Real Estate Practice Chapter 12

Appreciation

An increase in value; the opposite of depreciation.

Cash Flow

The residual income after deducting from gross income all operating expenses and debt service.

Investment

An asset expected to generate a profit in the form of interest, dividends, or appreciation in value.

Leverage

The effective use of borrowed money to finance an investment such as real estate.

Liquidity

The degree of ease involved in converting an asset into cash.

Property Management Agreement

A contract between a property owner and a brokerage that provides property management services, where the terms of the owner/manager relationship are outlined.

Property Manager

A person hired by a property owner to administer, merchandise, and maintain property, especially rental property.

Safety

The likelihood of an investment to maintain or increase in value rather than losing money.

Yield

The return of profit to an investor on an investment, stated as a percentage of the amount invested.

Fixed Expense

A recurring property expense, such as general real estate taxes and hazard insurance; in the property management context, may refer to a property expense that remains the same regardless of rental income.

Law of Supply and Demand

A principle holding that value varies directly with demand and inversely with supply, where the greater the demand the greater the value, and the greater the supply the lower the value.

Market Analysis

An analysis of the market value of a property prepared by a property manager, based on the leasing prices, size, age, occupancy rates, and character of comparable properties.

Net Income

The income that is capitalized to estimate the property's value; calculated by subtracting the property's operating expenses (fixed expenses, maintenance expenses, and reserves for replacement) from the effective gross income.

Variable Expenses

Expenses incurred in connection with property that do not occur on a set schedule, such as the cost of repairing a roof damaged in a storm.

Lease

A conveyance of a leasehold estate from the fee owner to a tenant; a contract in which one party pays the other rent in exchange for the possession of real estate.

Rent

Compensation paid by a tenant to the landlord in exchange for the possession and use of the property.

Security Deposit

Money a tenant gives a landlord at the beginning of the tenancy to protect the landlord in case the tenant fails to comply with the terms of the lease. The landlord may retain all or part of the deposit to cover unpaid rent or repair costs at the end of the tenancy.

Statement of Operations

A report detailing income and expenses in connection with a property over a given period (frequently monthly).

Unlawful Detainer

A summary legal action to regain possession of real property; especially, a suit filed by a landlord to evict a defaulting tenant.