Glossary

1031 Exchange (aka like-kind exchange)

1031 Exchange is a method of deferring capital gains taxes on the sale of real estate held for investment purposes by exchanging proceeds from the sale of such asset, into like-kind property of equal or greater value that is held for investment purposes, as defined in IRC Section 1031. 

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401k

A 401(k) plan is an employer-sponsored retirement plan that allows eligible employees to make tax-deferred contributions from their salaries or wages. Employers can offer to match employee contributions up to a certain percentage of salary or specific dollar amount.

The 401(k) plan was introduced by law in 1978. The IRS limits the amount an individual can invest into a 401(k). In 2019, the contribution limit was set at $19,000. Withdrawals from a 401(k) account are taxed and are charged with a 10 percent early-withdrawal penalty if drawn upon before a certain retirement age.

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45-Day Identification Period

Under IRC Section 1031, an exchanger or taxpayer executing a delayed exchange has 45 calendar days from the closing date of the sale of their

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50% Gross Income Test

In order to qualify as a QOZB, an investor must demonstrate that a property or business generates at least 50 percent of its gross income from the active conduct of a trade or business in a QOZ. A trade or business will satisfy the 50% gross income test if it meets any of the following:
  • Hours Test: at least 50% of hours spent performing services for a QOZB by its employees and independent contractors (and by the employees of independent contractors) are performed within the QOZ, or
  • Pay Test: at least 50% of pay allocated to employees and independent contractors are in exchange for services performed in the QOZ, or
  • Qualitative Test: the QOZB’s positioning in a QOZ is critical to the generation of at least 50% of the gross income of the trade or business.
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721 UPREIT Exchange

721 UPREIT exchange results in the same tax deferral benefits that are achieved as with a 1031 exchange. Capital gains taxes are deferred until such time as the exchanger sells 

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Absolute Advantage

An absolute advantage occurs when a company or country is able to produce a good or service more efficiently than competitors. The company is able to use fewer inputs or time to produce the same quality of goods or services as its competitors. This efficiency allows the company to generate more profit per unit of product.

Companies or countries should focus on what they are able to produce efficiently and forego items they can’t produce efficiently. This is a form of specialization. For items that the country can’t produce efficiently, it can import those items from countries that are able to produce such items efficiently.

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Absorption

Absorption is the rate at which rentable space is leased within a market or submarket over a given period of time. Gross absorption measures total square feet

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Accounts Payable

Accounts payable is an accounting term that measures the sum of a firm’s short-term obligations to creditors and/or suppliers. Accounts payable must be paid off in a defined period of time to avoid default and maintain a firm’s credit rating, thus ensuring its access to debt financing in the future.

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Accounts Receivable

Accounts receivable (AR) is money owed by customers to a company. Companies extend credit to customers, allowing them to receive a product or service before paying for it. Customers are given credit terms that have a credit limit and a certain number of days that a customer can pay. Terms vary by industry and customer credit worthiness.

Accounts received is a current asset on the balance sheet. It is also part of a company’s working capital. Companies much manage their AR by ensuring efficient collection of payments from customers. Otherwise, customer accounts can get old and uncollectible, causing a write off for bad debts.

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Accretive

Accretive means gradual or incremental growth. But its meaning varies for finance vs. general lexicon. For example, in finance or business, accretive is an increase in the growth of a business due to an acquisition. When company ABC acquires smaller XYZ, ABC’s overall growth may increase. This can be seen in ABC’s earnings per share. This growth is gradual (i.e., years) rather than immediate.

Accretive also refers to growth in zero coupon bonds, which do not pay interest. However, a $1,000 zero coupon bond may be purchased for $500. Over a defined number of years, the bond will grow to $1,000, which is similar to a bond that pays interest.

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Active Conduct

Proposed Regulations released in April 2019 dictate that a Qualified Opportunity Zone Business must generate at least 50 percent of its gross income from the active conduct of a trade or business in a Qualified Opportunity Zone. The regulations indicate that ownership and operation of a property used in a trade can be treated as active conduct of a business, but merely entering into a triple net lease at a property is not considered active conduct. Active conduct can be measured by the following:
  • Hours Test - if at least 50 percent of services of a business or trade is performed in the QOZ, the QOZB qualifies.
  • Pay Test - if at least 50 percent of services are performed in QOZ, calculated by the amounts paid by a QOZB to its employees and independent contractors, the QOZB qualifies.
  • Qualitative Test - A qualitative test gauges whether or not the property is responsible and/or critical for generating at least 50 percent of the business’s revenues.
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Adjusted Basis

Adjusted basis is the original purchase price of an asset plus its acquisition costs plus any capital improvements less the cumulative depreciation deductions

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Adjusted Gross Income

Adjusted gross income (AGI) is a calculation used to determine how much income is taxable on a taxpayer’s tax return. Starting with gross income, which is a sum of all wages, investment income, capital gains, retirement income, among other things, AGI factors in a number of allowable deductions to arrive at the monetary amount a taxpayer will be taxed on.

The allowable deductions that can be factored into gross income to arrive at AGI include, but are not limited to: retirement plan contributions, medical expenses, capital losses, alimony payments, and school tuition and student loan interest.

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Aggregate Demand

Aggregate demand (AD) is the total demand for all services and finished goods at every price level over a specific time period. Over the long-term, AD is the same as GDP (gross domestic product), as they are calculated the same way. The formula for AD is C + I + G + (X - M), where C = consumer spending, I is capital goods or investment from companies, G is government spending, and X - M is known as a country’s balance of trade (exports minus imports).
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Alternative Investment

Alternative investment is an investment in asset classes other than the three traditional asset types (stocks, bonds, and cash). Most alternative investments are held

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Amortization

Amortization is paying off debt over a period of time with a fixed repayment schedule in regular installments. Monthly mortgage payments are often comprised of

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Anchor Tenant

Anchor tenant is the tenant that acts as the primary draw to a commercial property. It is usually the largest tenant in a shopping center or retail development. A common example is a grocery store.

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Angel Investor

An angel investor is a high net worth individual who is one of the first investors in a startup. This stage of investing is well before venture capitalists come in and is one of the riskiest stages to invest in. The amount invested by an angel investor is often only a small percentage of their overall net worth.

In exchange for investing, angel investors generally take a sizeable percentage of the company and may set certain conditions on the entrepreneur. Angel investors may sometimes be the only source of capital a startup might receive early on, as banks do not favor risky investments.

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Annual Percent Yield

The annual percentage yield allows investors to compare investments with different annual percentage rates (APR). It’s a way to do an apples to apples comparison. APY accounts for periodic compounding interest. As interest is added to the account, the next interest payment will be bigger. The longer an investor allows the account to compound interest, the bigger it will be at the end of some predetermined period.

It’s important to point out that APY does not take into account any fees. APR does account for fees. This is another difference between APY and APR.

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Antitrust Laws

Antitrust laws prevent companies from taking over an industry sector and thus stifling fair trade within that sector. A single company that dominates a sector without competition is called a monopoly. Generally, monopolies are not good for economies, as they reduce choices and increase prices for consumers.

Antitrust laws also prevent mergers that will result in less choice and competition. One of the most famous antitrust cases is that of Microsoft vs. The United States. Charges of antitrust were brought against Microsoft because of its Internet Explorer web browser, which was installed on Windows PCs by default. The court ruled that Microsoft constituted unlawful monopolization. Microsoft appealed the case and eventually reached a settlement.

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Appellate Court

After an individual or corporation has its their heard case heard by a trial-level or other lower court, the case can be further appealed or reviewed. That’s where the appellate or appeals court comes in. It is a higher level court at the federal and state levels. There are 13 federal appellate courts and one for each state.

Appellate court does not have a jury. Individuals or corporations with a judgement against them can have the case heard in appellate court. The appellate court will ensure that the law was applied correctly in the original hearing. If the case is overturned, the judgement is dropped, as the appellate court takes precedence over the ruling of the lower court. 

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Appraisal

Appraisal is an estimate of a property’s fair market value by an authorized person with applicable knowledge and expertise. Appraisals can be used for taxation

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Appreciated Property

Appreciated property is a property that has increased in value over time. This increase can occur for a number of reasons including increased demand or weakening supply,

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Appreciation

Appreciation is the increase in the value of an asset over time, which can be affected by a number of factors such as increased demand, weakening supply, or changes in inflation.

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APR

Annual percentage rate (APR) is a measure used to calculate the percentage of principal on a loan that an individual or business will pay per year. It is ultimately expressed as a percentage that quantifies the annualized cost of funds during the term of a loan, though it does not account for compounding interest. APR is best used as a measure of the cost of funds and is a bottom-line figure that can be compared across a spectrum of lenders.
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Arbitrage

Arbitrage is a method of risk-free investment in which an investor acquires an asset at a particular price in a certain market and simultaneously sells that asset for a different price in another market. Arbitrage exists as a result of market inefficiency and would not exist if markets were perfectly efficient. As technology has evolved over time, an investor’s ability to generate profits from arbitrage has diminished. Opportunities do still exist when, for example, the price of an asset on the New York Stock Exchange differs at the same moment in time from the price of the asset as it is listed on the London Stock Exchange.

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Asset

An asset is a resource owned by an individual, corporation or country that controls the item with the expectation that it will produce a benefit or cash flow in the future. Assets are typically reported on a firm’s balance sheet and are bought or created to increase a firm’s value or enhance a firm’s operations.

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Bad Title

Bad title is title to a property that does not grant distinct ownership. Often used in the context of real estate, bad title results in the interests in real property not being transferred properly to the new owner. A product of unpaid taxes and liens, faulty transfer documents, building code violations, among other reasons, any encumbrance causing the cloud on title must be remedied before title can be fully transferred.

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Balance of Payments

The balance of payments (BOP) for a nation consists of three categories: Current Account, Capital Account, and Finance Account. Transactions between nations create debits and credits in these accounts, depending on which direction transactions are moving (into or out of a country). The current account consists of finished goods. The capital account consists of capital transactions. The finance account records payment flows related to changes in ownership of international financial assets and liabilities such as portfolio investment, direct investment, and reserve assets. The balance of payments should equal zero, which means that the current account = capital account + finance account. Although in practice, that rarely happens. An advantage of the BOP is that it allows countries to identify trends, both negative and positive.

