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Investing
Real estate investment strategies, property acquisition, financing, and portfolio growth for Florida landlords.
Knowledge Base Terms
Assessed Value
The value assigned by the county property appraiser for property tax purposes. It is often different from market value.
Equity
The difference between the property's market value and the amount owed on loans secured by the property.
Capital Improvements
Permanent improvements that add value, extend useful life, or adapt the property to a new use. Unlike repairs, capital improvements are generally added to the property's basis.
Principal Reduction
The portion of each mortgage payment that reduces the outstanding loan balance.
Due Diligence
The investigation performed before purchasing property, including inspections, title review, leases, zoning, insurance, environmental issues, and financial analysis.
Earnest Money
A good-faith deposit showing the buyer's commitment to complete the purchase.
Down Payment
The cash contribution made by the buyer at closing, reducing the amount borrowed.
Appraisal
A professional opinion of a property's market value, typically required by lenders before approving a mortgage.
Debt Service
The total amount required to make scheduled principal and interest payments on a loan.
Adjusted Basis
The property's original cost, adjusted over time by improvements, depreciation, casualty losses, and certain other tax events. Adjusted basis is the starting point for calculating gain or loss when ownership ends.
Closing Costs
Expenses paid when buying property, including lender fees, title insurance, recording fees, surveys, inspections, and other transaction costs.
Cost Basis
Generally the purchase price plus certain acquisition costs. Cost basis is the foundation for determining depreciation and future capital gains.
Cash-on-Cash Return
A real estate valuation measure used to estimate the potential return on an investment property based on expected income.
Return on Equity (ROE)
The annual return generated based on the owner's current equity in the property.
Net Operating Income (NOI)
Rental income minus normal operating expenses, before mortgage payments, depreciation, and income taxes. NOI is one of the most important measures of a property's financial performance.
Debt Service Coverage Ratio (DSCR)
A lender's measurement of whether rental income is sufficient to cover mortgage payments. A DSCR above 1.0 generally means the property generates enough income to pay its debt.
Mortgage Amortization
The gradual repayment of a mortgage through scheduled payments that reduce both principal and interest over time.
Return on Investment (ROI)
A measurement of the actual annual cash return earned on the cash invested in a property.
Loan-to-Value (LTV)
The loan amount expressed as a percentage of the property's value. Lower LTV generally means lower lender risk.
Escrow
Funds or documents held by a neutral third party until specified conditions of the transaction are satisfied.
Fair Market Value
The price a willing buyer and willing seller would agree upon when neither is under pressure to act.
Cap Rate
A tax deduction allowing landlords to recover the cost of an income-producing property over a set period.
Appreciation
Appreciation is the natural increase in a property's market value over time due to economic factors or demand.
Value-Add Investing
Value-add investing is a strategy of purchasing underperforming properties and improving them to increase revenue and value.
S Corporation
An S Corporation is a tax designation for corporations or LLCs that allows profits and losses to pass through directly to shareholders.
Forced Appreciation
Forced appreciation is the process of increasing a property's value through deliberate physical improvements or operational changes.
Leverage
Using borrowed money to finance investments, aiming to increase potential returns but also amplifying potential losses.
Sole Proprietorship
A business owned and run by one individual, with no legal distinction between the owner and the business.
Registered Agent
A designated person or entity responsible for receiving official legal and government documents on behalf of a business.
Partnership
A business structure where two or more individuals share ownership, profits, and liabilities.
Internal Rate of Return (IRR)
The discount rate at which the net present value (NPV) of all cash flows from a project equals zero.
C Corporation
A C corporation is a legal business entity that is taxed separately from its owners, offering liability protection.
Opportunity Cost
The value of the next best alternative foregone when making a choice or investment.
LLC
A Limited Liability Company is a legal entity that separates personal assets from business liabilities for rental property owners.
EIN
An EIN is a nine-digit number assigned by the IRS to business entities operating in the U.S. for tax purposes.
Operating Agreement
An operating agreement is a legal document outlining the management, ownership structure, and rules for a Limited Liability Company.
Cash Flow
Cash flow is the net income remaining after all operating expenses and debt service are paid from rental income.
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