VB Porter & company real estate service

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Glossary

Debt Coverage Ratio In appraisal of income properties, a calculation of how well operating income is structured to make monthly mortgage payments. To calculate, net operating income is divided by the amount of debt service (principal and interest).
Declining Balance Depreciation An accelerated method of depreciation in which a greater deduction is allowed in the early years, and less in later years.
Depreciation (1) for tax purposes, a non-cash expense real estate investors claim, based on purchase price of real estate (excluding land). For real estate, depreciation is claimed on the straight-line basis (the same amount claimed each year) over 27.5 years (for residential property) or 39 years (for non-residential property). (2) for appraisal purposes, a reduction in appraised value based on the age and condition of property.
Diminishing Returns A concept in valuing real estate, recognizing that while improvements to property tend to increase market value, investment return will begin to fall when improvements exceed the natural rate of growth in market value.
Direct Capitalization In appraisal, the use of gross rent multipliers on similar properties to estimate market value of a subject income property.
Diversification The spreading of risk within a market, by placing investment capital in several different products rather than in a single product.
Due Diligence A series of tests and analyses designed to ensure that potential risks, cash shortfalls, and other feasibility-related problems have been anticipated; and also to ensure that likely problems such as project delays, have been studied as part of an overall risk evaluation of a project.
Economic Demand A shortage of supply given current economic conditions (compare to political demand).
Economic Life In appraisal, an estimate of the current condition of property, used to calculate annual depreciation of value due to condition and obsolescence.
Economic Rent The rent from income property on the basis of rent per unit, per room, or per square feet (or all three), used in appraisal to compare subject properties to comparable income properties.
Effective Age In appraisal, an estimate of the age of a property based not on when improvements were constructed, but on current condition.
Effective Gross Income Total rental income that can be earned, minus the value of rents based on vacancy rates.
Eminent Domain A legal power granted to the government and found in the Fifth Amendment. It provides that the government (federal, state or local) has the power to take private property for public use; and that upon exercise of that right, the landowner must be given adequate compensation.
Equity REIT A real estate investment trust organized to assume ownership positions in large-scale real estate projects such shopping centers, office/industrial parks, urban office buildings, and residential subdivisions.
Essential Public Facility Under growth management rules, facilities necessary for the public, but not necessarily desirable when placed in certain neighborhoods. This category includes hospitals and convalescent homes, prisons, transportation yards and facilities, airports, land fills, and utility plants. The importance of essential public facilities allows governments to override the property rights of individuals and when necessary, to enact a takings in order to free up land for the proposed construction.
Exchange Traded Fund (ETF) A type of mutual fund that trades like stocks on public exchanges. ETFs specialize in specific products or stock types, including real estate. Investors can buy or sell shares with the same liquidity as with stocks.
Exclusionary Zoning Any zoning regulations designed specifically to keep out newcomers and to prevent growth, rather than to serve a legitimate purpose.
Expense Ratio In appraisal of income properties, a comparison between expenses and income. To calculate, divide operating by effective gross income.
Feasibility Study An analysis of specific financial expectation involved with a project, based on a study of existing and anticipated demand levels; competition; the cost of construction and financing; time to completion of a project; cash flow and taxes; and risks to investors, lenders, and developer.
Free Independent Travelers (FITs) In the lodging industry, individuals whose needs are very individual and local, including discount and wholesale travelers, members of charter groups, and secondary travelers such as spouses of convention attendees.
Fundamental Analysis A study of basic financial status and potential for a real estate project; while this concept is usually applied to stock investments, its value is equally important to real estate investors.