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Balance Of Trade

Balance of trade is defined as the difference between the value of a nation’s imports and exports over a defined period of time. A country is considered to have a trade deficit if the value of the goods it imports exceeds the value of the goods it exports. A country has a trade surplus when the value of its exports exceeds the value of its imports. A country’s balance of trade is a metric used to quantify the relative strength of that country’s economy.
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Balance Sheet

A balance sheet is a financial sheet that lists a firm’s assets, liabilities and equity at a point in time. The balance sheet provides a firm and its stakeholders a look at a point in time of what it owns, what it owes, and the difference of the value of its assets and the sum of its liabilities.

Used in tandem with financial statements such as the income statement and statement of cash flows which illustrate a firm’s performance over a period of time, a balance sheet illustrates the firm’s standing at the beginning and end of said period.

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Balanced Budget

A balanced budget occurs when revenues are equal to or greater than expenses. When a company spends more than it makes, it incurs a net loss. Too many quarters like that and the company can go out of business. A budget is generally considered balanced only after a year of revenue and expense generation. When revenues exceed expenses, a budget surplus occurs. A budget surplus can provide an excess of cash that can then be invested in future projects or stored away for difficult times.

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Bank

A bank is a financial institution regulated by a regulatory body. A bank receives deposits and issues loans. Banks can also provide financial services that include wealth management, currency exchange and safe deposit boxes.

There are two types of banks: commercial banks and investment banks. Commercial banks primarily manage the funds of their customers in checking and/or savings accounts and by issuing loans to individuals and businesses. Investment banks provide services to corporate clients that include underwriting and merger and acquisition activities.

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Bank Run

A bank run is created when customers begin withdrawing their money en masse because they believe the bank will fail (i.e., become insolvent). After customers begin withdrawing their money in a panic, it causes more customers to withdraw money. If enough customers withdraw their money, the bank will default. Basically, the bank runs out of money. The FDIC was established in 1933 as a result of bank runs.

Bank runs are not as common in modern times because many customers know that their deposits are insured by the FDIC. This doesn’t mean a bank run can’t occur. Banks don’t keep all of their customer deposits on-site. For security reasons and regulations from the Federal Reserve, only a small percentage of actual deposits are kept in the bank.

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Basis

Basis, in the context of commercial real estate, is an asset’s basis is the original purchase price or cost of investment property plus any out-of-pocket

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Bear Market

A bear market occurs when the stock market falls by 20% from its highs for at least a two month period. As a bear market starts and prices begin tumbling, investors sell into fear, fueling the downturn. The last sustained, large bear market was the Financial Crisis, in which the S&P 500 lost 50% of its value.

Bear markets come in two flavors — cyclical and secular. A cyclical bear market lasts for only a few weeks or even months. A secular bear market lasts for years. During each of the two bear markets, there may be sharp rallies, but they do not last. The market reverts back lower and continues its downward trend.

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Beneficiary

Beneficiary is any person who is eligible to receive distributions from a trust, will, or life insurance policy.

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Blanket Mortgage

A blanket mortgage is a type of mortgage that finances more than one piece of real estate. Similar to a conventional mortgage, the real estate acts as collateral under the loan, and depending on the terms, the individual pieces of real estate may be sold without retiring the entire mortgage.

In practice, blanket mortgages allow the mortgagee to aggregate its debt obligations under a single loan to a single lender. Due to the size and scope of the loan, the borrower may have the ability to negotiate better terms and achieve a lower interest rates. In addition, a borrower may be able to save on application and closing costs associated with taking on multiple mortgages.

The disadvantages of a blanket mortgage include the capability of the lender to foreclose on all of the properties serving collateral in the scenario that the borrower defaults. In addition, blanket mortgages are typically unable to cover properties across numerous states, as each state has unique guidelines regarding how blanket mortgages are issued.

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Blind Pool

A blind pool is a limited partnership that raises funds from investors with no specific investment thesis. Typically managed by a general partner, the blind pool’s goal is broadly defined as growth or income, perhaps with a focus on a specific sector or sectors, but provides the general partner decision making autonomy in the allocation of capital.
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Blockchain

Blockchain is a type of record-keeping system. Unlike a centralized database, where one entity is the source of record, a blockchain database is distributed. This structure is called a distributed ledger. Within a distributed ledger, the database is pushed to multiple nodes (i.e., machines) within the network. Certain nodes verify each transaction. These verifying nodes must reach a consensus for the transaction to be committed into the ledger and be redistributed. The consensus of transactions is a key element of blockchains. No one authority is able to take control of a blockchain. Blockchains are also the backbone of cryptocurrencies.

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Blue Chip Stocks

Blue chip stocks are considered stable, low-risk investments. They are the largest companies trading in the stock market. The blue chip refers to the blue chips used in poker. They are the highest value chips available. Blue chip stocks pay consistent dividends that increase over time. When the economy is coming out of recession, blue chip stocks are not expected to recover as quickly as small cap stocks but they are also not expected to be as impacted going into recession. Blue chip stocks have been around for years and, in most cases, decades. They include companies such as Coke, IBM, Apple, Microsoft, Google, and Intel.

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Board of Directors

A board of directors is a governing body within a public company. Some private companies and nonprofit organizations also have a board of directors. The board of directors is a type of checks and balances on major decisions within the company. These decisions include the direction of the company, hiring and firing executives, and acquisitions. It’s important that the board of directors is made up of a diverse group of individuals. If all members are older folks with seniority within the company, they may be biased in their decision-making. It isn’t uncommon for a board of directors to have outside members. Recruiting experienced people from the industry, such as previous CEOs, can add beneficial experience to the board.

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Bond

A bond is a fixed income instrument that represents a loan from an investor to a corporation or government. A bond is considered a fixed income security that is throughout of as an IOU between the individual lender and borrower with terms that outline the details of the loan and its regular payments. A bond is equipped with an end date when the principal of the loan is due back to the borrower in addition to the specific coupon amount that is due to the lender on a payment schedule, based on the variable or fixed interest rate assigned to the loan.
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Bond Economics

Bonds are used by corporations and governments to issue debt. Investors buy these bonds to collect interest that must be paid by the bond issuer. Interest can be variable or fixed. Most bonds have an ending date, which is when the return of principal occurs. Although some bonds are perpetual and have no ending date.

Interest rates are determined by the credit of the bond issuer. Higher credit ratings equal lower interest rates. Bonds are issued to finance the growth of a country or corporation. For corporations that can’t find favorable bank financing, bonds can be a great alternative.

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Boot

Boot, although not specifically defined (or even mentioned) in IRC Section 1031, is commonly used and refers to the fair market value of cash,

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Brand Equity

Brand equity is an intelligible asset. It is the amount of trust and credibility that consumers have in a brand. It takes years to build up brand equity. Companies such as Nike, Amazon, and a number of luxury automakers have built up lots of brand equity. When these companies come out with a new product, instead of creating a completely new marketing campaign, they are able to leverage their existing brand equity. This means a more cost-effective marketing campaign can be created. Companies have to be careful to protect their brand equity. What took years to create can easily be destroyed in just a few days with the wrong communication or actions.

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Brexit

In a June 23, 2016 referendum, the U.K. voted to leave the European Union, making it the first EU country to do so. The event became known as Brexit, short for British exit. David Cameron, the then prime minister, resigned the next day. Theresa May, who replaced Cameron, tried three times to negotiate a deal with the EU, but failed on all accounts. The former mayor of London, Boris Johnson, is now prime minister and a Brexit supporter.

As of now, the U.K. remains in the EU, due to multiple extensions. Once the U.K. leaves the EU, and depending on the deal if leaves with, it will no longer be a part of the customs union and single market. Being outside of the EU will lead to increased commerce cost and transit time between the U.K. and EU countries.

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Bridge Loan

Bridge loan is a short-term loan that is used until a person or company secures permanent, longer-term financing or fulfills an existing obligation. 

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Broker Dealer

Broker dealer is a person or firm in the business of buying and selling securities, operating as both a broker and a dealer, depending on the transaction.

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Budget Deficit

When a business spends more than it earns, it must use credit or debt to cover the shortfall. When a country spends more than it takes in, it experiences a budget deficit. The country must borrow to make up the shortfall (called a fiscal deficit).

A budget deficit isn’t necessarily a bad thing. Countries that are expanding and expect more revenue in the future as a result will often experience budget deficits. The make up for the deficit, the country will issue bonds. This is similar to an asset backed loan. Of course, loans have interest that must be paid and so do bonds. If a country’s budget deficit gets out of control and it has to continually issue bonds, the country’s credit rating may fall, causing interest payments to increase. This can create spiral where the country is not able to take in enough revenue to meet its ever-increasing interest payments.

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Budget Surplus

A budget surplus occurs when a government is running efficiently. It is generating more revenues than expenses and therefore has money left over. Individuals prefer to call a surplus “savings.” When the economy is doing well, there is less demand for government services since more people are employed.

When a government creates a surplus, whether, at the federal, state, or local level, citizens will often call for taxes to be lowered. Basically, they are saying that the government has a surplus because it charged too much in taxes. A surplus may be put aside as part of a rainy day fund or to pay off debt that was incurred during a budget deficit.

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Bull Market

A bull market is a term used to describe a financial market where the values of a particular group of securities are expected to rise. The term is most widely used when describing the stock market under conditions where an array of securities appreciate in value over an extended period of time, whether that be months or years. 

Bull markets are driven by investor optimism and confidence that the price of an asset today will be less than the price of the asset in the future.

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Business Cycle

Business cycle is a term used to describe the cycle of economic activity that an economy experiences over time. Business cycles are characterized by expansion and contraction with regard to the output of goods and services in the described economy. 

There are six stages of a business cycle: expansion, peak, recession, depression, trough, and recovery. The National Bureau of Economic Research (NBER) measures and studies business cycles and defines the start and end dates of business cycles in the United States.

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Business Ethics

Business ethics is the study of policies and practices with regard to corporate governance. Business ethics are critical to a firm’s operations, as they ensure that a firm is operating in an ethical manner on behalf of its stakeholders. Businesses began to become increasingly concerned with business ethics in the 1960s as society began to become more concerned with environmental and social causes.
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Business Plan

A business plan allows a company to create a written projection of how it will succeed. Because the plan is written out, others involved in the business can understand where the company is going and what is needed to get it there. Additionally, the plan is used for attracting investors, since all investors will want to review a detailed analysis of how the company will become profitable.

