooperate in completing said exchange.

All property acquired by a wife and husband during their marriage. Each spouse has a right to an equal interest in the property (Gifts and inheritances received by an individual spouse during the marriage are treated as separate property) Property acquired by the spouse prior to marriage, property acquired with separate property, or rents or profits generated from separate property are treated as separate property. Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin are community property states. This can be relevant in a 1031 exchange of single family rental investment property or other real estate type in transactions during and outside of marriage.

Closing Costs are expenses that buyers and sellers normally incur, over and above the price of the single family rental investment property or other property type, to complete a Real Estate transaction is considered Closing Costs. Potential costs incurred include: discount points, taxes, loan origination fees, title searches, appraisal fees, title insurance, surveys,deed-recording fees and/or other charges.

Identifies and reclassifies personal property assets to shorten the depreciation time for taxation purposes, which reduces current income tax obligations. Personal property assets include a building’s non-structural elements, exterior land improvements and indirect construction costs.The primary goal of a cost segregation study is to identify all construction-related costs that can be depreciated over a shorter tax life than the building. Personal property assets found in a cost segregation study generally include items that are affixed to the building but do not relate to the overall operation and maintenance of the building. Recent tax regulation changes have potentially increased the value of cost segregation studies of purchases of single family rental investment property.

Periodic wearing away of single family rental investment property or other property type over the property’s economic life. The I.R.S. provides for a method for investors and business owners to take a tax deduction on the amount of a property’s depreciation. Investors may be allowed a deduction on income tax return for the wearing away and expensing over time of property or assets – like investment properties. A depreciable asset is a capital expenditure in depreciable property used in a trade or business or held for the production of income and has a definite useful life of more than one year. Non-depreciable property includes vacant land. Recent tax regulation changes has affected how personal property may be depreciated.

Depreciation Recapture is the amount of gain resulting from the disposition of single family rental investment property or other property type that represents the recovery of depreciation expense that has been previously deducted on the Taxpayer’s (Exchangor’s) income tax returns. Leftover boot in a 1031 exchange can result in a federal tax rate of 25% on depreciation recapture plus any taxes owed at the state level.

Diligence is an investigation of the property by the Buyer prior to committing to the purchase. Diligence on an Investment property may include: reviewing the lease and tenant information, checking title, reviewing an inspection to determine the condition of the property, changing various underwriting assumptions, reviewing valuation estimates, researching the local real estate market and the neighborhood.

Distributions / Dividends are payments made to Investors periodically (over the course of a calendar year) from profits of a single family rental investment property or other asset type.

A Down Payment is the portion of the single family rental investment property or other type of property price paid at the time of purchase in cash when using leverage.

Equity is the value built up in a single family rental investment property or other type of property that represents the current market value of the house less any remaining mortgage balance. This value can build up over time as the property owner pays off the mortgage and the market value of the property appreciates.

An Escrow Agent coordinates the transfer of a single family rental investment property or other type of property from one party to another. The escrow agent will prepare closing documents and examine documents to make sure that the terms of the sale are met on each end, serving both the buyer and seller in the transaction. The Escrow Agent activity may be executed by different parties depending on the state.

The yield on a single family rental investment property before the deduction of taxes and expenses is the gross yield and is expressed in percentage terms. It is calculated as the annual rental income on a single family rental investment property to taxes and expenses, divided by the current price of the single family rental investment property.

The sale or disposition of single family rental investment property or other real estate (relinquished property) and the acquisition of like-kind real estate or personal property (replacement property) structured as a tax-deferred, 1031 exchange transaction pursuant to Section 1031 of the Internal Revenue Code and Section 1.1031 of the Treasury Regulations in order to defer Federal, and in most cases state, capital gain and depreciation recapture taxes.

An Exchange agreement is a written agreement between the Qualified Intermediary (QI) and Exchangor setting forth the Exchangor’s intent to exchange relinquished single family rental investment property or other type of property for replacement property, as well as the terms, conditions and responsibilities of each party pursuant to the tax-deferred, like-kind exchange transaction.

