The ABCs of Real Estate

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Appraisal

An appraisal is an expert's careful estimate of what a building is worth.

Basis

Your basis is what a building really cost you, all in, including the repairs.

Cap rate

Divide a building's yearly income by its price, and you get the cap rate. Five on a hundred is a cap rate of 5%.

Debt service coverage

Divide a building's income by its loan payments. Lenders commonly look for about 1.25, so there is room to spare.

Equity

Equity is the part of a building the owners have paid for themselves. The rest is the loan.

Fit-out

A fit-out gets a space ready for its tenant, with paint, shelves and lights.

Ground lease

With a ground lease, you own the building and rent the land underneath it for a very long time.

Hold period

The hold period is how long an owner plans to keep a building. Stanley does not rush.

Income

A building's income is mostly the rent its tenants pay.

Joint venture

In a joint venture, two owners share one building and agree how decisions are made.

Keys

Every new tenant gets a set of keys. It is a small and happy moment.

Lease

A lease is an agreement that lets a tenant use a space for a set time, in return for rent.

Mortgage

A mortgage is a loan with a building standing behind it. Bit by bit, it gets paid back.

Net operating income

Net operating income is what a building earns after its running costs and before its loan.

Occupancy

Occupancy is how much of a building is rented. Lights on in every window is a lovely thing to see.

Property manager

A property manager looks after a building day to day. They fix the taps and know the tenants' names.

Quiet enjoyment

Quiet enjoyment is a real legal term. It means tenants have the right to use their space without being disturbed.

Rent roll

A rent roll lists who rents what, for how much and until when.

Stabilized

A building is stabilized when it is rented up and earning as planned.

Triple net

In a triple net lease, the tenant pays the rent and also the taxes, insurance and upkeep.

Upkeep

Roofs, pipes and paint all need looking after. Good upkeep keeps a building good for a long time.

Value-add

A value-add owner buys a building that needs care, fixes it up and makes it a better place to be.

WALT

WALT stands for weighted average lease term. It tells you how long a building's leases have left, on average.

eXit cap rate

The exit cap rate is the cap rate an owner expects when selling, years from now.

Yield on cost

Divide a new building's income by what it cost to build. That is the yield on cost.

Zzz

Stanley never has far to go at bedtime. He is already home.