RE 360 Real Estate Principles Final Exam Study Guide

Vocabulary flashcards covering real estate fundamentals, property rights, appraisal, income-based valuation, mortgages, agency, contracts, and commercial finance/Ninja selling principles based on lecture notes.

Location Value

Value created by the combination of limited supply and higher demand at desirable places.

User Market

The market where tenants decide what space they need and what they will pay for it; it is where demand is created first.

Property Market

The market where investors buy and sell properties based on income expectations.

Capital Market

The market where debt and equity financing for real estate originates, consisting of four quadrants.

Fixture

An item that started as personal property but became permanently attached to the land or building, thus becoming real property.

Real Property

The land and everything permanently attached to it, legally transferring to the buyer at closing.

Personal Property

Movable items such as freestanding furniture that do not transfer with the home during a sale.

Illiquidity

A characteristic of real estate where selling can take months and cost $5-6\%$ in fees, which serves as a guard rail against panic-selling.

Private Debt

Traditional mortgages from banks and lenders, such as a local bank financing an apartment building.

Public Debt

Mortgage-backed securities (MBS) sold to investors, such as those packaged by Fannie Mae.

Private Equity

Direct ownership of real property, often through buying a duplex or raising money for a syndication.

Public Equity

Real Estate Investment Trusts (REITs) traded on stock exchanges like the NYSE.

Bundle of Rights

A set of five distinct rights of real property ownership: Use, Lease, Sell, Devise, and Exclude.

Right to Use

The specific right in the bundle that transfers to a tenant when they sign a lease.

Tenancy in Common (TIC)

Co-ownership where a deceased owner's share passes to their heirs rather than automatically to other owners; shares can be unequal.

Joint Tenancy

Co-ownership with a right of survivorship where a deceased owner's share automatically transfers to the surviving owners; shares must be equal.

Easement

A legal right for one party to use another's land for a specific purpose that runs with the land and survives a sale.

Lien Priority

The order in which debts are paid during foreclosure: 1st Property Taxes, 2nd Mortgage Liens, 3rd Mechanic's Liens.

Restrictive Covenants (CC&Rs)

Private contractual restrictions attached to a deed that allow HOAs to fine owners and lien properties for violations.

Subdivision Plat

A land description method using lot and block numbers that reference a recorded map, common for residential properties in Fort Collins.

Metes and Bounds

A legal land description using precise directions and distances from a starting Point of Beginning.

Government Rectangular Survey

A grid system based on Townships, Ranges, and Sections used to describe large land tracts and rural areas.

General Warranty Deed

The deed providing the highest protection by warranting title against all defects throughout the entire history of the property.

Special Warranty Deed

A deed where the grantor warrants title only during their specific period of ownership; common in bank-owned and commercial sales.

Quitclaim Deed

A deed conveying only whatever interest the grantor has with no covenants or warranties; often used between family members.

Constructive Notice

The legal presumption that the world knows of an ownership claim because the deed was recorded at the county office.

Sales Comparison Approach

An appraisal method for residential homes using adjusted prices of comparable properties; better comps result in subtractions, while worse comps result in additions.

Income Capitalization Approach

An appraisal method for income-producing properties where $\text{Value} = \frac{\text{NOI}}{\text{Market Cap Rate}}$.

Cost Approach

An appraisal method for new construction or special-use buildings calculated as replacement cost minus depreciation.

Appraisal Gap

The difference when an appraisal comes in lower than the purchase price; banks lend on the lower of the two values.

Physical Deterioration

Loss in property value due to wear and tear over time, such as aging HVAC or cracked driveways.

Functional Obsolescence

Value loss from outdated design or features, which may be curable if renovation cost is less than the value gained.

External Obsolescence

Incurable loss in value caused by forces outside the property line, such as a new highway or noisy commercial facility.

Net Operating Income (NOI)

Effective Gross Income minus operating expenses; it does not include mortgage payments (debt service).

Cap Rate

The return an investor earns if paying all cash; determined by $\text{Cap Rate} = \frac{\text{NOI}}{\text{Purchase Price}}$.

Cap Rate Inverse Relationship

The principle that when cap rates go up, property values go down, and when cap rates go down, values go up.

