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Concepts
January 20, 2019
9 min read
The ABCs of Multifamily Real Estate: Understanding Basic Terminology
Whether you're a seasoned investor or just dipping your toes into the multi...
A - Amortization
Amortization refers to the process of gradually reducing a debt over a given period through regular payments. This term also represents the spreading out of capital expenses for intangible assets over a specific duration – usually over the asset's useful life for accounting and tax purposes.
B - Bridge Loan
A bridge loan is a short-term loan used until a person or company secures permanent financing or removes an existing obligation. In the context of real estate, these loans offer quick financing for property buyers who typically repay the loan through the sale of the original property or with longer-term financing.
C - Cap Rate
Short for capitalization rate, the cap rate is a real estate valuation measure used to compare different real estate investments. The cap rate is calculated by dividing the property's net operating income (NOI) by the property's market value.
D - Depreciation
Depreciation refers to the decrease in value of a property over time due to wear and tear, decay, or other adverse conditions. In terms of accounting, depreciation is a method used to allocate the cost of a tangible asset over its useful life.
E - Equity
Equity refers to the difference between the value of a property and the amount owed on any loans secured by the property. It represents the ownership interest of investors or property owners.
F - Fair Market Value
Fair Market Value (FMV) is the price that a property would sell for on the open market between a willing buyer and a willing seller, with both parties having reasonable knowledge of all pertinent facts and neither party under any compulsion to buy or sell.
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