Glossary of Terms

Glossary

This glossary is designed to help you understand some of the more common Real Estate investment terms you may encounter.

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80/20 Rule: This is what Candice uses to describe the time balance during a negotiation. 80% of your time should be spent gathering the necessary information needed to determine the motivations of the other party so that during the last 20% of the negotiations you are only finalizing the terms of the agreement based on the information gathered during the 80% time-frame.

A

Absent Owner: An owner that does not reside in the property. Possibly lives out of the local area of the property.

Accredited Investor: a) An individual who, either alone or with a spouse beneficially owns, directly or indirectly, financial assets having an aggregate realizable value that before taxes, but net of any related liabilities, exceeds $1 000 000.00 b) An individual whose net income before taxes exceeded $200 000 in each of the 2 most recent calendar years and whose net income before taxes combined with that of a spouse exceeded $300 000 in each of the 2 most recent calendar years and who, in either case, reasonably expects to exceed that net income level in the current calendar year. c) A business in which all the equity owners are accredited investors. d) A bank, insurance company, registered investment company, business development company, or small business investment company.

Addendums: A page separate from the purchase agreement used to amend, add, correct or modify a term or terms of the agreement without changing the remaining terms.

Adjustment Date: The date on which adjustments for such items as taxes, utilities, mortgage payments, etc is made.

Affidavit: A written statement or declaration sworn to or affirmed before an authorized person.

Agreement of Sale: A written agreement in which the purchaser agrees to buy and the seller agrees to sell. Terms and conditions are included in the agreement.

Aggregate: Formed of separate units gathered into a mass or whole. Taken into account as a whole. Alienation Clause: Also know as the “due on sale” clause. This is a provision that allows a lender to demand payment of the balance of a loan in full if the collateral is sold.

All Cash Buyer: A cash buyer is someone that buys a property from a seller and the buyer does not require the seller to carry any financing for them.

Amortization: The process of gradually reducing a debt through installment payments of principal and interest, versus paying off the debt all at once.

Amortization Mortgage: A debt of which the periodic repayments are used to reduce the principal outstanding as well as paying off the current interest charges.

Apportionment: The adjustment of the income, expenses, or carrying charges of real estate that is usually computed to the date of closing of title so that the seller pays all expenses to that date. The buyer assumes all expenses from the date on which the deed is conveyed to the buyer.

Appraisal: An estimate of a property’s value made by comparing the sale prices of other similar properties.

Appraised Value: An estimate of value made by comparing the sale prices of other similar properties.

Appreciation: Increased market value of real property.

Arms Length: The act of dealing with a person who is not related or a relative but an independent third party.

Arrears: The amount of monthly payments due under a mortgage, plus interest on those payments. A person said to be “in arrears” is behind with his or her payments.

Assignment: The method or manner by which a right or contract is transferred from one person (the assignor) to another (the assignee).

Assumption of Mortgage: This occurs when a person takes title to property and assumes the payment of an existing note or deed of trust.

B

Back Door Clause: This is a name used to describe a clause that a person can use to enable them the ability to back out of a contract if a certain term of the agreement cannot be met.

Bad debt: A debt in which the cost of the debt (interest) cannot be claimed for the purpose of income tax.

Balloon Payment: A final installment payment, larger than previous installments that pay off a debt.

Bankruptcy: A proceeding where an insolvent debtor (person or corporation) can obtain relief from payment of certain obligations.

Basis Point: This is equal to 1/100 of 1%

Bridge Financing: Financing to help a buyer bridge the time gap between the closing date on purchase of a new home and the closing date or sale of his/her current home. Sometimes referred to as “interim financing”.

Beneficial Ownership: This term refers to the true owner of an entity, asset, or transaction as opposed to any stated ownership provided in documents or oral representations.

Beneficiary: The person who receives or is to receive the benefits of a certain act.

Blend and Extend: A blend and extend is done by assuming or taking over the 1st and discounting a second and then blending the two to create a new first that the owners can afford to pay.

Broker: A person who legally trades in real estate for another, for compensation.

Builder’s Grade: Often translates to the cheapest materials available.

Buyer’s List: A list of potential buyers for a property that the seller has already prescreened and qualified (the buyer’s needs and qualifications have been revealed) enabling the buyer to purchase from the seller.

C

Cash Call: An immediate call for a lump sum of cash. This can happen when you own a condominium and the condo board deems it necessary to do a renovation that will not be covered by the monthly condo fees. It can also happen if you are invested in a project and the intended costs or expenses to the project run over budget.

Capital: Assets available for use in the production of further assets. Wealth in the form of money or property owned by a person or business and human resources of economic value.

Capital Gain or Loss: The difference between that basis price (cost plus purchase expenses) of a capital asset and its sale price. Capital Investors: Capital Investment refers to money used by a business to purchase fixed assets, such as land, machinery, or buildings. Capital Investors are the suppliers of the money/funds.

