accelerated depreciation- see depreciation

alternative mortgage instrument (AMI)- A mortgage that is a variation on the standard, conventional mortgage--such as a variable-rate, roll-over, graduated-payment, or reserve-annuity mortgage.

alternative use of money- Comparison of the return on different types of investments, such as a home, stock, or bonds.

amortization- The gradual repayment of the principal (as opposed to the interest) of a mortgage. Also, under the Internal Revenue Code, the five-year write-off of rehabilitation expenses allowed for subsidized rehabilitated housing and for historic structures.

balloon payment- A lump sum, or balance, of principal that remains unpaid (and that you will have to pay) on the maturity date of a mortgage.

blanket mortgage- A mortgage covering the entire building in a cooperative, as distinguished from separate mortgages on the individual dwelling units.

capital appreciation- The increase in the market value of a property over the price you originally paid for it.

capital gain- The portion of your taxable profit realized upon the sale of a property that is not taxed at your ordinaryincome-tax rate. Capital gain is taxed at a rate that is 40% of your ordinary income-tax rate. If, for example, you are in the 50% income-tax bracket, you r capital-gain rate will be 20% (40% of 50%). You have to own the property for more than 12 months in order to get this capital-gain treatment.

carrying costs- The ongoing expenses, which you usually pay monthly, of running or operating your home or property, such as mortgage payments, real estate taxes, and charges for utilities, insurance, maintenance, and repairs.

cash flow- The current cash return on your cash investment (exclusive of the mortgage) made in a property.

closing costs- Your incidental costs and expenses (in addition to the down payment) of buying a home or other property. They are customarily paid when you "close the deal." In the case of a home, they include attorney's fees, title-insurance premium, survey cost, recording fees, appraisal cost, inspection fees, and mortgage application fees.

collateral- Property securing the repayment of a loan. Your home the is the bank's collateral on a mortgage.

common areas- The areas in a condomium, cooperative, or other building that you and your neighbors share the use of, such as corridors, elevators, and recreatiion areas.

condominium- An apartment project in which you and your neighbors each directly own the individual apartment units and share ownership of the common areas.

cooperative- An apartment project that is owned by you and your neighbors indirectly. the project is usually directly owned by a corporation (or other entity), and the residents each own shares of stock in the corporation. In addition to the shares of stock, you have a "propriety lease" on your apartment unit.

credit real estate- Properties leased under long-term net leases to nationally known tenants having high credits ratings. A free-standing retail store net-leased to K mart would be an example of credit real estate.

default- The failure to comply with terms of the mortgage on your home or other real estate, including the failure to pay interest and principal as they become due.

depreciation- A tax concept that allows you to deduct the cost of a commercial building from your taxable income over its useful, or economic life. In the case of an existing building, depreciation is usually deducted in equal amounts; this is known as "straight-line depreciation." For example, if a $1 million building has a 25-year useful like, your annual depreciation deduction will be $40,000 ($1 million cost divided by 25 years).

In the case of a new building, you can deduct your cost at a faster rate, referred to as "accelerated depreciation." There are also special depreciation benefits for certain kinds of apartment projects and historic properties.

down payment- Your initial cash investment (excluding the closing costs) in a home or other real estate. If the purchase price your home were $100,000 and you obtained an $80,000 mortgage, your down payment would have to be $20,000.

equity- Your down payment on a home or other property plus an amount equal to the principal you have repaid on the mortgage.

equity buildup- The increasing value of your ownership in a home or other property that occurs as yoru repay the principal of the mortgage. In other words, your equity gradually grows, or builds up, by the amount of the mortgage principal you pay off.