The Exchange Period is the period of time during which the Exchangor must complete the acquisition of the replacement single family rental investment property or other type of property in their tax-deferred, 1031 exchange transaction. The exchange period is 180 calendar days from the transfer of the Exchangor’s first relinquished property, or the due date (including extensions) of the Exchangor’s income tax return for the year in which the tax-deferred, like-kind exchange transaction took place, whichever is earlier – not extended due to holidays or weekends. Important to note though that the Identification period is only 45 days.

The Exchange Period is the period of time during which the Exchangor must complete the acquisition of the replacement single family rental investment property or other type of property in their tax-deferred, 1031 exchange transaction. The exchange period is 180 calendar days from the transfer of the Exchangor’s first relinquished property, or the due date (including extensions) of the Exchangor’s income tax return for the year in which the tax-deferred, like-kind exchange transaction took place, whichever is earlier – not extended due to holidays or weekends. Important to note though that the Identification period is only 45 days.

The Gross Multiplier is a variation on the Income-Capitalization Method of appraising single family rental investment property or other type of property. The Gross Multiplier approach is a way to obtain a fast, rough estimate of a property’s value. In this approach, a monthly or annual number is multiplied by a property’s gross income to obtain the property’s value. Dividing the sale price of a similar property by its gross income provides its gross multiplier.

A Home Inspection is an examination of a single family rental investment property or other type of property’s condition, typically performed in connection with the property’s sale. A home inspector can assess the condition of a property’s roof, plumbing, electrical work, foundation, heating and cooling systems, water and sewage, and some fire and safety issues. The home inspector will also look for evidence of insect, water or fire damage, or any other issue that may affect the condition of the property.

A Home Owners Association is an organization in a subdivision, planned community, or condominium that makes and enforces rules for the properties in its jurisdiction. Properties that are in an association have either monthly, quarterly, or annual HOA fees which are used to provide or maintain common amenities like sidewalks and neighborhood parks. It is important to note whether the HOA allows single family rental investment property prior to purchase.

The Identification Period is the period of time during which the Exchangor must identify potential replacement single family rental investment property or other types of properties in his or her tax-deferred, 1031 exchange. The period is 45 calendar days from the transfer of the Exchangor’s relinquished property – not extended due to holidays or weekends.

Income Property can be single family rental investment property or other type of property developed or bought to earn income through Rental income or home price appreciation. Income property can be commercial or residential. Residential income property is commonly referred to as “Non-owner occupied.”

The Initial Investment is the estimated amount of capital needed to initially purchase the single family rental investment property or other type of property. This amount includes: your down payment, acquisition and loan fees, and closing costs. Initial rehabilitation costs may also be included.

An insurance policy that includes coverage for a comprehensive list of causes of loss and replacement cost settlement. Landlord policies sometimes provide coverage for lost rent in the event a covered loss occurs on a single family rental investment property or other type of property.

An Intermediary is an unrelated party who participates in the tax-deferred, 1031 exchange to facilitate the disposition of the Exchangor’s relinquished single family rental investment property or other type of property and the acquisition of the Exchangor’s replacement property. The Intermediary has no economic interest except for any compensation (exchange fee) it may receive for acting as an Intermediary in facilitating the exchange as defined in Section 1031 of the Internal Revenue Code. The Intermediary is technically referred to as the Qualified Intermediary (QI), but is also known as the Accommodator, Facilitator or Intermediary.

Section 1031 of the Internal Revenue Code allows an Exchangor to defer his or her capital gain tax and depreciation recapture tax when he or she exchanges relinquished single family rental investment property or other type of property for like-kind or like-class replacement property. This is also referred to as a 1031 Exchange.

