April 2019
Beginner
304 pages
6h 9m
English
Content preview from Real Estate Titans
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Glossary
Below are some important terms that every person in the myriad fields of real estate should know; however, this by no means encompasses all the different terms and definitions that are important to know.
- Appreciation
- The increase in the value of a property or a real estate portfolio due to changes in macro conditions such as economic growth, inflation, or numerous other causes is called appreciation. The opposite is depreciation.
- Bidding War
- A bidding war is a situation in which two or more potential buyers of a property or portfolio compete for that ownership through incrementally increasing bids.
- Capitalization Rate (Cap Rate)
- A cap rate, also known as the yield or yield on cost, is one the preeminent concepts used in commercial real estate. It is basically the return on a property based on the income that the property is generating. The cap rate of an investment can be calculated by dividing the property’s net operating income by the current market value or acquisition cost of a property. Here is the formula:
- Capitalization Rate = Annual Net Operating Income / Property Value
- Let´s use a simple example. Let’s say that Jose wants to buy an apartment for $100,000 and expects that it will generate an annual net operating income of $9,000. The cap rate for this investment would be 9.0 percent ($9,000 / $100,000 = 9.0%).
- Or let’s say that Company X wants to buy an office building for $100 million that is generating an annual net operating income of $6 million. The ...
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