Cash Flow: Income generated by a property which is determined by subtracting vacancy allowances and collection costs, operating expenses and debt-servicing costs from the property’s scheduled gross income.

Caveat: Is a document any person with a legal interest in a property can lodge with the Titles Office to ensure the property is not sold without their knowledge.

Caveat Emptor: Let the buyer beware. The buyer must examine the goods or property and buy at his or her own risk.

Chain of Title: A history of the conveyances and encumbrances affecting a title from the time the original patent was granted or as far back as records are available.

Chattels: Movable possessions, such as furniture, personal possessions, etc. A furnace before it is installed is a movable possession. Once installed, it is not.

Client: The Principal; the one by whom a broker is employed (the principal) and by whom the broker will be compensated.

Closed Mortgage Rates: A mortgage loan that has a locked-in payment schedule, which does not vary over the life of the closed term.

Closing Costs: The expenses over and above the purchase price of buying and selling real estate.

Closing Date: The date upon which the buyer takes over the property.

Closing the Deal: Forcing the client’s hand in regards to accepting an agreement. The final procedure in which loan and title documents are signed between the buyer and seller and their respective representation.

Cloud on the Title: An outstanding claim or encumbrance that, if valid, would affect or impair the owner’s title.

CMHC: Canada Mortgage and Housing Corporation, which administers the National Housing Authority and provides for the insuring of mortgages made by an approved lender under a variety of programs. CMHC normally insures “high-ratio” loans; that is loans where the ratio of debt (financing) to equity (down payment) is over 75%.

Collateral: Additional security pledged for the payment of a debt.

Collateral Mortgage: A loan backed by a promissory note and the security of a mortgage on a property. The money borrowed may be used for the purchase of the property itself or for another purpose such as home renovations or a vacation.

Commission: A fee charged for brokerage services.

Commitment: A pledge; a promise; and affirmation agreement.

Common shares: These are securities that represent equity ownership in a company. They also give the holder a share in a company’s profits via dividend payments or the capital appreciation of the security.

Comparative Market Analysis: (CMA)-Something you have a realtor do and supply for you for the purpose of comparing the listings and sales of houses in a neighborhood.

Complaint: In civil law, the initial statement of the facts on which a complaint is based. In criminal law, the preliminary charge made against the accused.

Comparison: See Appraisal by Comparison

Condemnation: The acquisition of private property for public use with fair compensation to the owner. See also Eminent Domain.

Conditional Sales Contract: A contract for the sale of property stating that although delivery is to be made to the buyer, the title is to remain vested in the seller until the conditions of the contract have been fulfilled.

Conditions: The legal terms that govern the conduct of a sale, including acceptable methods of payment, terms, buyer’s premiums, possession, reserves and any other limiting factors of the sale. Conditions always have a fixed date, at which time they need to be waived or removed.

Condominium: A form of ownership in which the owner has title to a housing unit and also owns a share in the common elements (such as elevators and hallways, and perhaps the land).

Condominium Board: The governing body of the condominium corporation, elected at the annual general meeting of the corporation.

Consideration: Anything given as an inducement to enter into a contract, such as money or personal services. Any contract, lease obligation, or mortgage may subsequently be modified without consideration provided that the change is made in writing and signed.

Contract: A legally enforceable agreement.

Conventional Mortgage: A mortgage loan which does not exceed 75% of the appraised value or purchase price of the property, whichever is the lesser of the two. Mortgages that exceed this limit must be insured by CMHC or MICC.

Conveyancing: The transfer of property, or title to property from one party to another.

Covenants: Agreements written into deeds and other instruments promising performance or nonperformance of certain acts stipulating certain uses or restrictions on the property.

Creative Financing: Any form of financing other than the traditional mortgage calling for recurring payments of the same amount each month. Creative alternatives include balloon, buy-down, graduated payment and vendor take back mortgages.

Credit Rating: The degree of creditworthiness assigned to a person based on their credit history and financial status. A credit report is a detailed account of an individual’s credit, employment, and residence history. A lender uses this report to determine a loan applicant’s creditworthiness.

Curb Appeal: Curb appeal in real estate refers to the exterior look of a property from the street curb. Curb appeal is a pleasing look upon drive-up. It creates the lasting first impression of a property.

D

Damage Deposit: (Security Deposit) This is money that is held in trust by either the landlord or its management company, usually the same amount as the rent, and is held as security against any damages the tenant may cause.

Debt Ratio: The ratio, expressed as a percentage, which results when a borrower’s monthly payment obligation on long-term debts is divided by his or her gross monthly income.

Debt Relief: To removal an obligation to pay money owed.

Debt Service: Annual amount to be paid by a debtor for money borrowed.

Deed: An instrument in writing, duly executed and delivered, that conveys title to real property.

Deed Restriction: A restriction imposed in a deed to limit the use of the land. A deed might include clauses preventing the sale of liquor or defining the size, type, value, or placement of improvements.