The Internal Rate of Return (IRR) is the measurement of annualized net return on an equity investment in single family rental investment property or other type of asset. Equals the discount rate at which the sum of the present value of all cash flows is zero. Calculation is based on actual and budgeted values.

A single family rental investment property or other type of property that has been purchased with the intention of earning a return on the property, either through rent (income), the future resale of the property, or both. An investment property can be a long-term endeavor, such as a Single Family Rental home, or a short-term investment in the case of flipping (where a property is bought, remodeled or renovated, and sold for a profit).

IRA investing refers to using your IRA or retirement account to invest in single family rental investment property or other types of assets. Returns on property purchased with an IRA are generally tax-deferred. However, returns must go back into the IRA account, and cannot be spent prior to retirement.

IRA investing allows Investors to transfer funds to a self-directed IRA to purchase Real Estate. There are specific requirements that must be satisfied in order to properly make investments out of an IRA.

A lease is a contract in which, for a payment of rent, the party entitled to the possession of the single family rental investment property or other type of real property (lessor) transfers those rights to another (lessee) for a period of time.

A leasing fee is paid to the leasing agent or property manager when they sign a lease with a new tenant on a single family rental investment property or other type of property. If a tenant renews their lease, then there typically is a re-leasing fee.

The Leveraged Return is the return of a single family rental investment property or other type of property after considering the effect of any loans or other debt instruments utilized in the investment.

A Like-Kind Exchange is the sale or disposition of single family rental investment property or other type of real estate (relinquished property) and the acquisition of like-kind real estate or personal property (replacement property) structured as a tax-deferred, 1031 exchange transaction pursuant to Section 1031 of the Internal Revenue Code and Section 1.1031 of the Treasury Regulations in order to defer Federal, and in most cases state, capital gain and depreciation recapture taxes.

Loan to Value is a lending risk assessment ratio used by financial institutions and other lenders to examine a mortgage. The LTV is calculated by dividing the amount of the loan by the value of the single family rental investment property or other type of property. Most often, assessments with high LTV ratios are generally seen as higher risk and, if the mortgage is accepted, the loan will generally cost the borrower more to borrow (reflected as a higher interest rate).

Market value is the most probable price that a single family rental investment property or other type of property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

• buyer and seller are typically motivated;
• both parties are well informed or well advised, and each acting in what he or she considers his/her own best interest;
• a reasonable time is allowed for exposure in the open market;
• payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
• the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

A Mortgage Loan is a legal agreement by which a bank or other creditor lends money at interest in exchange for taking title of the debtor’s single family rental investment property or other type of property, with the condition that the conveyance of title becomes void upon the payment of the debt.

Net Operating Income is a calculation used to analyze single family rental investment property and other types of real estate investments that generate income. Net operating income equals all revenue from the property, minus all the operating expenses.

A Non-Recourse Loan a type of loan secured by collateral, which is usually real property which can include single family rental investment property. If the borrower defaults, the issuer can seize the collateral but cannot seek out the borrower for any further compensation, even if the collateral does not cover the full value of the defaulted amount.

Operating Expenses are costs incurred in the ordinary course of operating a single family rental investment property or other type of investment property business such as: property management fees, leasing commissions, insurance, HOA fees, property taxes, and repair and maintenance items.

Operating Expenses are costs incurred in the ordinary course of operating a single family rental investment property or other type of investment property business such as: property management fees, leasing commissions, insurance, HOA fees, property taxes, and repair and maintenance items.

Out-of-State investing gives investors the ability to own single family rental investment property or other types of property that is geographically removed from their own primary residence. Real Estate investors often feel most comfortable purchasing property that is “in their backyard,” so they can monitor their investment. This often results in the investor acting as a landlord and must keep up with the on going maintenance of the property.

Out-of-State investing can allows investor in high value states to take advantage of lower single family rental investment property or other types of property costs with higher relative rents that may not be available near their primary residence – better returns overall.