The business plan includes several important components — market size, marketing plan, costs, budget, customer profile, competitors, and timeframe to profitability. From the business plan, additional analysis can be performed, making the plan more accurate. Without a business plan, founders will have a difficult time describing their vision to others in detail, attracting investor money, or even getting a loan.

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Business Risk

Business risk is anything that jeopardizes a company’s ability to meet its financial goals. This type risk goes beyond the internal operations of a business, such as the actions of upper management, and can include external factors such as new regulations enacted by the government. By becoming aware of the different factors that may cause a particular business to fail, such as compliance and operational risk, a company may be able to enact a proper risk management strategy that mitigates specific risk that may affect their ability to drive revenue or control costs.
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Buying on Margin

Buying on margin is the process in which an investor purchases an asset with leverage by borrowing a balance from a bank or a stock broker. Buying on margin allows for an investor to purchase assets with, for example, 20 percent cash and 80 percent leverage, where the leverage is secured by marginable securities held by the investor. 

In order to buy on margin, an investor needs to apply for approval from a bank or broker. The degree of buying power an investor has access to is a function of the total dollar amount of purchases the investor can make with cash and securities holdings.

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C Corporation

A C-corp is a legal entity separate from its owners and shareholders. For this reason, owners and shareholders are not liable for the C-corp. C-corps create a double taxation situation because the corporation is taxed on its income, and owners/shareholders are taxed on their income at the personal level.

C-corps must hold at least one annual meeting. These annual meetings must be recorded for transparency (for investors). Percentage ownership within the company must also be disclosed. Bylaws must be kept at the company’s location. The corporation must file annual reports and related documents so investors can fully evaluate the performance of the company.

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Cap and Trade

Cap and trade is a term that refers to government regulation programs that cap the emissions of certain chemicals, especially carbon monoxide. Cap and trade is an alternative to a carbon tax. The regulation is meant to be designed in such a way that it doesn’t do adverse damage to the industries being regulated. Part of cap and trade is that it provides companies an incentive to begin switching to cleaner, alternative forms of energy.

Cap and trade involve issuing emissions credits to companies. Those companies that emit dangerous chemicals use up credits. If all of their available credits are used, they are taxed. Those with leftover credits can sell them to other companies. The total number of credits declines over time, pushing companies towards cleaner alternatives.

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Capital

Capital is defined as a type of financial asset that includes funds held in a deposits account or a physical factor production, e.g. manufacturing equipment and facilities and buildings used to produce and store goods. To be classified as capital, assets must serve as an ongoing source of service to the business used to generate wealth. Combined with labor, capital is combined with individuals who exchange their time and skills for money to create value.

“Capital” and “money” are commonly interchanged, but the two terms are distinct. Capital is deployed to crate growth and expand a company’s capacity to provide its service or develop its product, while money is a means purchasing and developing a company’s specific source of capital.

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Capital Asset

Capital assets, for corporations and business entities, are assets that have a useful life longer than one year and are not held for sale in the ordinary course of business.

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Capital Budget

Capital budgeting or investment appraisal, as it is sometimes called, is budgeting for large investment projects. These projects include building a new plant, a new product, buying new machinery, or even another company. A capital expenditure (CAPEX) is not an expense. However, CAPEX can be depreciated over several years.

Investments in CAPEX generally take several years before they begin turning a profit. Analysts will determine at what point the investment is expected to generate a profit, and the minimum profit expected by the company, which is called a hurdle rate. When comparing two projects, the discounted cash flow method is used as part of the analysis. Comparing each project’s NPV and internal rate of return, analysts can make a determination about which project the company should decide on.

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Capital Expenditures (CapEx)

Capital Expenditures are, in the context of commercial real estate, funds used by a company to acquire or upgrade physical assets that cannot be expensed as

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Capital Gains Yield

The capital gains yield of a stock represents the absolute return from time 1 to time 2. It is calculated using the formula: (p2 - p1) / p1, where p1 is the price at time 1 and p2 is the price at time 2. For example, the price of the stock ABC is $100 on day 1. On day 5, it is $105. Its capital gains yield is (105 - 100) / 100 = 0.0105 or a 1.05% gain.

Capital gains yield is often used to find out the return of a stock from the time of purchase to the time of sale. In the above example, the investor would have purchased the stock at $100 and netted a $5 gain in dollar terms, resulting in a 1.05% gain. Capital gains yield doesn’t include stock dividends, which is considered total return.

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Capital Goods

Capital goods are tools created for a business to use in producing consumer goods. Capital goods have a useful life of over one year and are considered tangible assets. Examples of capital goods include buildings, vehicles, machinery, and equipment.

Because capital goods have a long lifespan, they are depreciated rather than expensed. Depreciation accounts for the loss of the asset’s value each year of its lifetime. Depreciation is taken by determining the capital goods’ lifespan, then taking partial depreciation each year. For example, a capital good with a lifespan of 20 years is depreciated at the rate of 1/20 per year.

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Capitalization

There are two meanings for capitalization as it relates to accounting and finance. In accounting, capitalization refers to a method by which a firm expenses the costs associated with the acquisition of an asset over the useful life of the asset rather than at the time it is acquired. In finance, capitalization is a measure of a firm’s book value (the sum of its stock, long-term debt, and retained earnings) or its market value (the product of the number of outstanding shares and the stock price).

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Capitalization Rate (Cap Rate)

Capitalization rate is the initial rate of return an investment property is expected to generate. The Capitalization Rate is determined by dividing the

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Carry Costs

Carry costs are any expenses the owner must pay on investment property over the course of owning it. These costs usually include utilities, debt service payments, taxes and insurance, among other items.

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Cash

Cash is legal tender, which is issued by a country’s government. Rather than carrying around goods or something else for trading, cash reduces weight and simplifies transactions. Cash is lightweight and small, which makes transporting it easy. It represents specific values of goods, which makes the exchange of cash for goods straightforward.

Cash is also considered liquid since it can be immediately exchanged for goods or services. On a corporate balance sheet, cash is considered a current asset — meaning, the most liquid asset available to the company. The cash flow statement shows all cash coming in and going out of a company, such as cash used to pay for expenses.

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Cash And Carry

Cash and carry is an arbitrage technique used with a stock or commodity and the associated futures contract. When there is a spread or difference in the stock and futures prices, arbitrage is possible. For example, buying the S&P cash index and shorting the S&P futures contract. The two eventually come back into price alignment, as the cash index rises and the futures drop (or vice versa).

There are risks to this strategy, which are called carry cost. The arbitrageur holds the futures contract until expiration, which also means the storage of the physical asset, such as oil or wheat. This storage of the asset is called carrying the asset. Another carry cost is margin on the futures contract. Non-physical assets such as the S&P 500 do not have to be stored, which means its carry cost is only margin.

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Cash Reserves

Cash reserves, in the context of commercial real estate, is cash and cash equivalents held in short term accounts used to cover things such as

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Cash-On-Cash Return

Cash-on-cash return is the ratio of annual before-tax cash flow from an investment to the total amount of cash invested, represented as a percentage.

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Central Bank

A central bank regulates the money supply, interest rates, and available credit of a nation or several nations (such as with the European Central Bank). In the United States, the central bank is called the FED. Its chairman is Jerome Powell. The FED is able to control the money supply by buying or selling treasury bonds. It regulates the amount of deposits that commercial banks must have. The FED sets interest rates as well and acts as a lender of last resort. In times of financial distress, the FED engages in activities to ensure liquidity across financial markets. These activities can include involvement in the REPO market, bond market, and even purchasing certain ETFs, as was the case in the 2020 financial crisis.

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Certificate of Deposit

A certificate of deposit (CD) is a savings certificate issued by a financial institution that has a fixed maturity date and interest rate that restricts the certificate holder’s access to funds from the time of issuance to the specified maturity date. CDs are tools that financial institutions and banks use to generate deposit growth and are typically issued electronically. Financial institutions typically charge a fee if an investor wishes to obtain access to funds prior to the maturity date.

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Certificate of Occupancy (CO)

Certificate of Occupancy is a document issued by a local government agency, certifying that a building meets certain requirements and codes that indicate its fitness to house tenants. These requirements differ across building types, as well as cities and states, and are usually required to be met by new developments.

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Certified Public Accountant

A certified public accountant (CPA) is a designation bestowed upon an individual by the American Institute of Certified Public Accountants (AICPA) when that individual satisfies the educational requirements and passes the CPA exam. In order to be deemed a CPA, an individual must obtain a bachelor’s degree in business administration, finance or accounting, have no fewer than two years of public accounting experience, complete 150 hours of education, and pass a certification examination.

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Chamber of Commerce

A chamber of commerce is a group of business members that periodically meet to discuss business-related topics. The chamber of commerce often lobbies the local government to form business-favorable regulations and policies. Most cities and states have a chamber of commerce. Although nations and regions within a nation may have a chamber of commerce as well. The chamber of commerce meetings are a great time for local business owners to meet each other and local government members as well.

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Chapter 11 Bankruptcy

Chapter 11 bankruptcy is a reorganization of a business’s debts and is not an asset liquidation like a Chapter 7 bankruptcy is. Chapter 11 is the most complex and costly form of bankruptcy. A court decides how a company’s debts will be restructured, although the business or individual has the first chance to propose a reorganization plan. Most companies remain open and operational during Chapter 11.

If the case involves fraud, dishonesty, or gross incompetence, the court will appoint a trustee to run the business. All business decisions must then go through the court.

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Checking Account

A checking account is a liquid type of account individuals and businesses use to deposit and withdraw funds at a financial institution or bank. Consumers and businesses can access funds held in checking accounts via checks, automated teller machines and electronic debits. Banks allow unlimited withdrawals and deposits on checking accounts.

Checking accounts typically do not offer high interest rates because of the high level of liquidity it offers to customers. Funds held in a checking account at a chartered banking institution regulated are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $250,0000 per individual depositor

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Closing Costs

Closing costs are expenses over and above the price of the property that buyers and sellers normally incur to complete a real estate transaction.