Default: Failure to fulfill a duty or promise or to discharge an obligation; omission or failure to perform an act. In property foreclosure, usually the failure to pay loan installment repayments when they become due.

Defeasance Clause: The clause in a mortgage that permits the mortgagor to redeem his or her property upon payment of the obligation to the mortgagee.

Defendant: The party sued or called to answer in any lawsuit, civil or criminal.

Deficiency Judgment: When the security for a loan is sold for less than the amount of the loan, the unpaid amount (the deficiency) is held by law (the judgment) to be the liability of the borrower unless the new owner has assumed the debt.

Deposit: Money or other consideration or value given as pledge for fulfillment of a contract or agreement.

Discharge: A document executed by the mortgagee (lender) and given to the mortgagor (borrower) when the loan is repaid in full. This is a legal document confirming full repayment of the mortgage.

Discounted Mortgage: The selling of a mortgage to another party at a discount or an amount less than the face value of the mortgage.

Distribution rate: The percentage of the yearly distribution paid to the investor through the income generator.

Dower Rights: A person can enforce dower rights to claim part of a deceased spouse’s estate regardless of provisions in their will. If all dower rights have not been removed prior to taking possession of a property the new owner could find themselves in a lawsuit.

Down payment: The amount of money (in the form of cash) put forward by the purchaser, usually, the difference between the purchase price and the amount of the mortgage loan.

Due-On-Sale: See Alienation Clause.

E

Earnest Money: Down payment made by a purchaser of real estate as evidence of good faith.

Easement: A right that may be exercised by the public or individuals on, over, or through the property of others.

Elephant: A person with money to invest, but without the time or inclination to seek out the good deals. He/she should team up with a mouse who has the time and talent to find the deals but, no money. A mouse/elephant combination is a very beneficial partnership for both of them. Eligible investor: A being or company whose net assets, alone or with spouse, exceed CDN $400,000. A being or company whose net income before taxes exceeded CDN $75,000 in each of the two most recent years, and who reasonably expects to exceed that income level in the current year.

Eminent Domain: A right of the government to acquire property for public use; the owner must be fairly compensated.

Encroachment: A building, part of a building or obstruction that intrudes upon the property of another.

Encumbrance: A legal claim registered against a property. The claim does not necessarily prevent the property from being transferred but may affect the property’s value. Examples of encumbrances are liens, judgments, rights of way, easements, leases and restrictive covenants. Mortgages are also considered to be encumbrances.

Equity: In real estate, the difference between the value of the property and the amount owed on it. Also called the owner’s interest.

Equity Line of Credit: A combination of a line of credit and equity loan. A maximum loan amount is established based on credit and equity. A mortgage (deed of trust) is recorded against the potential borrower’s property for said maximum loan amount. The potential borrower has the right to borrow, as needed, up to the amount of the mortgage.

Equity Loan: Junior (subordinate) loan based on a percentage of the equity.

Equity Return: The percentage ratio between your equity in the property and the total of cash flow plus principal reduction.

Escrow: A written agreement between two or more parties providing that certain instruments or property be entrusted to a third party to be delivered to a designated person upon the fulfillment or performance of some act or condition.

Estate: The degree, quantity, nature and extent of interest (ownership) that a person has in real property.

Estate Sales: The sale of a person’s interest in assets or property. Usually related to a death.

Estoppel Certificate: An instrument executed by the mortgagor setting forth the status of and balance due on the mortgage as of the date of the execution of the certificate.

Eviction: A legal proceeding by a landlord to recover possession of real property.

Exclusive Agency: An agreement to employ one broker only. If the sale is made by any other broker, both are entitled to commissions.

Exclusive Right to Sell: An agreement to give a broker the exclusive right to sell for a specified period. If a sale during the term of the agreement is made by the owner or by any other broker, the broker holding the exclusive right is, nevertheless, entitled to compensation.

Executor: A person or a corporate entity or any other type of organization named in a will to carry out its provisions.

F

Fee: (fee simple, fee absolute)-The absolute ownership of real property. This type of estate gives the owner and his/her heir’s unconditional power of disposition.

Fiduciary: A person who transacts business or handles money or property on behalf of another. The relationship implies great confidence and trust.

Financing: The difference between the purchase price and the down payment, commonly referred to as the debt or mortgage.

Finder’s Fee/Referral Fee: Usually a cash or gift consideration paid to someone for directing an individual to use the services of their business.

First Mortgage: Mortgage that has priority as a lien over all other mortgages. In cases of foreclosure, the first mortgage will be satisfied before other mortgages are paid off.

Fixed Rate Bonds: A bond for which the interest rate is fixed at launch and is payable on fixed coupon frequency.

Fixed Rate Mortgage: A mortgage loan for which the rate of interest is fixed for a specific period of time (the term). If the borrower pays off the mortgage in part or in full earlier than the term, there is usually a penalty. This type of mortgage is usually offered at a lower rate than an open mortgage.