A Principal Residence Exclusion (Section 121) exclusion from capital gain tax on the sale of principal residence of $250,000 for individual taxpayers and $500,000 for couples, filing jointly, under Internal Revenue Code Section 121. Property must have been the principal residence of the taxpayer(s) 24 months out of the last 60 months. In the case of a dual-use property, such as a ranch, retail store, duplex or triplex, the taxpayer can defer taxes on the portion of the property used for business or investment under Internal Revenue Code Section 1031 and exclude capital gain on the portion used as the primary residence under Section 121.

The Property Manager is the person or company responsible for managing the single family rental investment property or other type of investment property in exchange for a fee. Property managers oversee the leasing, rent collection, repairing and maintaining of the investment property on behalf of the owner.

Property tax is a real estate ad-valorem tax, calculated by a local government, which is paid by the owner of the property. The tax is typically based on the assessed value of the owned property, including land, that is a derivative of the property value. The local governing body will use the assessed tax to fund water and sewer improvements, provide law enforcement and fire service and other items deemed necessary. Many states have various types of “Homestead” and other types of exemptions that provide for reduced property tax rates for various types of owners. It is important when purchasing single family rental investment property to understand what specific rate will apply upon purchase. Investors may not qualify for existing exemptions and may be required to pay based on a higher property tax rate.

A Qualified Intermediary is an unrelated party who participates in the tax-deferred, 1031 exchange to facilitate the disposition of the exchangor’s relinquished single family rental investment property or other type of property and the acquisition of the exchangors replacement property. The Qualified Intermediary has no economic interest except for any compensation (exchange fee) it may receive for facilitating the exchange as defined in Section 1031 of the Internal Revenue Code. The Qualified Intermediary is the correct technical reference pursuant to Treasury Regulations, but the Qualified Intermediary may also be known as the Accommodator, Facilitator or Intermediary.

A Real Estate Investment Trust is a type of entity that owns – and typically operates – income-producing single family rental investment property or other type of real estate or real estate-related assets.  REITs provide a way for individual investors to earn a share of the income produced through commercial real estate ownership – without actually having to go out and buy commercial real estate.  The income-producing real estate assets owned by a REIT may include office buildings, shopping malls, apartments, hotels, resorts, self-storage facilities, warehouses, single family rental and mortgages or loans.

A Real Estate Owned or REO property is a property owned by a lender, usually a bank. Depending on the jurisdiction, an REO is the result of the lender exercising its remedy for a borrower in default, called foreclosure. The bank actually takes ownership of the property, hence “Real Estate Owned”, to compensate for the defaulted loan. Depending on the specific situation, REO properties can be a good source of below market value single family rental investment property opportunity.

The definition of real property is land, and anything growing on, affixed to, or built upon land. This also includes man-made buildings as well as crops. Real property is best characterized as property that doesn’t move, or that is attached to the land. This is in contrast to personal property, which can be moved or transferred physically. Single family rental investment property is a type of real property.

The terms “real estate” and “real property” can be used interchangeably. Also, real property may include not just the land, but anything that is permanently located within or under the land. This may include oil, gases, and minerals found under the land. Another term used for real property is “premises”. To simplify, single family rental is real property.

A Real Property Exchange is the sale or disposition of single family rental investment property or other type of real estate (relinquished property) and the acquisition of like-kind real estate (replacement property) structured as a tax-deferred, 1031 exchange transaction pursuant to Section 1031 of the Internal Revenue Code and Section 1.1031 of Treasury Regulations in order to defer Federal, and in most cases state, capital gain and depreciation recapture taxes.

Regulation D permits raises of unlimited amounts from accredited investors without registering a public sale through the SEC. It’s assumed that accredited investors are financially able to bear the burden of investment decisions without a review by the SEC. It is imperative to check with qualified individuals if contemplating investment in to a single family rental investment property Regulation D offering.

Rehabilitation is the repair work needed to make a single family rental investment property tenant-ready. Prior to purchase, properties are given a primary inspection to ensure that extensive repairs are not necessary.

