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Are You New to Real Estate Investment? 5 Terms You Should Learn and Understand!

If you are just starting to invest in real estate you undoably will hear (if not already) terms generally associated with real estate investing that you might not understand.

I even speak with real estate professionals who are not beginners and have no idea what they mean either. So no need to apologize. Knowing these real estate terms, of course, will not guarantee investing success, but it never hurts any beginner new to investment property to learn as much as possible; Whenever possible.

This list is not exhaustive, but it does include terms real estate professionals frequently confront me with and ask to be explained.

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 already have seen an APOD because it is a popular report that that good at giving a first-glance look at a property's performance.

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.

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 as a result of owning the subject investment, or allowances for depreciation.

Net Operating Income

Net operating income (or NOI) is a property of 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.

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 either 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 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.

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