IREM ACoM key terms

A property's effective rental and other income after subtracting operating expenses, but before debt service, income taxes, capital expenditures, and depreciation. It is the core measure used to compare property performance and to value income-producing real estate.

The ratio of a property's net operating income to its purchase price or market value, expressed as a percentage. It converts a single year of income into an indicative value and lets investors compare risk and return across properties.

A valuation method that divides a stabilized year of net operating income by a market-derived capitalization rate to estimate value. It assumes a steady income stream and is most reliable for stable, well-leased properties.

A valuation technique that projects annual cash flows over a holding period, discounts them to present value at a required return, and adds the discounted proceeds from sale. It captures timing, growth, and reversion value that a single-year multiple ignores.

The discount rate at which a project's net present value equals zero. It expresses the annualized compound return earned on invested capital, and a project is generally acceptable when its IRR exceeds the investor's required return.

The dollar amount by which the present value of expected future cash flows exceeds or falls short of the initial investment. A positive NPV suggests the investment earns more than the discount rate applied.

Total cash distributions received by an equity investor, including sale proceeds, divided by the equity originally invested. It measures overall profit without regard to timing, so it is usually read alongside a return measure such as IRR.

Annual pre-tax cash flow after debt service divided by the equity invested. It shows the current income yield on an investor's own money and is often used for leveraged acquisitions and value-add comparisons.

Total operating expenses divided by effective gross income. A lower ratio generally signals efficient operations or a lease structure that shifts costs to tenants, and the figure is compared against similar properties.

Sale price or value divided by gross annual income. It is a quick screening ratio that ignores expense differences, so it is most useful when comparing properties with similar operating profiles and lease structures.

Potential gross income plus other income, reduced by vacancy and collection losses. It represents the income a property is realistically expected to collect and is the starting point for the operating expense analysis.

A budgeted annual allowance set aside for replacement of short-lived building components such as roofs, HVAC systems, and parking surfaces. Underwriters deduct it from income to reflect the true cost of sustaining a property.

Necessary repairs or replacements that have been postponed, creating a backlog of physical needs. It depresses value, raises future capital requirements, and is a frequent source of post-closing disputes in acquisitions.

The sequence of phases a building passes through, from planning and construction through stabilization, aging, and eventual renovation or demolition. It frames capital planning and the timing of major reinvestment.

The reasonably probable, legally permitted, physically possible, financially feasible use of a site that produces the greatest value. It anchors appraisals and redevelopment decisions because value is measured under that use.

The pace at which available space in a market is leased or sold over a period, usually stated in square feet per month or year. It informs rent growth assumptions, lease-up schedules, and new construction timing.

The share of rentable space that is unoccupied and not generating rent, often expressed as a percentage of total inventory. It signals market balance and drives concessions, renewal strategy, and revenue forecasting.

A structured summary of the material business terms of a lease, including term, rent, escalations, options, expense obligations, and assignment rights. It lets managers and buyers analyze a rent roll without reading every full document.

A schedule listing each occupied unit or suite with tenant name, leased area, rent, lease dates, and security deposit. It is the primary document for verifying income and is reconciled against the lease file during due diligence.

A signed statement by a tenant confirming the key terms of its lease and any defaults or claims, on which a lender or buyer may rely. Inconsistencies discovered in an estoppel can delay or reprice a transaction.

An agreement among tenant, landlord, and lender under which the lease is subordinated to the mortgage, the tenant is protected from eviction on foreclosure if not in default, and the tenant agrees to recognize the successor owner.

A lease in which the tenant pays base rent plus its share of property taxes, insurance, and common area maintenance. It shifts operating cost variability to tenants and makes net income more predictable for owners.

A lease in which the landlord pays most or all operating expenses out of the rent collected. The owner bears cost volatility, so gross leases require careful expense budgeting and rent escalation planning.

The annual process of comparing estimated tenant reimbursements for shared expenses with actual costs, then billing or crediting the difference. Accurate reconciliations protect landlord income and tenant relations.

A lease provision that increases rent on a schedule or by an index such as CPI. It preserves the real value of rental income over the term and must be modeled carefully in cash flow projections.

Additional rent paid by a retail tenant when gross sales exceed a negotiated breakpoint, usually a percentage of the excess. It aligns landlord and tenant interests and links income to store performance.

Funds a landlord provides to help a tenant build out or renovate leased space. It is a leasing cost that affects net effective rent and is often negotiated against lease term and rent level.

Rent adjusted for concessions such as free rent, tenant improvement allowances, and commissions, averaged over the lease term. It reveals the true economic value of a deal beyond the headline face rate.

A fee paid to a broker for procuring a tenant, typically calculated as a percentage of total rent or a per-square-foot amount. It is a transaction cost that reduces net effective rent and requires budgeting.

The legal obligation to act in another party's best interest, placing that party's interests ahead of one's own. For property managers it includes loyalty, disclosure of conflicts, confidentiality, and prudent stewardship of client assets.

A situation in which a manager's personal, financial, or family interest could improperly influence decisions made on a client's behalf. It must be disclosed promptly and managed, or the arrangement avoided.

A published set of professional standards governing honesty, competence, confidentiality, and fair dealing. Violations can trigger disciplinary action by a professional body, separate from any legal liability.

A written statement telling a client or customer which party the professional represents and the duties that follow. It prevents confusion about loyalty and is required in many jurisdictions before services begin.

Mixing client money, such as security deposits or operating funds, with the manager's own funds or with another client's money. It is generally prohibited because it obscures accounting and exposes client funds to the manager's creditors.

A segregated bank account holding money belonging to clients or tenants, such as deposits and reserves. Records must show each owner's share, and withdrawals are limited to authorized purposes.

Net operating income divided by annual debt service. Lenders set a minimum, commonly above 1.20, to ensure income covers loan payments with a cushion, and the ratio constrains how much can be borrowed.

The loan amount divided by the property's appraised value or purchase price. A higher ratio means more leverage and greater risk to the lender, so it is paired with coverage tests in underwriting.

The danger that a loan cannot be repaid or replaced on acceptable terms when it matures, because values fell, rates rose, or income declined. It drives reserve planning and loan maturity management.

A multi-year plan projecting the timing and cost of replacing building components, used to size annual reserves. It supports budgeting, lender requirements, and long-range asset planning.

The practice of comparing actual income and expenses with the approved budget, explaining significant differences, and adjusting forecasts. It is a core monthly control for property and asset managers.

A written summary of a position's duties, reporting relationships, qualifications, and working conditions. It anchors recruitment, performance expectations, and defensible compensation decisions.

A structured review of an employee's results and behaviors against agreed goals and competencies. Regular, documented appraisals support coaching, pay decisions, and defensible disciplinary or termination actions.

A graduated response to misconduct or poor performance, typically moving from verbal warning to written warning, then suspension, and finally termination. Consistent documentation protects the employer and gives the employee a chance to correct.

Dismissal that breaches an employment contract, a collective agreement, or statutory protections, or that retaliates against protected activity. It exposes the employer to claims, so documentation and consistent policy application matter.

Comparing pay for a role against market survey data and internal peers to set competitive, equitable ranges. It supports retention and helps defend against pay-equity claims.