Flip: Flipping a property is a loose term that is sometimes used to describe when you buy a property and quickly turn around and sell it again for a profit.

Forced Sale: Sale of property where the seller is under duress and is unable to allow current market prices and conditions determine the selling price.

Foreclosure: A procedure whereby property pledged as security for a debt is sold to pay the debt in the event of default in payments or terms.

Foreclosure Services: A company or person that offers assistance with a foreclosure proceeding.

For Sale by Owner: (F.S.B.O.)-Refers to a seller of a property who wishes to advertise and sell their house on their own without the services of a realtor.

G

Good Debt: A debt in which the cost of the debt (interest) can be claimed for the purpose of income tax.

Grace Period: Additional time allowed to perform an act or make a payment before a default occurs.

Grantee: The party to whom the title to real estate is conveyed.

Grantor: The person who conveys real estate by deed; the seller.

Gross Debt Service Ratio (GDS): The percentage of gross annual income required to cover payments associated with housing (mortgage principal and interest, taxes, secondary financing, space heating, and 50% of condominium fees, if applicable). Most lenders prefer that the GDS be no more than 30%.

H

Hard Money Lender: Hard money lenders are commercial real estate lending companies offering a specialized type of real-estate backed loan. Hard money lenders provide short-term loans (also called a bridge loan) that provide funding based on the value of real estate that has been collateralized for the loan. Hard money lenders typically have much higher interest rates than banks (between 11 and 16%) because they fund deals that do not conform to bank standards.

High ratio Mortgage: This is a mortgage which finances between 75% to 95% of purchase price or appraised value of the home, whichever is lower. Must be insured by CMHC or MICC. In the event that there is not sufficient value in the property to pay off the mortgage, the lender is insured and therefore paid for the shortfall.

Holding Costs: These are the total expenses, usually calculated on a monthly basis, involved in maintaining a property while it is vacant.

Hypothecate: To use something as security without giving up possession of it.

I

Income fund: The amount which is available to invest or collect.

Income, Gross: Income or cash flow before expenses.

Income, Net: Income or cash flow after expenses (but generally before income tax)

Installments: Parts of the same debt, payable at successive periods as agreed; payments made to reduce a mortgage.

Interest Only Loan: Any loan which monthly payments represent only the interest. The principal balance will become due at expiration of an agreed upon term of years.

Interest Rate: Payments where a borrower pays a lender for the use of its money. The rate that lenders charge their borrowers for the privilege of borrowing money.

Interim Financing: The temporary financing by a lender during the construction of real property for resale, or while other funds are due in. Sometimes referred to as “bridge financing”.

Investment Properties: These types of homes are normally acquired specifically for investment purposes or are owned as a result of moving to a new house without selling or being able to sell the old house.

Irrevocable: Incapable of being recalled or revoked; unchangeable; unalterable.

J

Joint Tenancy: Ownership of property by two or more persons, each of whom has an undivided interest with the right of survivorship.

Joint Venture: A joint venture (often abbreviated JV) is a strategic alliance between two or more parties to undertake economic activity together. The parties agree to create a new entity together by both contributing equitable value, and they then share in the profits and losses.

Judgment: Decree of a court declaring that one individual is indebted to another, and fixing the amount of such indebtedness.

Junior Mortgage: A mortgage second in lien (subordinate) to a previous mortgage.

L

Landlord: One who rents property to another.

Land Contract: In reality, a land contract is a promise to pay. In other words, if you buy a house under a land contract, you promise to pay an agreed upon amount on or before a specific date. Once the terms have been fulfilled, the seller will then deed the property to you.

Land Trust: A means of taking control of a property anonymously. The only name that will appear on public records will be the name of the trust and usually the name of the trustee. The land trust provides some asset protection in that it requires a good deal of digging via legal channels to discover if you are the beneficiary of a trust.

Lease: A contract whereby, for consideration, usually termed rent, one who is entitled to the possession of real property transfers such rights to another for life, for a term of years, or at will.

Leasehold: The interest given to a lessee of real estate by a lease.

Lease with Option to Buy: A landlord may rent or lease a property to a tenant and grant him an option to purchase the property within a specified time in the future under certain conditions and with a predetermined price or formula for determining a price.

Legal Description: Identification of a property that is recognized by law that identifies that property from all others.

Lending Value: The lesser of the purchase price or appraised value of the property.

Lessee: A person to whom property is rented under a lease.

Lessor: One who rents property to another under a lease.

Leverage: The use of a small amount of cash to control a large amount of property values. The use of borrowed capital to enhance/increase your purchasing power.

Lien: A legal right or claim upon a specific property that attaches to the property until a debt is satisfied.

Line of Credit (LOC): The amount that is borrowed for the purpose of investing. This will be calculated by subtracting the mortgage balance from the LTV(loan to value).

Liquidate: Cash and all other assets that can be converted to cash relatively quickly. Liquid assets can include money in savings and checking accounts, money-market accounts and most CD’s.