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Collision Insurance

Collision insurance is automobile insurance. It covers collisions that are under your control. Collision insurance shouldn’t be confused with comprehensive insurance, which covers acts of God, such as weather-related events or a deer jumping in front of your car. Collision insurance is extra coverage on top of basic insurance coverage.

Collision insurance covers the following incidents: Your car is the only one involved in an accident, collision with another car, collision with an obstacle in the road, and pothole damage. Collision insurance does not cover theft, hail, flood, fire, vandalism, natural disaster, or being struck by an animal.

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Commercial Bank

A commercial bank is where most everyone does their local banking. This is in contrast to an investment bank. Commercial banks offer a range of financial products, including loans, mortgages, checking, savings, CDs, retirement products, credit cards, and more. These banks make their money from lending.

When you open a deposit account such as a saving, checking, or CD, you are basically lending the bank money. As a lender, you expect to be paid interest, which the bank does. Although it is a very small amount. The bank uses your funds as loans to its customers. Because the bank lends at a higher rate than the interest it pays on deposit products, it is able to generate a profit.

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Commercialization

Commercialization involves taking a product or service and making it widely available to a broader audience. For businesses, the goal is to create such products for less than they are sold to the public. Product costs include production, distribution, marketing, sales, and customer support.

Commercialization includes three different stages: The ideation stage, the business process stage, and the stakeholder stage. These stages include brainstorming, deciding if there is enough demand for a product at the right price point, and understanding of the company will be able to benefit its stakeholders by selling the product.

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Common Area

Common areas are the areas of a building that are available for the nonexclusive use of all its tenants, such as lobbies, corridors, and parking lots.
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Common Area Maintenance (CAM) Charges

Common area maintenance charges are the contribution or fee paid collectively by individual tenants for the maintenance and upkeep of the non-exclusive areas of the premises. 

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Common Stock

Common stock allows the holder of the stock a percentage share of ownership within a company. Owning shares gives the owner voting power to elect members to the board of directors and vote on other company matters. However, without a significant holding of common stock within a company, the owner’s vote may not have much sway.

Owners of common stock are the last to receive any assets in the event of bankruptcy (liquidation). Debts are first in line, which includes bond and preferred shareholders. If anything is left over, which it usually isn’t, common stock shareholders may receive some compensation. On the positive side, common stock generally outperforms debt instruments such as bonds.

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Comparative Advantage

Comparative advantage is a term that describes a firm’s ability to produce a good or service at a lower cost than its competition. A comparative advantage in terms of production enables the firm to sell its good or service at a lower price and a higher margin than its competition. 

Comparative advantages cannot be explained without understanding opportunity costs, which are measured as the potential benefit an individual misses out on when choosing one course of action over another. On an individual basis, a college degree provides an individual a comparative advantage over not having a college degree, as that credential provides the individual the ability to convince employers that he or she is capable of providing tangible value to a firm.

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Compound Interest

Compound interest is “interest-on-interest”, or the ability of a financial instrument to generate earnings on its earnings.

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Concurrent Exchange

Concurrent exchange refers to a method of executing a tax deferred exchange (aka 1031 exchange or like-kind exchange) where the sale of the relinquished property

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Condemnation

Condemnation is the seizure of property by a public authority for a public purpose. Condemnation typically occurs when a taxpayer owns property in a place

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Conflict Theory

Conflict theory, as put forth by Karl Marx, says that societies are in constant conflict over competition for limited resources. Marx also believed that the rich and powerful would try to remain that way at the expense of poorer members of society. However, every group/class within a society will work to maximize their own benefits.

As it relates to the financial crisis, banks took on excessive risks because the government turned a blind eye to their activities. They were bailed out by a government that used funds, which it said it previously did not have for social programs, thus benefiting the rich and powerful. The poor received nothing. Marx would say that the financial crisis was inevitable due to conflict theory.

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Constructive Receipt

Constructive receipt is direct access to tax-deferred like-kind exchange funds or other property by an exchanger completing a tax-deferred like-kind exchange.

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Consumer Goods

Consumer goods are items purchased by consumers for final consumption. These are goods that have reached the end of the manufacturing process and are not resold. The consumers, rather than another manufacturer, is the final buyer of the good.

Consumer goods are classified as durable (useful for longer than 3 years). These are goods such as refrigerators, ovens, furniture, and cars. Durable goods are considered necessities and purchased regardless of current economic conditions. The other type of consumer good is nondurable (useful for less than 3 years). This also includes pure services (consumed at the same time they are produced). Examples include clothes, food, gasoline, and oil.

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Controller

A controller’s position is just under the CFO of a company. The controller is involved in daily accounting, such as preparing reports, budgeting, hiring/firing people in the accounting department, and ensuring compliance. The CFO is part of the executive team, overseas financial strategy, and is often speaking on earnings calls (if the company is public).

In a smaller company, the controller and CFO may be the same position. The controller ultimately handles putting together the financial information that the CFO and other top management use for company strategy.

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Core Competencies

Core competencies allow an individual or business to stand out from the crowd. Some might call this the company’s secret ingredient or edge. Developing core competencies can take time. Sometimes, through years of trying different things, a company discovers what it is best at. For example, it is able to produce a product at a higher quality and more efficiently than its competitors. Its operational efficiency is a core competency. Core competencies are made up of several components, including people, physical assets, patents, brand equity, and capital.

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Core Property

Core properties exhibit the lowest risk and lowest potential returns amongst the four major commercial real estate risk profiles, and represent

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Core-Plus Property

Core-plus properties are generally similar to core properties, but have a slightly higher degree of risk and potential for slightly higher returns than core properties.

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Corporate Culture

Corporate culture guides how employees interact and behave with each other and customers. Corporate culture is implied rather than handed out in a pamphlet to new hires. Employees learn the culture by watching other employees. Some aspects of the culture may be explicit such as dress code. When talking to potential new hires, management may express some of the culture such as the company is laid back and people dress in everyday clothes. An aligned culture helps guide teams and is often more successful than a company in disarray, where employees act however they want. Such disarray breaks down communication, leading inefficiencies across the company.

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Corporate Social Responsibility (CSR)

Corporate social responsibility (CSR) is a business model that helps companies be good citizens. Just like individuals want to keep their neighborhood clean, safe, and be good neighbors, CSR applies the same principles to corporations. A company that is dumping waste into rivers or billowing smoke into the atmosphere is not practicing CSR. Companies that take measures to keep the environment clean, ensure women have equal pay, and participates in local community fundraisers are practicing CSR.

CSR is generally a practice of large organizations. For smaller firms, CSR is often too costly. Also, larger corporations have more impact on the environment, society, and their community. CSR is a method for balancing that impact.

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Cosigner

A cosigner is a term used to identify an additional source of repayment on a loan. A cosigner can aid a borrower by increasing the amount of principal for which he or she is eligible. A borrower may need a cosigner if he or she has a low income or minimal credit history.

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Cost Per Thousand (CPM)

CPM stands for cost per thousand and is a metric used in webpage advertising. In an effort to attract customers, companies will pay for ad space on popular websites that are related to the product they are selling. Advertising companies charge per 1,000 impressions or displays of an ad. CPM-based advertising is used for brand awareness or to advertise specific messages. As an example, an ad company that charges $2 per CPM will earn $200 per client from 100,000 ad impressions.

CPM is related to CTR, which stands for click-through rate. CTR tracks the number of clicks per 1,000 ad impressions. Ad companies will often charge extra based on the number of CTRs. CTR doesn’t necessarily mean success for a client. A customer may not purchase anything after clicking on an ad while another customer may see an ad and decide to purchase days later by phone or by walking into the store.

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Cover Letter

They say first impressions are everything. This is especially true when applying for a job. A cover letter is your chance to make a great first impression. The cover letter is a summary of you and includes parts of your resume. It’s meant as a conversational piece to show off your best attributes and why you’re the best candidate.

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Credit Bureau

Credit bureaus collect and analyze information related to a consumer's creditworthiness, which includes loans, open/closed accounts, past due payments, work history, public records, and more. There are three main credit bureaus in the United States — Equifax, Experian, and TransUnion, which are all private companies. While these agencies are not government-owned, they are regulated by The Fair Credit Reporting Act, which was passed in 1970. The Act ensures that consumers have accurate credit report information and are able to access their credit reports.

Lenders utilize the information from credit bureaus to make decisions about extending credit to consumers. Their decisions are often coupled with FICO scores. The better an individual’s credit and FICO score, the more likely they are to receive new credit and lower interest rates.

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Credit Card

A credit card is an item issued by a financial services company that provides a consumer a personal, unsecured line of credit to make purchases from merchants that accept credit cards.

Consumers will have limits on their lines of credit based on their credit score and annual salaries and wages. Credit cards feature higher annual percentage rates (APRs) than other lines of credit because of the lack of collateral associated with the line of credit. Whereas a financial institution may repossess a delinquent borrower’s home or vehicle if repayment stops, a financial institution will have a harder time obtaining recourse on the unsecured personal line of credit.

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Credit History

A credit history is a record of a person’s payments to creditors. This record is called a credit report. A credit report contains the credit profile of a person. This profile includes the number of open and closed accounts, how long accounts have been open, how much is owed on each account, delinquent payment history, and inquiries for new credit. Additionally, bankruptcies, judgments, and collections are included in a credit report.

A FICO score is also an important component of a person’s credit. It sums up someone’s creditworthiness in one score. The higher a person’s FICO or credit score, the more access to credit they will have, and the lower their loan interest rates will be. Credit scores are dynamic and can be improved.

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Credit Limit

A credit limit is the maximum amount of credit that a financial institution extends to an individual or business. Credit might come in the form of a credit card or line of credit. The amount of credit extended depends on an individual’s creditworthiness. Creditworthiness is a factor of credit history and debt to income ratio, among many other things.

For people with no credit history or those who have poor credit, they can have difficulty when trying to get new credit. Also, interest will generally be higher for such people until they establish or improve their credit. Those with great payment histories, good income, and a low debt to income ratios receive the most credit along with favorable interest rates.

