5 Top Misunderstood Real Estate Investment Terms Worth Knowing

By Author: James Kobzeff
Total Articles: 44
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If you are just starting to invest in real estate you undoubtedly will hear (if not already) terms generally associated with real estate investment you might not understand. But please don't apologize because there are many real estate professionals who are not beginners who have no idea what they mean either.

Of course, knowing these real estate terms will not guarantee investing success, but it never hurts any beginner to investment property to learn as much as possible whenever possible. This is not an exhaustive list by any stretch of the imagination, but it does include terms real estate professionals frequently ask to be explained.

1) APOD - An APOD is an acronym for annual property operating data and essentially gives a snapshot of a rental property's income and expense performance for one year. If you already started looking for rental income property, or previously met with a real estate agent about income properties, you probably have already seen an APOD because it is a popular report that is good at giving a first-glance look at a property's performance.

2) Gross Scheduled Income ...
... - Gross scheduled income (or GSI) is the total annual rental income a property would generate if all the rentable space were occupied and all rent collected. Sometimes called potential gross income, gross scheduled income is an estimate intended to show the maximum potential income without regard to any vacancy or credit losses.

3) Operating Expenses - Operating expenses include those costs associated with keeping a property in service. Among others, operating expenses include costs for routine maintenance and repair, utilities, property taxes, insurance, and management fees. They do not include the mortgage payment (or debt service), income taxes owed by the investor because of owning the subject investment, or allowances for depreciation.

4) Net Operating Income - Net operating income (or NOI) is a property's income after being reduced by vacancy and credit loss and all operating expenses-think of it as a measure of the property's productivity. NOI is a valuable measure of cash flow and the return expected from a property for any given annual period as if it was wholly owned (without debt) and before taxes and depreciation are considered.

5) Cash Flow, Before Tax and After Tax - Cash flow before-tax (CFBT) and cash flow after-tax (CFAT) has nothing to do with real estate property tax. Rather, it signifies whether the cash flow available after the debt is before or after consideration of taxes and the effect of tax shelter. CFBT is simply NOI minus debt service. CFAT, on the other hand, requires a separate tax calculation. It subtracts from NOI interest on the loan, an allocation for depreciation (cost recovery), and allocable amortization expense (amortized loan points) to arrive at taxable income which is then multiplied by the investor's marginal tax bracket and in turn subtracted from CFBT.
James Kobzeff is the developer of ProAPOD - leading real estate investment software since 2000. Create rental property cash flow, rate of return, and profitability analysis presentations in minutes! Easy and affordable. Go to => www.proapod.com