Cash-on-Cash Return

A measure of yield on invested dollars calculated as $\text{Cash-on-Cash} = \frac{\text{Before-Tax Cash Flow (BTCF)}}{\text{Equity Invested}}$.

Effective Gross Income Multiplier (EGIM)

A quick valuation indicator calculated by $\text{EGIM} = \frac{\text{Sale Price}}{\text{EGI}}$.

Promissory Note

The personal promise to repay a loan, serving as the borrower's personal IOU and proof of debt.

Deed of Trust

A document that pledges the property as collateral and gives the lender a lien and the right to foreclose on default.

Acceleration Clause

A mortgage provision that makes the entire remaining loan balance immediately due in full if the borrower misses payments.

Amortization

The process where early mortgage payments consist mostly of interest, while late payments consist mostly of principal.

Discount Points

Upfront fees paid to lower an interest rate, where 1 point equals $1\%$ of the loan amount.

Pre-Approval

A verified status based on W-2s, tax returns, and credit pulls that is much stronger than a pre-qualification in competitive markets.

3 C's of Mortgage Underwriting

Creditworthiness (FICO), Capacity (Debt-to-Income ratio), and Collateral (Appraised value).

TILA (Truth in Lending Act)

A consumer protection law requiring standardized disclosure of the true cost of borrowing, including the APR.

RESPA (Real Estate Settlement Procedures Act)

A law governing closing procedures that prohibits kickbacks between settlement service providers like lenders and agents.

Secondary Mortgage Market

A market where existing loans are bought and sold, solving the problem of local banks running out of deposit money to lend.

Ginnie Mae

A government agency that guarantees mortgage-backed securities backed by FHA/VA loans with explicit Treasury backing.

Special Agent

An agent hired for one specific task whose authority ends once that task is complete, such as a buyer's agent.

Transaction Broker

Colorado's alternative to dual agency where the broker assists both parties but advocates for neither.

Fiduciary Duties

The six duties owed to a client: Loyalty, Obedience, Disclosure, Confidentiality, Accounting, and Skill & Care.

Exclusive Right-to-Sell

A listing contract where the brokerage earns a commission regardless of who finds the buyer.

Equitable Title

A right to purchase transferred at contract signing, locking the seller into the deal.

Legal Title

Full ownership of the property that transfers at closing when the deed is recorded.

Net Lease (NNN)

A lease where the tenant pays base rent plus property taxes, insurance, and maintenance.

Ground Lease

A long-term lease where the tenant leases the land only and builds their own structure, common for McDonald's locations.

Effective Rent

The actual monthly rent paid after accounting for concessions like free months.

Balloon Mortgage

A commercial loan with payments based on a long amortization (20-25 years) but which matures and becomes due in full after 5-10 years.

Non-Recourse Loan

A loan where the lender can only take the property as collateral upon default and cannot pursue the borrower's personal assets.

Bad Boy Clause

A provision that converts a non-recourse loan to full personal liability if the borrower commits fraud, tax default, or bad-faith bankruptcy.

Capital Stack

The layered structure of debt and equity where senior debt has the lowest risk and equity has the highest risk/upside.

Debt Coverage Ratio (DCR)

A commercial lending metric calculated as $\text{DCR} = \frac{\text{NOI}}{\text{Annual Debt Service}}$; many lenders require at least $1.25\times$.

Positive Leverage

A situation where the cap rate of a property is higher than the debt constant of the loan, enhancing equity returns.

Market Value vs. Investment Value

Market value is objective based on comparable sales, while investment value is subjective based on an individual investor's specific requirements.

Asset Manager vs. Property Manager

Property managers handle day-to-day operations like maintenance, while asset managers make strategic decisions like refinancing or selling.

Agency Problem

A conflict of interest where a manager's incentives, such as getting paid a percentage of rent regardless of occupancy, do not align with the owner's goals.

Ninja Selling Philosophy

A system summarized by the four words: 'Stop Selling, Start Solving,' focusing on service first.

FORD

A conversation framework used to uncover life changes and real estate needs by discussing Family, Occupation, Recreation, and Dreams.

RAS (Reticular Activating System)

The brain's filter that determines what you consciously notice based on what you focus on, illustrated by the 'new car example.'

Player Mindset

A mindset characterized by taking ownership of results, studying data, and ramping up activity during slow markets.