Contracts, regulations, compliance, entity structures, zoning, permits, and landlord-tenant law.
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Foundation terms you need to know first (89 terms)
Development costs are all the expenses incurred during the process of acquiring land, designing, constructing, and preparing a real estate project for use or sale, from start to finish.
Base rent is the fixed, minimum rent amount paid by a tenant to a landlord for the use of a property, excluding additional charges like operating expenses, taxes, or utilities.
An absolute auction is a type of real estate auction where the property is sold to the highest bidder, regardless of the price, with no minimum bid or reserve price set by the seller.
The Lease Commencement Date is the official date specified in a lease agreement when the tenant's rights and obligations, including rent payments and property responsibilities, legally begin.
An application fee is a non-refundable charge paid by a prospective tenant to a landlord or property manager to cover the costs associated with processing a rental application, including background and credit checks.
Complex strategies and professional concepts (117 terms)
An Equity-for-Property Swap is an advanced real estate investment strategy where an investor exchanges equity in one or more properties or entities for direct ownership of another property, often to achieve tax deferral, portfolio restructuring, or strategic asset acquisition.
The accounting process of recognizing the estimated cost of an Asset Retirement Obligation (ARO) as a liability and capitalizing a corresponding asset, which is then depreciated over its useful life, reflecting the future costs associated with retiring a long-lived asset.
A legally binding contract that alters the priority of liens on a property, allowing a senior lienholder to voluntarily place their claim in a junior position to another, typically to facilitate new financing or complex transactions.
Unrelated Business Income Tax (UBIT) is a tax levied on the net income of a tax-exempt organization, including certain real estate investment vehicles, derived from a trade or business regularly carried on and not substantially related to its exempt purpose.
Inverse condemnation is a legal action initiated by a private property owner against a government entity to recover "just compensation" for a taking of their property, where the government has not formally exercised its power of eminent domain but has effectively deprived the owner of beneficial use or value.
A Partnership Agreement is a legally binding contract outlining the terms and conditions between two or more parties who agree to pool resources and share profits or losses in a real estate investment venture. It defines roles, responsibilities, capital contributions, and decision-making processes.
A business structure, such as an LLC or S-Corp, where income, losses, deductions, and credits are passed directly to the owners' personal income tax returns, avoiding corporate-level taxation.
A payment bond is a type of surety bond that guarantees subcontractors and suppliers will be paid for their work and materials on a construction project, protecting them from non-payment by the general contractor.
Penalty abatement is the process by which the Internal Revenue Service (IRS) or state tax authorities remove or reduce a tax penalty, typically due to reasonable cause, administrative error, or a first-time penalty waiver. It allows real estate investors to avoid financial penalties for certain tax compliance issues.
The Percentage of Completion (POC) Method is an accounting technique used for long-term contracts, particularly in real estate development, to recognize revenue and expenses proportionally as work progresses, rather than waiting until project completion. This method provides a more accurate representation of a project's financial performance over its lifecycle.
A percolation test evaluates the rate at which water drains into the soil, primarily to determine a site's suitability for a septic system. It is a critical due diligence step for real estate investors considering undeveloped land.
A performance bond is a surety bond that guarantees a contractor will complete a project according to the terms and conditions of a contract, protecting the project owner from financial loss if the contractor defaults.
A compensation structure where a portion or all of a payment is contingent upon achieving specific, pre-defined performance metrics or outcomes, commonly used in real estate development, property management, and investment syndications to align interests.
A legal process for individuals to eliminate or repay debts under federal law, significantly impacting credit, asset ownership, and future real estate investment capabilities.
A personal guarantee is a legally binding promise by an individual to repay a business debt if the business entity defaults, exposing the guarantor's personal assets to the loan obligation.
Personal liability in real estate refers to an individual's direct responsibility for debts or legal obligations, allowing creditors or plaintiffs to pursue personal assets beyond those held by a business entity. It's a critical risk factor for investors.
Personal liability coverage is an insurance component that protects real estate investors from financial losses due to claims of bodily injury or property damage to a third party on their insured property, covering legal defense and settlement costs.
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