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Credit Report

A credit report provides a breakdown of an individual’s credit history and is a measure of that individual’s creditworthiness in the future. Credit bureaus compile credit reports by compiling financial information about an individual’s previous history of repayment and current levels of debt, among other factors. A credit report is a tool that lenders use to assess the risks associated with issuing debt to an individual.

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Credit Score

A credit score is an index that quantifies an individual consumer’s history of creditworthiness and his or her probability of repaying future debts. A credit score ranges from 300 to 850; the higher the score, the more trustworthy a lender considers a consumer. 

FICO is the most commonly accepted method of credit score. A credit score is a key component of a lender’s decision to extend a line of credit to an individual. Individuals with credit scores below 640 are considered subprime borrowers, while borrowers with credit scores above 700 are considered creditworthy.

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Credit Tenant

Credit tenant is a tenant with the size and financial strength worthy enough of being rated as investment grade by one of the three major credit agencies: Fitch, Moody’s,

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Credit Unions

Credit unions are financial institutions that perform banking activities and are created, owned and operated by participants. Under the credit union structure, members pool money together via deposit accounts to provide loans and other financial products and services to other members. Credit unions and their members are typically comprised of individuals with some sort of common bond, whether that be occupation in a regional fire department or status as health workers in a hospital system.

Income generated from the activities conducted by a credit union are used to fund projects and services that will benefit the interests of the credit union’s members.

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Crude Oil

Crude oil, which is a fossil fuel, is a natural resource found within the Earth. It is composed of hydrocarbon deposits and other organic materials. Crude oil must be drilled from the Earth and refined and processed to create petroleum products such as gasoline, diesel, kerosene, and asphalt. Drilling, refinement/processing, and the creation of particular products are what the crude oil industry is built around.

Crude oil isn’t being created as it is a nonrenewable resource. Once it is gone, there will be no more. This means crude oil is a limited resource. It is getting increasingly difficult for the industry to find new deposits of crude oil and bring them to the surface.

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Curb Appeal

Curb appeal is the attractiveness of a residence or investment property from the sidewalk or street. Often a term used by real agents when selling a property, increasing curb appeal may attract potential buyers to particular property over a less appealing property of similar size and scope. Items that may play into curb appeal include landscaping, painting, fixtures, and even the surrounding area and neighborhood.
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Cyclical Unemployment

Cyclical unemployment is driven by the business/economic cycle. When an economy goes into recession, businesses lay off employees, increasing unemployment. During expansionary periods, businesses hire people to meet demand, decreasing the unemployment level. As an example, a resort experiences high demand when people are employed, since they have discretionary income. But once the economy begins softening and people start getting laid off, consumers save and avoid unnecessary expenses, such as spending at resorts. This decreases demand at the resort, which cuts its expenses by laying off people, driving up unemployment in the process. Other factors that affect employment are seasonal, structural, frictional, and institutional.

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Debt

Debt is an amount of money owed by a borrower to a lender. It is used by individuals and corporations to make large purchases that they otherwise would be incapable of making given current cash holdings. A debt agreement provides terms that include the amount borrowed and the date at which principal and interest need to be repaid.

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Debt Service

Debt service is the cash that is required for a particular time period to cover the repayment of interest and principal on a debt. 

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Debt Service Coverage Ratio (DSCR)

In the context of commercial real estate, a measure of the cash flow available to pay current debt obligations. It is calculated as the annual

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Deed in Lieu of Foreclosure

Deed in lieu of foreclosure is a deed instrument in which the mortgagor (borrower) conveys all interest in a real property to the lender to satisfy a loan that is in default and avoid

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Deed of Trust

A deed of trust, like a mortgage, is a security instrument used to finance real estate. A deed of trust transfers legal title in real property to a trustee,

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Deficit Spending

Deficit spending is a term that describes the conditions under which a government’s expenditures exceed its revenues in a particular fiscal period. Deficit spending increases a government’s debt balance, and is typically financed by the issuance of government bonds. Many economists believe deficit spending to be a fiscal policy tool that can stimulate economic growth.

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Deflation

Deflation is a term used to describe a scenario in which the price for goods and services declines, or when the inflation rate falls below 0 percent.

Experts believe deflation can be caused by a number of factors, but the two predominant causes of deflation are a decline in aggregate demand and increased productivity. Declining aggregate demand will drive the price for goods and services lower as suppliers seek to offer their goods or services at a price that will incentivize consumers to buy. Increasing productivity can also cause deflation. Companies that become more efficient by minimizing production costs have the option to pass on savings to consumers with lower prices than competitors who may not yet have been able to drive the cost of production down.

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Delayed Exchange

Delayed exchange refers to a method of executing a tax deferred exchange (aka 1031 exchange or like-kind exchange) in which the exchanger or taxpayer sells

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Delivered

In real estate, delivered means the total square footage or number of properties in a particular asset class that have been completed (status changing from under construction to inventory) and received a certificate of occupancy during a given period of time. Once a certificate of occupancy has been given, the property will be deemed delivered, regardless if tenants have occupied the space or not.

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Demand

Demand is an economic principle that describer’s a consumer’s inclination to consume a particular good or service at a particular price. In theory, a price of a good is determined by the intersection of the supply and demand curves by gauging the consumer market’s appetite to consume a good or service at a price offered by suppliers.

There are two types of demand: elastic and inelastic. A good or service with elastic demand experiences a sharp decrease in quantity demanded when the price of that good rises. A good or service with inelastic demand does not experience a sharp decrease in quantity demanded when the price of that good rises. Examples of elastic goods are toys or candy, while water and medicine are examples of inelastic goods.

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Demand Curve

The demand curve is plotted on a graph with the y-axis representing price and the x-axis representing quantity. The curve goes from the top left to the bottom right. The demand curve does not move when only price and quantity are changing. For example, when prices rise, quantity drops, resulting in less demand. Additionally, the demand curve remains static. As prices decrease, quantity increases, resulting in more demand. The demand curve also remains static in this case.

Factors that can move the demand curve include changes in wages, an increase in the population, or a change in consumer preferences. If wages drop, consumers cannot purchase as much. In this case, the demand curve shifts to the left. The same happens if consumer preferences change, and there is less demand for a specific product. The curve will shift right with a population increase or an increase in wages.

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Demand Schedule

A demand schedule allows for efficient price discovery of a product or service. It plots a curve with the Y-axis representing price and the X-axis representing quantity. A table can also be used to display this data.

To understand how this works, let’s say ABC sells widgetX for $5 and widgetY for $6.50. The company is currently generating a profit. With strong demand, ABC decides to increase its prices from $5 to $7 and $6.50 to $10. It finds that customers buy far fewer products at those prices, which decreases the company’s profits. Prices need to come down, so ABC changes them from $7 to $6 and $10 to $8. With the adjusted prices, demand comes back, and so do profits. At this point, supply and demand are equal. This is called the equilibrium price. Now ABC has data that represents what happens at different price points.

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Depreciation

Depreciation, in our context, refers to the allocation of an asset’s cost over the timeframe of its “useful life”, or duration for which it will be useful

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Depreciation Recapture

Depreciation recapture is the USA Internal Revenue Service (IRS) procedure for collecting income tax on a gain realized by a taxpayer when the taxpayer disposes of an asset

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Descriptive Statistics

Descriptive statistics are used to describe a data set, whether that be the full data set or a sample. There are two categories of descriptive statistics — measures of central tendency and measures of variability or spread. Measures of central tendency look at the center of a data set while measures of variability look at how the data is dispersed.

Measures of central tendency include mean, median, and mode, which measures the most common patterns within the data. Measures of variability include standard deviation, variance, range, quartiles, absolute deviation, the minimum and maximum variables, and the kurtosis and skewness. Measures of variability help in determining the shape of the distribution.
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Direct Marketing

Direct marketing consists of advertising directly to the individual. Rather than going through traditional, broad marketing channels such as TV, the Internet, or radio, direct marketers send ads to consumers using mail, email, or texts. The ad message is often customized for the consumer, including mentioning them by name. Direct marketers are able to do this by purchasing a list of potential customers or doing lots of research to find customers. To entice the consumer, direct marketers may include a discount coupon. The ad message will also contain some call to action in an attempt to close the sale. Direct marketers are able to gauge the effectiveness of campaigns since they know who each mailer was sent to and if there was a response or not.

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Direct Tax

Direct taxes are often income taxes, which are paid annually. Direct taxes are paid by both businesses and individuals. Payments go directly to a government entity, such as the IRS, Treasury, state agency, or local municipality.

To understand direct taxes, let’s look at their mirror opposites - indirect taxes. An indirect tax is paid by consumers on goods and services. For example, taxes are paid on groceries but instead of paying a government entity, the consumer pays those taxes to the grocery store. The grocery store must then submit those taxes to the proper government entity. Additionally, a grocery store tax is a flat tax, whereas income taxes are a progressive tax.

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Disability Insurance

Disability insurance provides income to workers who become disabled and are not able to perform their work duties. The insurance is often a percentage of a worker’s income rather than the full amount. Some companies may offer disability insurance to their employees at a significant discount. Disability insurance can also be purchased by individuals, usually at a higher cost.

There are two types of disability insurance — short-term and long-term. Short-term insurance is for coverage between three to six months. Long-term insurance is for coverage greater than six months. The exact coverage period and cost will vary by the insurance company.

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Discount Rate

Discount rate is the interest rate used to determine the present value of future cash flows in discounted cash flow analysis.

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Disposable Income

Disposable income is the amount of personal income an individual has after taxes. Economists often use disposable income to figure out consumer spending and saving rates. For example, someone with a $100,000 income in the 24% tax bracket has disposable income of $100,000 - $24,000 = $76,000.

Disposable income is often confused with discretionary income. Discretionary income is calculated based on disposable income. Discretionary income is net of living expenses. Using the above example, $76,000 minus $25,000 in living expenses leaves $51,000 in discretionary income. The government uses a slightly different formula to calculate disposable income for wage garnishment purposes. It subtracts health insurance premiums and involuntary retirement plan contributions from gross income.

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Dividend

A dividend represents the distribution of a reward, usually in the form of cash, to a firm’s shareholders paid in exchange for the shareholder’s investment in the company’s equity. A dividend is managed by a company’s board of directors and typically paid from a company’s net profits regularly on a monthly, quarterly or annual basis.