FHA mortgage- A low-down-payment mortgage on your home insured by the Federal Housing Administration. The maximum amount available under an FHA mortgage on a single-family is usually $67,500 (as of 1980, it can be higher in certain areas of the country).

government-assisted housing (subsidized housing)- A new or rehabilitated apartment project leased to low-income families and economically assisted in one or more ways by the federal, state, or local governments. Because of the low cash return and large tax benefits, such housing is usually a tax shelter investment.

graduated-payment mortgage (GPM)- A home mortgage on which you have to make relatively low installment payments (of both interest and principal) in the early years. These payments rise each year and eventually exceed the installment payment aount on a comparable conventinal mortgage. This type of mortgage appeals primarily to younger persons.

ground (or land) lease- A legal agreement conveying use of the land underlying and surrounding a building from the owner of the land (the lessor), to the owner of the building (the lessee). In the case of a condominium, the landowner is frequently the developer.

historic structures- A national landmark or other building (usually at least 50 years old) that contributes to the significance of a historic district. You can get very generous tax benefits by investing in a historic structure.

installment payment- The periodic payment (usually monthly) of interest and principal on a mortgage.

interest- The cost of borrowing money.

land lease- See ground lease.

leverage- The use of borrowed money to pay for part of the purchase price of a property. For example, if you purchased a $1 million property by using $250,000 of your own cash and by borrowing $750,000, you would have leverage of 3 to 1--that is, for every $1 you put up, you are borrowing $3.

liquidity- The speed at which an investment can be converted into cash. For example, a share of common stock of a corporation listed on the New York Stock Exchange can ordinarily be sold for cash more quickly than a home and is, therefore more liquid.

maturity date- The date by which the principal and interest on a mortgage must be paid in full.

mortgage- A legal document that secures the money you borrow in order to finance part of the purchase price of a home or other property. The mortgage gives the lender a claim against your property in case you default in repaying the money (plus interest) you borrow.

mortgage company (or banker)- A financial intermediary that originates mortgages and, normally, sells them to various lending institutions and government agencies.

net lease- A long term lease (usually 20 to 25 years) under which the tenant agrees to pay a fixed minimum rent and also all operating expenses, including real estate taxes, insurance, utilities, and cost of repairs and maintenance.

noncredit real estate- Property, such as an apartment project, that is leased to several tenants who do not have high credit ratings or national reputations. The leases are usually for a relatively short term (one to five years) and are not, customarily, "net" of all operating expenses.

nonrecourse mortgage- A mortgage that does not make the borrower personally liable. If you default in repaying the money you borrow (plus interest), the lender's recourse is limited to recovering the property; and if the value of the property is less than the amount outstanding on the mortgage, the lender cannot collect the deficiency from you.

percentage-interest- Your proportionate share of ownership in the common areas of condominium or cooperative.

percentage rent- Rent that is contingent upon (and based upon a percentage of) a commercial tenant's gross dollar volume of business on a property and that is paid in addition to the fixed minimum rent agreed in the lease. Also called "overage rent."

points- Payments you may have to make to a lender at the time you obtain a mortgage. Each point is equal to 1% of the mortgage amount and is, in effect, a form of interest. For example, one point on a $1 million mortgage would be $10,000.

prepayment- The repayment of the principal of a mortgage prior to its maturity. One of the most important reasons to prepay is to take advantage of lower intest rates. For example, if you are paying 15% interest on a mortgage and the available interest rates drop 10%, you may want to prepay the 15% mortgage and get a new one at 10%.

principal- The actual amount you borrow when you obtain a mortgage. For example, when you get $1 million mortgage, the principal amount is $1 million.

private limited partnership- An entity formed to enable a small group of investors (usually not exceeding 35) to participate together in the purchase of a property. The investors are usually the limited partners of this entityl their liability for any obligations of the partnership is limited to their cash investment. The limited partners are also entitled to receive most of the tax benefits from the property. The minimum cost of investing through a private limited partnership is usually about $25,000.

privately insured mortgage- A home mortgage that is insured by a private mortgage-insurance company. Because it is insured, you can usually make a low down-payment (typically between 5% and 15%).

propriety lease- A legal agreement that gives you the right to use your dwelling unit in a cooperative.

public limited partnership- An entity whose legal structure and purpose are similar to that of a private limited partnership. The major distinction that that there can be as many as 10,000 to 30,000 investors, each typically investing between $2,500 and $7,500. The public limited partnership has to comply strictly with federal and state securities laws and regulations.