Lis Pendens: A legal document filed in the office of the county clerk giving notice that an action or proceeding is pending in the courts affecting the title to the property.

Listing Price: (listing) This referred to as the price that a seller or realtor asks for a property.

Loan to Value: (LTV)-is a measurement used to describe a percentage of a value. Example: A house worth $100,000.00 is considered to be financed for 75% LTV if it has only one mortgage of $75,000.00 registered on it.

M

Management Company: These companies supply property managers; collect your tenant’s rents and process them. They handle all delinquent and N.S.F. rent cheques and they follow up with the appropriate action. They take the majority of the work of being a landlord off your hands.

Management Expense Ratio: An M.E.R. is charged by a fund company before any returns are paid out to investors. The M.E.R. includes the portfolio manager’s compensation and other expenses associated with running the fund. Management Fee + Fund Expenses = M.E.R., which is stated as a percentage of the fund’s average daily net asset value.

Marketable Title: A title that the court considers to be so free from defect that it will enforce its acceptance by a purchaser.

Market Value: The price point at which the buying population deems a property to be worth.

Maturity: The date on which a loan or bond comes due and is to be paid off.

Mechanic’s Lien: A claim made to secure the price of labor done upon and materials furnished for uncompensated improvement.

Midnight Move: When a tenant moves out of a rental property without giving notice to the landlord/management company.

Moratorium: An emergency act by a legislative body to suspend the legal enforcement of contractual obligations.

Mortgage: An instrument in writing, duly executed and delivered, that creates a lien upon real estate as security for the payment of a specified debt, which is usually in the form of a bond.

Mortgage Broker: One who is paid to match borrowers with lenders.

Mortgagee: The party who lends money and takes a mortgage to secure their payment.

Mortgage Lender: Mortgage lenders are individuals, organizations, or financial institutions that lend money to people so they can buy a property that they cannot yet afford, but should be able to by the end of a mortgage term.

Mortgagor: A person who borrows money and gives a mortgage on his or her property as security for the payments of the debt.

Motivated Seller: Someone who is less concerned about price of their sale than they are with getting their terms met.

Mouse: A person who has little or no money to invest but has the time and skill to locate good deals. A mouse will normally team up with an elephant who will supply the money or simply sell the contract for a fast profit.

Multiple Listing: (MLS)-An arrangement among members of the Board of Realtors whereby brokers bring their listings to the attention of the other members. If a sale results, the commission is divided between the broker providing the listing and the broker making the sale.

N

Negative Cash Flow: This is something that happens when your monthly income from a property is less than the monthly expenses being paid.

Negotiate: To bargain or attempt to reach an agreement through discussion. “They negotiated the sale of the house”

Networking: Using the daily contacts made during your personal and business activities for purposes beyond the reason of the initial contact. For example, a real estate investor may ask a client for names of others who may be interested in his product or services.

Non-Qualifying Assumption: A mortgage or deed of trust that does not contain a due-on-sale clause thereby allowing transfer of title freely without permission from the lender.

Notes: This is a written promise of payment. Also referred to as a Promissory Note, and can be registered on the title of a piece or real estate in the form of a caveat.

O

Obsolescence: Loss in value due to reduced desirability and usefulness of a structure because its design and construction become obsolete; loss because of becoming old-fashioned and not in keeping with modern means with consequent loss of income.

Offer To Purchase: A formal legal agreement which offers a certain price for a specified real property. The offer may be firm (no conditions attached) or conditional (certain conditions must be fulfilled). Once it is accepted it becomes an “agreement of purchase and sale”.

Offering Memorandum: A legal document which states the objectives, risks and terms of an investment involved with a private placement. A legal document provided to potential investors in a venture describing the terms under which the investment is being offered.

Open Listing: A listing given to any number of brokers with commissions payable only to the broker who secures the sale.

Open Mortgage: A mortgage that has matured or is overdue and, therefore, is “open” to foreclosure at any time.

Option: A right given for a consideration to purchase or lease a property upon specific terms within a specified time; if the right is not exercised, the option holder is not subject to liability for damages; if exercised, the grantor of option must perform.

Other Peoples’ Money: (O.P.M.) Refers to the leverage of someone else’s money to grow your business.

P

Passive Income: Passive income is income generated from business activities in the past tense that now, in the current tense, creates a net profit. Passive income happens when net profits are coming in and no ongoing work is required to earn it.

Pay Out Letter: A letter from a lender stating the current balance due on an account; also referred to as an estoppel letter or certificate.

Payout Penalty: A fee charged for breaking/paying out the balance of a mortgage contract prior to the agreed upon term of the contract.

Per Diem: A form of payment for services in which the provider is paid a daily fee for specific services or outcomes, regardless of the cost of provision.

Performance Bond: A bond used to guarantee the specific completion of an endeavor in accordance with a contract.

Personal Liability: This occurs when a person signs his or her own name as being responsible for the agreement at hand.