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Dow Jones

The Dow Jones Industrial Average (DJIA) is a stock index composed of the 30 largest blue chip companies that trade on the NYSE and NASDAQ exchanges. The DOW, as it is sometimes referred to, is the second oldest stock index, behind the Dow Jones Transportation Average. It was created in 1896 by Charles Dow and his partner Charles Schwab. It is meant to represent the broader stock market. When market commentators say the market is up, they are generally referring to the DOW.

If an investor wants to invest in the DOW, he can buy shares of ETFs or mutual funds that track the index. Investors can also buy individual stocks within the DOW, such as Walt Disney Company, Exxon Mobil Corporation, and Microsoft Corporation.

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Down Payment

Down payment is a payment used in the context of purchasing an expensive good or service, whereby the payment is the initial upfront portion of the total amount due

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Dumping

Dumping occurs when an exporting nation lowers the price of its product below that of competitors in the importing nation. The goal of dumping is for the exporting nation to gain a competitive foothold in the importing nation. Because the importing nation’s customers can buy the imported product cheaper than other domestic products, the exporting nation creates a competitive advantage.

Dumping is legal under the World Trade Organization unless the importing nation can show that the lower-priced product is hurting domestic producers. Dumping is a type of price discrimination, which is seller (i.e., exporting nation) driven.

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Duration

Duration is a measure of the sensitivity of a fixed income security’s price to changes in interest rates.

There are generally two methods of calculating a bond or debt instrument’s duration. The first method of duration calculation is called Macaulay duration, which accounts for the present value of future bond payments and value at maturity. It is the standard by which markets calculate bond pricing. The second method of duration calculation allows an investor to know how much a bond’s price will fluctuate if the yield to maturity rises or falls by one percent.

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Early Majority

The early majority is the third and largest group of a population to adopt new-to-market goods, such as new technologies. This group makes up about 34% of the population. After watching the first two groups, "innovators" and "early adopters", use the new product, the cautious early majority jumps in. They need time to get used to a new product before making the commitment to purchase it.

The early majority is a less affluent and technologically savvy group than "innovators" and "early adopters". While they are not the first to adopt something new, they are ahead of the average person.

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Earnest Money

Earnest money is a payment made to a seller indicating a buyer’s willingness to enter into an arrangement. Typically, buyers provide earnest money to acknowledge that they are serious about a potential purchase, or that their intent to transact is “in good faith.” For the seller, earnest gives assurance that the buyer won’t backout of negotiations without valid cause. Earnest money does not obligate a buyer to transact, however, as issues with the property may be found later while being appraised or inspected.

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Easement

Easement is a non-possessory right that allows the holder to occupy or use real property that he or she may not actually own. Easement rights are limited in nature, and are restricted to whatever is “convenient or necessary” to satisfy the purposes of the easement. There are two main types of easements that are common in real property: easements appurtenant and easements in gross.

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Economic Efficiency

Economic efficiency is an economic state where all resources have been efficiently allocated to all individuals or entities. In other words, goods have been produced at the lowest cost and delivered in the most efficient manner. Waste and inefficiencies have been eliminated.

Economic efficiency is a zero-sum game. Each resource has a person it can be allocated to. If we assume a 1-1 relation between goods and consumers, taking one good away from someone and giving it to someone else results in a loss for one person and gain for the other (zero goods vs. two goods). However, the net benefit across all goods and consumers is zero.

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Economic Equilibrium

Economic equilibrium occurs when supply and demand in a market are equal. In other words, the amount of supply is equal to the amount of demand, creating a fair price for products within that market. Equilibrium can become unequal if a business begins running low on products. In this case, supply decreases while demand remains constant. Unless the business raises its prices, supply will continue to decrease, and the business will run out of products to sell, which is ultimately a revenue loss.

When there is too much supply to absorb demand, sales will slow down, inventory will become obsolete, and the business will once again begin losing revenue. To remedy the situation, prices can be lowered, creating more demand, and eventually bringing supply and demand back into equilibrium.

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Economic Growth

Economic growth is a term used to describe an increase in the production of economic goods and services over time. It is measured by an increase in the market value of goods and services produced as a result of changes in the productive capacity of capital goods, labor force, technology, and human capital.

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Economic Life

Economic life is the period an entity expects to be able to use an asset, assuming a normal amount of usage and maintenance. Different from physical life, economic life is used to determine how long a capital investment, or investment in real estate, will be useful towards the operations of a business. Economic life doesn’t just refer to a predetermined amount of time, and can be applied to other forms of measurement such as mileage. For example, one may refer to an automobiles economic life as 200,000 miles, instead of 15 years.

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Economic Profit

Economic profit divides profit into two categories: accounting and economic. Accounting profit is a financial profit. Taking the revenue minus explicit cost, you get the accounting profit. Explicit costs are raw materials and labor. Economic cost is the opportunity cost of going with one decision over others. Economic cost looks at what the company had to forego by choosing the path it did.

As an example, a person decides to invest $150,000 in starting a company. It earns $200,000 in its first year. The accounting profit is $50,000. On the other hand, the same person could have got a job as an employee making $110,000. $110,000-$50,000 = $60,000, resulting in a loss of $10,000 ($50,000-$60,000 = -$10,000). The lost $10,000 is the economic profit.

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Economic Trough

An economic trough occurs after an expansion. Troughs are a regular part of the business cycle. As an economy expands and its GDP grows, it will eventually reach a peak. The economy will then begin to contract as it slides down the backside of the peak and goes into recession. From there, the economy will hit a trough — its lowest point in the cycle. In a trough, the stock market may hit bottom, unemployment is highest, credit is difficult to obtain, and business sales and earnings are at their worst. As the economy pulls out of the trough, expansion begins again.

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Economies of Scale

Economies of scale are competitive cost advantages that firms enjoy when they achieve efficiency in production. The higher the production and the larger the business, the wider the fixed and variable costs can be spread.

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Efficient Frontier

In 1952, Nobel Laureate Harry Markowitz created the efficient frontier. It represents a set of optimal portfolios with the highest expected return for a given level of risk. These optimal portfolios are also well-diversified. 

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Elasticity

Elasticity is a concept used to measure the sensitivity of one variable to change in another variable. Typically used to gauge consumer demand for a good or service, elasticity can be measured by the change in aggregate quantity demanded following a change in price or quality.

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Encumbrance

Encumbrance is any limitation on the ownership of real property. Similar to a lien, an encumbrance can restrict both the free use and the transferability of the property until removed. Encumbrances include leases and mortgages, but are not always financially related. Encumbrances are non-possessory, holding no interest in the title of real property.

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Enterprise Resource Planning (ERP)

Enterprise resource planning (ERP) is the process used by firms to manage various portions of their business to promote efficiencies across business lines. ERP systems are used to manage all levels of a firm’s operations, from distribution and supply chain management to treasury management and payroll processing.

Enterprise resource planning allow firms to integrate all information onto a single platform and promote the sharing of information across various departments. ERP is particularly valuable for corporations that operate across diverse geographies across a country or the globe.  

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Entrepreneur (Economics)

An entrepreneur is someone who creates a company based on an idea. For the entrepreneur to succeed, the company must succeed. Meaning, it must become profitable. Entrepreneurs face many challenges in their endeavor, which include finding startup funds, identifying and selling to a viable customer base, weathering downturns, and competition.

If the business succeeds, jobs will be created and there will be a net increase to the local economy. Depending on how large the business becomes, the contribution to overall GDP can be significant. Entrepreneurship is high-risk but can also be high-reward if the entrepreneur succeeds.

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Environmental Protection Agency

The Environmental Protection Agency (EPA) is a government agency whose mission is to protect human and environmental health. It creates laws and regulations to protect the health of individuals and the environment. When any of its laws are violated, the EPA has the power to impose fines and sanctions.

The EPA is involved in a number of environmentally friendly programs. Some of these include — 1.) The prevention, control, and response to oil spills 2.) Controlling air pollution and forecasting air pollution levels 3.) Encouraging the manufacturing of more fuel-efficient vehicles.

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Equity

Equity is the value of an asset less the value of all liabilities on that asset. For example, if an investor owned a property with a market value of

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Equity Interests

Equity Interests are ownership interest in a business entity, from the concept of equity as ownership. 

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Equity Investments

Equity investments are one or more shares in the ownership of a business or corporation that are purchased by investors. In contrast to debt investments, equity investments

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Equity Load

Equity load is a commission paid by an investor on his or her investment in a security (in this case a beneficial interest in DST or TIC). The sales charge is paid to

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ERP System

An ERP system is a large software system used within enterprises. ERP stands for enterprise resource planning. An ERP allows systems within different units of a company to talk to each other. Rather than having isolated systems within each department, an ERP adds a central store of record, allowing the various company units to pass information to each other. For example, accounting may gather information in real-time from sales, marketing, and procurement, allowing it to generate various reports and forecasts for upper management.

ERP systems can be costly to install and maintain. Often expensive consultants are used for these tasks, as it takes a specialized skill set. These costs can put ERPs out of range for smaller businesses.

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Escrow Agent

Escrow agent is an entity that has fiduciary responsibilities in the transfer of property from one party to another. The escrow agent acts as a custodian of

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Escrow Funds

Escrow funds are capital held by a neutral entity in an account for the benefit of the parties of a financial arrangement whereby the funds are distributed only after certain

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Exchange Period

Exchange period, under IRC Section 1031, is when an exchanger or taxpayer executing a delayed exchange has 180 calendar days from the closing date of the sale

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Exchange Proceeds

Exchange proceeds are cash proceeds from a transfer of relinquished property held in a qualified escrow account set up by a qualified intermediary whereby the funds

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Exchange Rates

An exchange rate is a metric that quantifies the value of a country’s currency as it relates to the value of another country’s currency. Most exchange rates are considered floating rates, meaning that the rate rises and falls as a result of changes and developments on the foreign exchange market. An exchange rate tells an individual for example how many euros he or she can obtain in exchange for one U.S. dollar.

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Exchange-traded Fund (ETF)

An exchange-traded fund (ETF) is collection or basket of securities traded on a financial exchange. ETFs can be bought and sold via brokers just as stocks can. ETFs can have any type of investment concentration and offer investors exposure to thousands of stocks, commodities or bonds operating within or originated in the United States, emerging markets such as India or Brazil, Europe or any other geography. It can also focus on a specific industry or sector such as banking, telecommunications, minerals or technology.
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Exchanger

Exchanger is the taxpayer or owner of the property or properties being exchanged during a tax deferred exchange (aka 1031 exchange or like-kind exchange).