real estate investment trust (REIT)- An entity enabling large numbers of investors to participate in the ownership of real estate. The investors do not acquire the real estate directly; rather, they buy shares in the REIT, which owns the real estate. The REIT is well suited to the small investor because a REIT share can be pruchased for as little as $10 to $25. The REIT cannot pass along tax losses to the investors, but the REIT itself will not be taxed on any income distributed to them.

recapture- The amount of gain on the sale of a property that is taxed at your ordinary income-tax rate (instead of at the capital-gain rate). This amount is the excess of accelerated over straight-line depreciation taken on the property. For example, if your taxable gain is $1 million, and the excess of accelerated over straight-line depreciation is $250,000, then $250,000 of your gain will be taxed at your ordinary income tax rate. The $750,000 balance will be taxed at the capital-gain rate.

recreation lease- A legal agreement conveying use of a condominium's recreation facilities, such as a swimming pool and tennis courts, from the owner (the lessor) of the facilities to the condominium association (the lessee). The owner of these facilities is frequently the developer.

refinancing- Prepaying your existing mortgage and replacing it with a new one. For example, if you want to refinance your $1 million mortgage that has been paid down to $750,000, you would get a new mortgage and use the proceeds to pay off the $750,000 balance of the existing mortgage. If the new mortgage were also for $1 million, then you would have $250,000 in cash left over after prepaying the existing mortgage. You may want to refinance in order to take advantage of lower interest rates.

reverse-annuity mortgage (RAM)- A home mortgage under which you receive an annuity instead of a lump sum at the time you obtain the mortgage. You are not required to repay the mortgage until the maturity date. This type of mortgage is geared to elderly persons.

roll-over mortgage (ROM; renegotiable-rate mortgage)- A home mortgage that has a short initial term (usually three to five years) and that can be extended at your option (an dnot the bank's) for additional periods. The interest rate is renegotiated and adjusted at the time of each such extension. If you accept this type of mortgage, you will be gambling against the bank on the movement of interest rates.

second mortgage- A supplementary mortgage that "ranks below" the mortgage you get from your bank. For example, if you obtained a $75,000 mortgage from your bank on a $100,000 home plus a $10,000 mortgage for someone else (such as the seller), the $10,000 mortgage will usually be a second mortgage and subordinated to the bank mortgage. Thus, if you default, claims stemming from the bank mortgage would be repaid firs, before those involving the second mortgage.

straight-line depreciation- See depreciation.

subsidized housing- See government-assisted housing.

tax credit- A deduction that can be directly offset against your income tax. For example, if you entitled to a $1,000 credit and your income tax would otherwise be $10,000, the credit would reduce your tax to $9,000.

tax losses- The excess of deductions from your taxable income (taken for mortgage interest, depreciation, and operating expenses, including real estate taxes) over the rental income from a property.

tax preference- The excess of accelerated over straight-line depreciation deductions taken each year.

tax saving- The amount of money you save in taxes because of the tax losses from a property.

tax shelter- A real estate investment that generates income-tax deductions in excess of the rental income. These excess deductions, which arise primarily out of the depreciation and interest payments on the mortgage, can be offset against (deducted from) your taxable income, enabling you to save, or "shelter," money you would otherwise have to pay in taxes. Net-lease properties and subsidized housing are examples of tax shelters.

title insurance- Coverage that protects you from potential losses arising from irregularities in the legal title to your hom eor other real estate.

useful (or economic) life- The period over which a commercial property can be depreciated for federal income-tax purposes.

VA mortgage- A home mortgage that is guaranteed, sometime sup to $27,500, by the Veterans Administration. Because of this guarantee, you may not have to make any down payment. This type of mortgage is available to eligable veterans.

variable-rate mortgage (VRM)- A mortgage that is similar to the roll-over mortgage, except that the adjustments in the interest rate are made more frequently (usually once or twice a year).

write-off- The depreciation or amortization taken on a commercial property.

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