Personal Property: Any property, which is not real property.

PI: Principal and interest due on a mortgage.

PIT: A payment amount calculated by a mortgage lender to include the total payment of all principal, interest, and taxes due each monthly. (P.I.T.I. includes insurance as applicable)

Plat Book: A public record containing maps of land showing the division into streets, blocks, and lots and indicating the measurements of the individual parcels.

Points: Discount charges imposed by lenders to raise the yields on their loans. One (1) point equals 1% of the loan amount.

Port: To move a mortgage or financing from one property to another.

Possession Date: The date that you actually get possession of the real estate purchase.

Preferred Shares: a) A class of shares that entitles the holders to preferences over the holders of common shares, usually with regard to dividends and distributions. b) Shares that carry a fixed dividend rate which the company is obliged to pay before it distributes dividends to common shareholders. c) Are equity instruments that take no security against assets, have flexible terms of repayment and pay fixed or floating dividends.

Prepayment Clause: A clause in a mortgage, which gives a mortgagor, the privilege of paying the mortgage indebtedness before it becomes due, either with or without prepayment penalty.

Pre-Screening Seller: This is what I refer to as sifting through all the sellers that call you. This allows you to find the right ones that have a high level of motivation for selling. This is usually accomplished by asking certain questions (found on the pre-screening questionnaire) to help reveal to you the seller’s true reason for selling.

Principal: The amount of money actually borrowed for a new mortgage, or now owing on an existing one.

Professional Tenant: This what landlords refer to as a tenant that knows the laws of the tenancy act so well that they are able to twist it to their advantage so that they can get away with late payments or worse. They are usually a landlord’s biggest nightmare.

Profit share: This is the amount paid on your investment. Calculated by multiplying your promised percentage rate by your investment amount.

Promissory Note: An unconditional promise to pay on demand, or by a fixed date, a certain amount of money.

Property Manager: This is the person you hire to rent out your properties and then continues to manage the tenant’s concerns, troubles and enquiries.

Property Tax Assessment: The value set on taxable property.

Proposal to Purchase: Do not confuse this with an offer to purchase. A proposal to purchase is only a verbal or written suggestion of the terms and price that might be acceptable to both parties involved. It is an unofficial teaser proposal to see where the sellers’ motivation lies.

Proration: Allocation of closing costs and credits to buyers and sellers.

Purchase Agreement: This is a contract between a seller of a property and the buyer who wants to own it. This contract outlines the agreement between the two parties. The purchase agreement contains the terms and conditions of the sale.

Purchase Money Mortgage: A mortgage given by a grantee or any other lender in part payment of the purchase price of real estate.

Q

Quiet Title Suit: A suit in court to ascertain the legal rights of an owner to a certain parcel of real property.

Quitclaim Deed: A deed that conveys simply the grantor’s rights or interest, if any, in real estate generally considered inadequate except when interest are being passed from one spouse to the other.

R

RRSPs & IRAs: RRSPs are a registered retirement savings plan used for the purpose of holding amounts deducted from taxable income, within certain limits, in a tax deferred state. There are various investment options and a tax deferral on investment income and gains. A tax-advantaged retirement planning instrument for Canadians, similar to the IRA available in the US. IRAs: (Individual Retirement Account) A retirement account that may be established by an employed person. IRA contributions are tax deductible according to certain guidelines, and the gains in the account are tax-deferred.)

Real Estate Board: An organization whose members consist primarily of real estate brokers and salespersons.

Real Estate Investor: A real estate investor is someone who has his/her name or company’s name on a title/deed to a property other than his or her home.

Real Estate Owned: Property acquired by a lender through foreclosure and held in inventory; commonly referred to as REO.

Real Estate Syndicate: A partnership formed for a real estate venture. Partners may be limited or unlimited in their liability.

Real Property: Land and generally whatever is erected upon or affixed thereto.

Realtor: A term used to identify active members of the National Association of Realtors. This term is commonly used to refer to anyone licensed to sell real estate, however, the term “Realtor” only applies to those due paying members of NAR.

Recording: The act of writing or entering, in a book of public record, instruments affecting the title to real property.

Recourse: The right to claim against an owner of a property or note.

Red Lining: The refusal to lend money within a specific area for various reasons. This practice is illegal because it discriminates against the credit worthy who happen to live there.

Referrals: When a business opportunity is given over to an agent or a company from another agent, company or even the agent’s own company, a fee is often charged against the potential earning or as a flat fee up front to “buy” the business opportunity and future business that may result.

Refinance: To pay off (discharge) a mortgage and any other registered encumbrances and arrange for a new mortgage with the same lender or with a different lender.

Registered Encumbrances: Legal claims against real property. Debts for which the property was pledged as security.

Release Clause: A clause found in a blanket mortgage which gives the owner of the property the privilege of paying off part of the debt, and thus freeing part of the property from the mortgage.