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Excise Tax

Excise tax is an indirect tax charged to a producer of a good such as oil or tobacco that is ultimately passed onto a consumer via a higher price. There are two types of excise taxes: ad valorem and specific excise tax.

Ad valorem means “according to value” in Latin. An ad valorem excise tax is levied on a product or service based on its value. Tax regulators impose ad valorem excise taxes on products and services via a fixed percentage of the price for that good or service.

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Exclusive Right Listing

Exclusive right living is a formal agreement between a seller and a real estate agent, under which the real estate agent has the sole right to sell a specified property.

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Exclusive-Agency Listing

Exclusive-agency listing is an agreement established between the seller and one real estate agent, where the seller reserves the right to sell the property on his or her own,

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Expansion Economics

An expansion within an economy is a phase of the business cycle that goes from trough to peak. It is defined by at least two consecutive quarters of GDP growth. Expansions can last a few months to over a decade.

During an expansion, life is good. Businesses are ramping back up and hiring people, unemployment is low, money is cheap to borrow, and the stock market is rising. Because borrowing costs are low, businesses and consumers borrow and spend more, fueling the expansion. The Federal Reserve will usually cut interest rates at the beginning of an expansion, reducing interest on savings and driving consumers into the stock market for better returns.

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Expense Stops

Expense stops, as stated in a commercial lease, mark the extent of operating expenses and taxes a landlord will be responsible for on a tenant-filled property. All expenses past this threshold will be held liable by the active tenant.

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Externality

Externality is an economic term that describes a third-party factor that has a positive or negative impact on an individual or firm where the third party factor has no direct control over the creation of a cost or benefit. 

The impact that positive net migration to a particular market in the United States has on property values is an example of a positive externality. The impact of an uptick in crime in a particular neighborhood has on the value of homes in that area is an example of a negative externality.

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Face Rent

Face rent is also known as Stated Rent.

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Factor Market

The factor market is also called the input market. It consists of companies that buy raw materials and labor to produce final products that are sold to consumers (output market). Factors are the purchased raw materials and labor. Consumers also participate in the factor market. When a consumer applies for a job, they are a seller, since they are selling their services. The company that hires them is a buyer since the company is buying labor, which is a factor.

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Factors of Production

Factors of production are inputs that firms use to generate economic profit during the production of a good or service. These factors include land, labor, capital, entrepreneurship, and technology. 

Firms leverage these factors to generate economic profits by generating revenues from the sale of a good or service that exceeds the costs of producing or maintaining these factors.

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Fannie Mae

Fannie Mae is the more common alias of The Federal National Mortgage Association (FNMA) is a publicly traded

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FDIC

The Federal Deposit Insurance Corporation is an independent federal agency tasked with insuring customer deposits at US banks and thrifts. Created in 1933, the FDIC seeks to maintain public confidence and stability throughout financial crises by promoting sound banking practices.

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Federal Budget

The federal budget is an itemization of the various expenses the U.S. government must pay to keep the country running on an annual basis. The budget begins on Oct. 1 and ends on Sept. 30 of the following year. Government expenditures that the budget must cover include employee salaries, military, infrastructure maintenance, subsidies, and more.

Government spending is divided into two categories: Mandatory and discretionary. Mandatory spending is designated by law and includes entitlement programs such as Medicare and social security, which consume 37% of the federal budget. Estimates for the budget are created by the Office of Management and Budget. Discretionary spending requires the approval of individuals appropriation bills.

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Federal Deposit Insurance Corporation (FDIC)

The Federal Deposit Insurance Corporation (FDIC) was created in 1933, during the Great Depression. It was created due to all the bank failures from the 1929 stock market crash. The FDIC is an independent government agency. It insures depositor funds for up to $250,000 per depositor. If a depositor has more than $250,000 to deposit, they can spread funds across multiple banks, never exceeding $250,000 per bank, to get more FDIC protection.

Banks pay for FDIC insurance. Depositors must check that a bank is a member of the FDIC. If not, their funds will not be FDIC insured. As of 2018, there were over 4,700 FDIC insured banks.

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Federal Income Tax

The U.S. federal income tax is a tax levied on the income of individuals, corporations, trusts, and other legal entities. The federal income tax is a source of revenue for the federal government. The government uses money from the tax to build and improve the country’s infrastructure, fund entitlement programs, and disaster relief.

The federal income tax is different from local and state taxes. Local taxes create revenue for cities and counties. State taxes do the same at the state level. Local and state taxes are also levied on the income and purchases of individuals and corporations. Not all states have an income tax. There are currently nine that do not.

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Federal Reserve System

The Federal Reserve System is the central bank of the United States. As the regulator of the nation’s financial systems, the Federal Reserve monitors the country’s monetary policy, regulates and seeks to institute policies that maintain the stability of the economy.

The Federal Reserve is comprised of the Board of Governors and 12 Federal Reserve Banks in cities around the United States.

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Fiat Money

Unlike a commodity currency, fiat money is not backed by any physical asset such as gold or silver. Instead, it relies on the faith people have in the currency and the government behind it. The U.S. dollar is a fiat currency and is considered the least risky currency of all the other fiat currencies. The U.S. dollar has become a global safe haven because of the U.S. government’s stability. It is backed by the "full faith and credit" of the U.S. government.

A fiat currency provides a country’s central bank with more control over the money supply — credit supply, liquidity, interest rates, and money velocity. Because central banks can print money, unless there are checks and balances, the situation can get out of control, leading to hyperinflation, as was the case in Zimbabwe and the Weimar Republic of Germany.

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FICO Score

FICO is short for Fair Isaac Corporation, the company that created the FICO score. FICO scores are used by lenders to determine an individual's creditworthiness. The score ranges from 350-800, with a higher score being better. The higher an individual’s score, the better rate they will get on a loan, and the more credit they can receive.

A FICO score is made up of five components: payment history, the current level of indebtedness, types of credit used, length of credit history, and new credit accounts. Individuals with scores above 650 generally receive good interest rates. Those with scores below 620 will struggle to get loans and good rates on those loans.

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Finance

Finance is a term that describes the study and system of money, investments and various other financial instruments. Generally, finance is broken into three categories: public finance, corporate finance and personal finance.

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Finance Charge

A finance charge is a fee that a lender earns in exchange for the issuance or extension of a line of credit. A finance charge can take the form of an origination fee on a loan or interest payments associated with the amortization of a loan. A finance charge is often a function of a borrower’s creditworthiness. Thus, the higher a borrower’s creditworthiness, the lower a finance charge may be.

Finance charges provide lenders an incentive to provide funds to consumers and businesses. Without the, lenders would receive no compensation for providing liquidity to individuals and businesses.

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Financial Institution

Financial institutions are entities such as banks, insurance companies, brokerages, and even auto dealers and the United States Postal Service. Financial institutions engage in the business of financial and monetary transactions. Banks make money by earning more interest loans than the interest paid on deposits. Brokerages make money through investor trading commissions.

Financial institutions are an important component of the economy. Given the importance of their role, they are heavily regulated by the government. Risk and other metrics critical to the proper functioning of these institutions are closely monitoring through these regulations. Part of their importance is because businesses and consumers depend on financial institutions for loans and other financial transactions.

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Financial Leverage

Financial leverage is the use of borrowed funds to acquire an investment. In the context of commercial real estate, this typically involves the use of a mortgage

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Financial Literacy

Financial literacy is the knowledge and ability to successfully manage one’s finances. The lack of financial literacy can be a detriment to a person getting ahead financially. Being financially literate consists of a number of components but generally includes financial planning, budgeting, paying off debt, investing, planning for college, estate planning, and understanding how interest is calculated. Financial literacy is also about our attitude toward money, which ultimately affects our decisions about spending and saving money. Financial literacy can be obtained by reading about personal finance and working with a financial advisor.

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Financial Planning

A financial plan is a roadmap for an individual to achieve specific financial goals. It is a long-term plan. Financial planning is the process of creating, updating, and following this roadmap. A financial plan can be created by the individual or with a financial planner.

Creating a financial plan involves an analysis of your current financial state. Adding up all of your assets and deducting all your liabilities equals your net worth. A financial plan will often ensure you have enough money for retirement and other needs years from now. For many, it should also increase their net worth. Some elements of a financial plan include retirement, tax strategies, risk management, investment strategies, and estate planning.

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Financial Statement

Financial statements are a uniform set of financial documents that are periodically released throughout the year and provide a view of a company’s financial performance. There are three financial statements. The balance sheet provides a snapshot of assets, liabilities, and equity. The income statement shows a specific period of revenue and income generation. The cash flow statement is also based on a particular timeframe and shows changes in the cash account.

Public companies must follow GAAP (Generally Accepted Accounting Principles) standards, which allows investors to assess the investment viability of a stock. Financial statements also include explanatory notes or footnotes. These go into further details about operations, acquisitions, inventory method, owner’s equity, and other more.

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FinTech

FinTech, which is short for Financial Technology, is the word used to describe new technology that is developed to automate and improve the financial and banking services sectors. Typically delivered through different algorithms and software packages on computers and smartphones, FinTech looks to help corporations, business owners, and consumers facilitate and manage their financial operations and needs.

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Fiscal Policy

Fiscal policy is a tool used by governments to influence economic conditions via spending and tax policy. Fiscal policies are implemented to influence demand for goods or services, employment, inflation or economic expansion.

A government can implement fiscal policy in the form of lower tax rates in order to influence higher levels of consumer spending. It could also promote economic expansion by building infrastructure such as public transportation or highways that will allow individuals and businesses higher levels of connectivity and ability to expand productivity.

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Fiscal Year

A fiscal year is a period of time that a firm or government uses for its accounting and preparation of financial statements. Though it is similar to a calendar year in that it is 12 months, the Internal Revenue Service (IRS) provides firms the choice to pay tax liabilities on a calendar year basis or fiscal year basis. 

