Common Real Estate Terms
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There are currently 15 names in this directory beginning with the letter C.
The capitalization rate, or “cap rate,” refers to a ratio used to convert an income stream into an estimate of value. The income stream utilized is the property's net operating income, which takes into account expenses such as utilities, insurance, management, and repairs, but which does not include financing expenses (like debt service). At the time of acquisition, the cap rate can be figured by dividing a property's net operating income by the property's purchase price (its then current value). Example: A property that has a gross income of $300,000 and operating expenses of $100,000 (for a net operating income of $200,000), and a purchase price of $2,000,000 would be calculated as: Net Operating Income ÷ Purchase Price = $200,000 ÷ $2,000,000 = 10.0% cap rate. Since cap rates convert an income stream to value, the above calculation can be re-figured so that a given income stream and an assumed cap rate can be used to estimate the value of a comparable property, or even to estimate the future value of a property. Investors often use cap rates to convert future projected income streams into that property's future value (and thus its anticipated sales price at that time).
Capital Expenditures (CapEx)
Capital Expenditures, referred to as CapEx, are the funds used to upgrade and maintain an apartment community. An expense is considered a capital expenditure when used to improve the life of an apartment complex or unit and is capitalized – spreading the cost of the expenditure over the asset's useful life. Capital Expenditure renovations can include both interior and exterior updates. Examples of CapEx include rebranding the property, installing new flooring, and fresh paint. CapEx does not include operating expenses, turnover costs, ongoing maintenance and repairs, landscaping, utilities, or payroll.
Capital Gain is calculated as follows: the final sale price of the investment property, minus the exchange expenses, minus the sold property's adjusted basis.
Capitalization is the method of determining the value of real property. This calculation is made by looking at net operating income divided by a predetermined annual rate of return.
Capitalization Rate (Cap Rate)
Cap Rate reflects the rate of return and is based on the income the property is expected to generate. The cap rate is the NOI (net operating income) divided by the purchase price. Also called "free and clear return". See "Capitalization".
Carrying Charges represents the costs incidental to property ownership, other than interest, that must be absorbed during the lease-up of a building and during periods of vacancy. For example - taxes, insurance, and maintenance.
Cash Flow is the revenue provided to investors after all expenses are paid. To calculate Cash Flow, subtract the operating expense and debt service from the collected revenue.
Cash-On-Cash (CoC) provides the rate cash is returned in relation to your original investment, expressed as a percentage. CoC is calculated by dividing the cash flow by the initial investment. If you receive 10,000 in cash flow and you initially invested $100,000, your CoC would be 10% (10,000/$100,000)
CBD: Central Business District
The Central Business District is the main business and commercial area of a town or city.
Certificate of Insurance
An insurance company or its agent issues a Certificate of Insurance to verify that an insurance policy is in effect for stated amounts, coverages, and names those insured.
Closing Costs refer to the additional expenses beyond the property's price that buyers and sellers typically incur to complete a real estate transaction.
The Common Area includes the areas of a building (and its site) available for use by all tenants, such as lobbies, corridors, and parking lots.
Concessions are incentives offered to prospective tenants to encourage them to sign a lease. For example, a landlord may offer a discount for the first three months if a tenant signs a longer lease term.