Releasing Conditions: A release of conditions is when the buyer signs a form or contract that states the buyer has been satisfied by the seller and that all of the conditions of the purchase and sale agreement have been met and the contract is now considered firm.

Renew: To extend a mortgage agreement with the same lender for another term. The length of the terms and conditions (such as the rate of interest) may be changed.

Renovate: Remodel or restore to good condition.

Rent to Own: (RTO)-This is a term that is used to refer to an agreement between a tenant and a landlord. The landlord agrees to allow the tenant to purchase an “Option” to buy the house at an agreed upon price within an agreed upon time frame. In the mean time the tenant is only renting until they decide to exercise their Option to purchase the house.

Rental Market: This refers to the opportunity for, or conditions as regards to the availability or suitable renting of property.

Repo: A shortened or slang version of repossession.

Reserve fund: A fund set up by a condominium corporation for major repair and replacement of things such as roofs, plumbing, heating systems, etc.

Residential Real Estate: Houses and apartment buildings suitable for private occupancy.

Retail: To sell for top dollar to the public. Not paying full a sale price.

Returns: (R.O.I., return on investment) The amount, expressed as a percentage, that is earned on a company’s total capital calculated by dividing the total capital into earnings before interest, taxes, or dividends are paid.

Right of Redemption: Right to recover property transferred by a mortgage or other lien by paying off the debt either before or after foreclosure; also called equity of redemption.

Right of Survivorship: Right of the surviving joint owner to succeed to the interest of the deceased joint owner. This right is a distinguishing feature of a joint tenancy by the entirety.

Right of way: A form of easement, usually to allow public passage over private land or to allow municipalities or power companies the right to lay down and maintain sewers, gas lines, etc.

Resolution Trust Corporation: (RTC)-An organization set up by the government to market houses from the inventory of federally insured, defunct banks and other lending institutions.

S

Sales Contract: A contract by which the buyer and seller agree to terms of sale.

Sandwich Lease: Leasehold interest that lies between the primary lease and the operating lease; it is created when the lessee enters into a sublease.

Sandwich Wrap: When a person selling to you carries financing for you and then you, in turn, sell to someone else who can carry financing for them. The final mortgage “wraps” around the other, “sandwiching” you in the middle.

Second Mortgage: A mortgage made by a homebuyer in addition to an existing first mortgage. The order of recording determines the seniority of the lien.

Second mortgage RRSP or IRA: These are registered retirement savings plans that can own mortgages. These mortgages can be a 1st, 2nd, 3rd mortgage. In many cases there is a maximum loan to value ratio that is allowed on these mortgages.

Securities: General name for shares and bonds of all types. Shares produce a variable dividend and bonds a fixed interest.

Security Commissions: A commissioned board designed to protect the interest of investors.

Self-Directed RRSP Account: These are special accounts that are set up to allow the owner of the account the option to choose where their RRSP is to be invested. *Note: If the purpose of the self directed account is to hold mortgages, you will need to have the account set up at an institute that will allow this. Banks and most trust companies do not accommodate this.

Seller Financing: “Carrying Financing” Refers to the owner of a property who agrees to carry a mortgage on the property that he/she is selling, so that the buyer doesn’t have to obtain any or all of the financing from another source or lending institution.

Sellers’ “Temperature”: Determining what a sellers motivations are and at what degree of motivation they are at; very motivated or not so motivated to sell.

Semi-Annual Compounding: A compounding method in which one half of the stated annual rate is assessed against the outstanding balance of a loan. This is a common form of interest calculation for mortgages.

Shareholder: Any person, company, or other institution that owns at least 1 share in a company.

Simultaneous Closing: Just means, during an escrow closing, that there are two (2) separate closing transactions happening within minutes of each other.

Skip Transfer: Also known as a simultaneous closing where a buyer agrees to purchase a property and then ends up selling it to a third party with the same possession date as theirs. The seller sells, the third party buys and moves in while the middle man gets a profit without having to take possession of title.

Specific Performance: A remedy in a court of equity compelling a defendant to carry out the terms of an agreement or contract.

Split Funding: A technique whereby an investor offers a small amount of cash to close the deal with the balance due at a later date in a form other than extended monthly payments.

Squatters: Squatting is the act of occupying an abandoned or unoccupied space or building that the squatter does not own, rent, or otherwise have permission to use. Squatters often claim rights over the spaces they have squatted by virtue of occupation, rather than ownership; in this sense, squatting is similar to (and potentially a necessary condition of) adverse possession, by which a possessor of real property without title may eventually gain legal title to the real property.

Statute of Frauds: Law requiring certain contracts to be made in writing or partially complied with in order to be legally enforceable.

Subdivision: A tract of land divided into lots or plots.

Subordination: See Subordination Clause.

Subordination Clause: A clause in a mortgage that gives priority to a mortgage taken out at a later date. The seller agrees to go into a second, third or fourth position allowing you to obtain new financing senior to their lien without paying them off from the proceeds.