Rehabilitation can include minor fixes such as paint and lighting upgrades, but can also extend to more large-scale repairs such as roof replacement and plumbing upgrades.

A Relinquished Property is a single family rental investment property or other type of property to be sold or disposed of by the Exchangor in the tax-deferred, like-kind exchange transaction.

A Replacement Property is a like-kind single family rental investment property or other type of property to be acquired or received by the Exchangor in the tax-deferred, 1031 exchange transaction

Repair and Maintenance Expense are the costs incurred when bringing a single family rental investment property or other type of property back to an earlier condition or to keep the property operating at its present condition (as opposed to improving the asset). For example: repairing broken appliances or repainting, cleaning the gutters, and cleaning in preparation for a new tenant are all considered repair and maintenance expenses.

Retail Investors are individual investors who buy and sell single family rental investment property or other types of assets for their personal portfolio and not for another company or organization. Also known as an “individual investor.” Retail investors generally invest at significantly lower amounts than institutional investors.

A Security Deposit is a monetary deposit given to a landlord or representative to hold in security of the potential event of any damage caused by the Tenant of a single family rental investment property or other type of property. Security deposits can be either refundable or nonrefundable, depending on the terms of the agreement. As the name implies, the deposit is intended as a measure of security for the recipient.

A self-directed IRA (SDIRA) is an Individual Retirement Account (IRA) with specified tax treatment. The self-directed IRA provides the investor with greater opportunity for asset diversification outside of the traditional stocks, bonds, and mutual funds. Self-directed IRAs can invest in single family rental investment property, other types of real estate, private market securities and more. All securities and investments are held in an account administered by a custodian or trustee.

A single family rental investment property is a single unit residential property that is rented out similar to other property of commercial purpose.

The Title Holder is the entity that holds (name on) title to single family rental investment property or other type of property. In an Internal Revenue Code Section 1031 Exchange, the titleholder of the relinquished property must generally be the same as the titleholder of the replacement property or be a parent entity of the title holder “pass-through” entity of the replacement property. If a taxpayer dies prior to the acquisition of the replacement property, his or her estate may complete the 1031 exchange. When the acquisition and disposition entities bear the same taxpayer identification numbers the exchange usually qualifies.

The written analysis of the status of title to single family rental investment property or other type of real property, including a property description, names of titleholders and how title is held (joint tenancy, etc.), tax rate, encumbrances (mortgages, liens, deeds of trusts, recorded judgments), real property taxes due and anything else affecting title. A title report made when the report is ordered is called a “preliminary report,” or a “prelim,” and at time of recording an up-to-date report is issued which is the final title report. The history of the title is called an “abstract.” A title report is presented by a title company, an abstractor, attorney, or an escrow company, depending on local practice. Normally a title report’s accuracy is insured by title insurance which will require the insurance company to either correct any error or pay damages resulting from a “cloud on title,” encumbrance or title flaw in the title which was not reported.

A trust is a fiduciary relationship in which one party, known as a trustor, gives another party, the trustee, the right to hold title to single family rental investment property or other types of assets for the benefit of a third party, the beneficiary. Trusts are established to provide legal protection for the trustor’s assets, to make sure those assets are distributed according to the wishes of the trustor, and to save time, reduce paperwork and, in some cases, avoid or reduce inheritance or estate taxes. In finance, a trust can also be a type of fund built as a public limited company, like a Delaware Statutory Trust or a Real Estate Investment Trust.

A Trustee is an individual or institution appointed to administer a trust for its beneficiaries.

Vacancy Expense is the amount of rent lost from a single family rental investment property or other type of property going without a tenant occupying the property.

The Yield of a single family rental investment property the annual income of a property divided by the cost or value of the property. Sometimes also referred to as the unlevered yield, this measure is typically calculated without taking into consideration the effects on return of debt service. The Yield calculation is similar to that of a Cap Rate.