Subscriber: A person who contracts to purchase the shares of a corporation.

Subscription: The exercise of a right to subscribe for Securities. An offer to buy a specified number of theretofore unissued shares of a corporation.

Substitute of Collateral: Taking an existing mortgage on one property and transferring it to another.

Survey: The process by which a parcel of land is measured and its area ascertained; also the blueprint showing the measurements, boundaries, and area.

Sweat Equity: Sweat equity is equity issued at a discounted price or for a non-cash consideration. The non-cash value added to a piece of property by the owner, such as do-it-yourself home improvements.

Syndicated: To combine or form into, or manage. An association of persons officially authorized to undertake some duty or to negotiate some business; also, an association of persons who combine to carry out, on their own account, a financial or industrial project.

T

Tax Rate: This is rate at which you are taxed by the government. This will be based on your personal taxable income.

Tax refund: This is the difference between what taxes paid minus the amount you are required to pay after taxes.

Tax Sale: Sale of property after a period of non- payment of taxes.

Tax Shelter: The tax write-off possible through the depreciation benefits available on investment real estate ownership.

Telemarketing: Use of the telephone to market goods or services directly to prospective customers and/or to receive orders and inquiries generated from other advertising and promotions.

Tenancy In Common: An ownership of realty by two or more persons, each of whom has an undivided interest, without the right of survivorship.

Tenancy by the Entirety: An estate that exists only between husband and wife with equal right of possession and enjoyment during their joint lives and with the rights of survivorship.

Tenancy At Will: A license to use or occupy lands and tenements at the will of the owner.

Term: The length of time, which a mortgage agreement covers. Payments made may not fully repay the outstanding principal by the end of the term because the amortization period is longer.

Terms: Conditions of a contract that limit or define its scope. The terms do not have a date at which they need to be waived or removed.

Third Party Administrator: (TPA)-one who is approved to administer funds from a retirement program. You must use a TPA in order to access money from your retirement accounts for self-directed activities.

Title: A legal document that lists all the encumbrances, liens and interests in a property. Some of the encumbrances may include but are not limited to the zoning regulations subject to airport zoning, utility right of way, caveat re: easement, mortgages etc. A title also identifies the rightful owner/owners of the property, the legal and municipal addresses and or condo plan.

Title Company: A firm that examines title to real estate and/or issues title insurance.

Title Insurance: An insurance policy usually issued at the time of closing insuring against any title defects, which could render the title unmarketable.

Title Report: A document indicating the current state of the title, such as easements, covenants, liens and any other defects. The title report may not describe the chain of title.

Transfer Tax: A tax charged on the property upon transfer of title.

Trust Company: Organization usually combined with a commercial bank, which is engaged as a trustee for individuals or businesses in the administration of Trust funds, estates, custodial arrangements, stock transfer and registration, and other related services.

Trust Deed: Conveyance of real estate to a third party to be held for the benefit of another. It is commonly used on some states in place of mortgages that conditionally convey title to the lender.

Trustee: One who holds legal title to property in trust for the benefit of another person, and who is required to carry out specific duties with regard to the property, or who has been given power affecting the disposition of property for another’s benefit. 2. Loosely, anyone who acts as a guardian or fiduciary in relationship to another, such as a public officer toward his constituents, a state toward its citizens or a partner to his co-partner.

Trustor: One who creates a trust, often called the settlor

U

Undivided Interest: Ownership of real estate by joint tenants or tenants in common under the same title.

Up Front Money: This refers to the profits you make at the beginning of a transaction. It can also refer to the automatic equity a person earns when buying a property for less that the average market value.

Usury: The lending of money at a rate of interest greater than that permitted by law.

V

Variable Mortgage Rates: A mortgage rate that can float up and down with the prime rate.

Variance: The authorization to improve or develop a particular property in a manner not authorized by zoning.

Vendor Take Back: (Also known as a VTB) is an arrangement where the seller of a property will wait for an agreed upon time and interest rate for money that is owed to them from the sale of their home.

Venture Capital Money: Financial capital provided to fund the creation or expansion of a business, especially a highly speculative business with a high potential payback.

W

Warranty Deed: Conveyance of land in which the grantor guarantees the title to the grantee.

Wholesaling: This is a process by which a person secures a property under contract and then sells the contract to an interested buyer for a profit. Charging anywhere between $3,000.00 - $10,000 for a contract is considered average.

Without Recourse: Words used in endorsing a note or bill to denote that the future holder is not to look to the endorser in case of non-payment.

Wraparound Loan: (Wrap) A new loan encompassing any existing loans. The new usually bears an incoming payment larger than the outgoing payment on the existing loan

Y

Yearly Distribution: This is the percentage we have agreed to pay on the investment until the mortgage is paid off. IT decides the profit share amount.

Z

Zoning: Specified limitations on the use of land and construction and use of a building in a defined area of municipality. For example, you can not build a duplex on an area for single family dwellings.