The Internal Revenue Service dictates that a fiscal year consists of twelve consecutive months ending on the last day of any month with the exception of December. Thus, a firm can report its financial statements to various regulators and shareholders as of the fiscal year ending February 28. 

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Fixed Asset

A fixed asset is property, plant, and equipment that a company has owned for more than a year. These assets are listed on the company’s balance sheet. Unlike inventory, fixed assets are not resold. Fixed assets can be depreciated over their lifetime. How much depreciation is dependent on the kind of asset. For example, a $3,000 investment in equipment that has a three-year lifespan might depreciate at a rate of $1,000 per year. This means the company can expense $1,000 per year, reducing its overall net income and taxes.

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Fixed Cost

A fixed cost is one that does not fluctuate as a function of an individual’s or firm’s level of activity or usage. An example of a fixed cost is debt service. A borrower that obtains financing at a fixed interest rate is liable to pay a regular debt service on a monthly or annual schedule until the principal and interest on the loan reach zero.

A fixed cost is a critical input in a firm’s break-even analysis, which is used to determine pricing and production for the firm’s inputs and products.

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Floor Area Ratio (FAR)

FAR stands for Floor Area Ratio and is the total usable floor space in a building compared to the building’s lot size. The formula for FAR is (total floor area of building) / (gross lot area). The total building floor space may also be based on permitting. A high FAR means more density. City governments use FAR for zoning.

Usable space varies across buildings. Elevator shafts, stairwells, pillars, and other occupiable spaces do not count as usable space. Developers desire a higher FAR, as it allows for more occupancy per lot. City planners must balance the desire for more usable space with the strains it can put on a city, known as a safe load factor.

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Foreclosure

Foreclosure is the legal process by which the mortgage holder attempts to recover the balance of a loan from a borrower who has defaulted by forcing the sale

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Foreign Investment in Real Property Tax Act (FIRPTA)

Foreign Investment in Real Property Tax Act (FIRPTA) is a United States tax law that imposes a tax on foreign persons disposing of United States real property interests. To ensure tax collection from

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Form 8824

Form 8824 is a form to be filled out with an exchanger’s tax return in order to report the completion of a 1031 like-kind exchange to the IRS.

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Freddie Mac

Freddie Mac is the more commonly known alias of the Federal Home Loan Mortgage Corporation (FHLMC) which is a publicly traded

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Free Market

A free market is an economic system categorized by the free exchange of goods and services absent of government intervention. In a free market, the laws of supply and demand dictate the flow of capital and individual decision making. While no free markets exist in actuality, economists have widely concluded that a higher level of economic freedom in a particular market is highly correlated with economic well being in that region.
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Free Rider

In a community with shared resources, such as a town, there are some people who use what they pay for and others who overuse resources. Others pay nothing and still use resources. Those who use more than they’ve paid for are called free riders.

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Free Trade

Free trade is a policy that seeks to allow buyers and sellers from economies around the world to trade freely without incurring government tariffs, quotas or subsidies. Free trade is synonymous with “laissez-faire trade” which seeks to eliminate discrimination against imports and exports and allow markets to find equilibrium organically in the absence of government policies. Free trade allows the expansion of an economy’s offering of services and products by allowing the best producer the opportunity to penetrate a market regardless of its national denomination. This allows an economy to expand its product offerings, knowledge, skills and promotes specialization and the division of labor. 

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Fringe Benefits

Fringe benefits are an additional, often non-monetary compensation for employees. They can be used to help set a company apart from its competition by offering benefits that other companies don’t offer. This differentiation helps in attracting hard-to-find talent.

Some common fringe benefits include health and life insurance. Other benefits can include a gourmet cafeteria (as is the case with Google), 20 weeks paid leave (Microsoft), commuter passes, gym memberships, and more. Fringe benefits help enhance the work environment for employees, making it a more desirable place to work. For this reason, and in addition to attracting talent, fringe benefits help retain and keep employees motivated.

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Full Employment

Full employment is an economic state where labor resources are being used most efficiently. It includes the use of the most skilled and unskilled workers. Full employment does not mean that everyone within the economy is employed.

Even in a full employment economy, there are levels of unemployment, which are referred to as natural or cyclical unemployment, which is made up of two components. Frictional unemployment occurs when people are unemployed because they are moving, just starting a job search, or quitting their existing job for a better one. Structural unemployment occurs when people are unemployed because they can’t find work or companies can’t find labor.

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Fully Amortizing Loan

A fully amortizing loan is a type of loan which is completely paid off by the end of its term, given the borrower makes complete payments based on the loan’s amortization schedule. Whereas fixed rate loans will have equal payments of interest and principal over its term, debt service on floating rate loans will change as the interest rate changes. Due to the fact that all principal will be paid off, fully amortizing loans will not see a balloon payment at the end of its term, regardless of whether it is fixed or floating.

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Fund

A fund is a pool of money that is allocated for a specific investment strategy or purpose. Individuals and businesses can allocate money into a fund for various purposes, whether that be for college savings, emergencies or trusts.

With regard to corporate-level investment strategies, fund types can include mutual funds, exchange-traded funds (ETFs) or hedge funds. Different types of funds have different investment theses which attract investors with risk profiles that align strongly with a fund’s strategy.

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Game Theory

Game theory is a theoretical framework for understanding and trying to take advantage of social situations. Using game theory, actors that are competing against one another can use game theory to determine an optimal outcome. Game theory works best when actors understand what the other is likely to do. Without knowledge of the other actors, game theory can’t be applied effectively. Game theory also works for pricing competition and product releases, where the various outcomes can be laid out in a matrix format. Game theory was formally created by mathematicians John von Neumann and John Nash, and economist Oskar Morgenstern.

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GDP

Gross domestic product (GDP) is a broad measure of a nation’s productivity. GDP is defined as the monetary value of all finished goods and services a nation produces within its borders in a specific time period.

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Generally Accepted Accounting Principles (GAAP)

GAAP stands for Generally Accepted Accounting Principles, which is a set of accounting standards, procedures, and rules that public companies must follow. GAAP is issued by the Financial Accounting Standards Board (FASB). GAAP ensures that all publicly traded companies follow the same accounting reporting standards, which makes it easier for investors to compare the financials of different companies.

Some reporting areas covered by GAAP include revenue recognition, balance sheet classification, and materiality. For publicly traded companies, they must use GAAP reporting as mandated by the U.S. Securities and Exchange Commission (SEC).

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Goodwill

Goodwill is an intangible asset typically measured or recorded when one company purchases another. Goodwill is calculated by the difference between the purchase price of the company and the sum of its fair market values of assets and liabilities.

Goodwill = P – (A + L)

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Grant

Grant means to transfer an interest in real property by deed or other legal instrument.
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Grantee

Grantee is one to whom the grant is made. The recipient who will be taking title, as named in the legal document used to transfer the real estate. 

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Grants In Aid

A federal grant in aid is basically a grant awarded to states, local municipalities, or individuals. These grants are awarded for specific projects. The government places restrictions on how grant money can be spent. The government is able to monitor how grant money is used based on information from grant applications. Grant recipients are required to indicate on their application how the money will be spent. Grants are not loans and therefore do not need to be paid back. Federal grants are funded through income taxes paid to the government. Many grants require recipients to meet certain requirements and, in some cases, demographics. The pursuit of grant money is very competitive.

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Gross Income

Gross income is a term used to describe an individual’s or a business’s total earnings in a given period of time. For individuals, gross income is primarily derived from wages and salary as well as other forms of passive income such as interest, dividends, rental income and pensions.

For businesses, gross income is measured as the firm’s total revenue less its cost of goods sold. It is ultimately a measure of a firm’s profitability, measuring the firm’s ability to derive profit from the production of goods or services prior to servicing other costs related to administrative activities, taxes and other costs of running a business.

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Gross National Product (GNP)

Gross national product is a measure of the total value of goods and services produced by a nation in a given period of time by that nation’s residents. It is a sum of personal consumption expenditure (PCE), private domestic investment (PDI), government expenditure (GE), net exports (NE) of a nation and the total income earned by a nation’s residents’ income from investments outside of the country, less the income earned by investments within the domestic economy. It ultimately is a measure of the output of a country’s residents and is very similar to gross domestic product (GDP). GDP seeks to measure a similar level of activity but excludes the difference of investment income earned on investments outside the domestic economy and within it.
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Gross Proceeds

Gross proceeds are the amount that a seller receives from the sale of an asset. These proceeds include all costs and expenses. Gross proceeds are often not the taxable amount from the sale. Instead, net proceeds are used for that calculation. Net proceeds are the amount after subtracting out fees and expenses. This is the actual amount the seller takes home. Costs and expenses can be a substantial amount of gross proceeds, leading to a smaller amount of net proceeds.

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Gross Profit

Gross profit is the amount of company income remaining after subtracting the cost of goods sold (COGS). Gross profit appears on the income statement. COGS includes the cost of materials, labor, and other costs related to producing goods. Gross profit is a pre-tax number.

Gross profit can be used to measure a company’s efficiency compared to its competitors. Those with a higher gross profit have lower COGS and can be said to be more efficient. Another way to measure gross profit is gross margin, which is (revenue - COGS)/revenue. Gross margin represents gross profit as a percentage of revenue.

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Ground Lease

Ground lease is a lease of the land only, on which the tenant usually owns a building or is required to build as specified in the lease.

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Growth Rate

A growth rate is used to determine the future growth of a company or economy. Although it can also be used to calculate historical growth. To calculate the growth rate, use the following formula: [(end value) - (beg. value)] / (beg. value) all times 100. For example, if ABC started the quarter with $5MM and ended with $6MM, its quarterly growth rate would be (6-5)/5 x 100 = 20%. Typically, growth rates are expressed as an annualized value.

The growth rate is just one forecasting tool used amongst many. Companies don’t rely on growth only. Instead, they create a broader picture of growth. However, the growth rate is very important as it signifies if the company’s growth efforts are working or not.

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Hard Money Loan

Hard money loan is a type of asset-based loan financing through which a borrower receives funds secured by real property. Hard money loans are typically issued by

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Health Insurance

Health insurance is a type of policy that protects an individual from being liable for the total costs of medical and surgical expenses incurred in the event of illness or injury. Employers often include healthcare insurance in benefits packages to attract highly skilled workers. Insurance plans often require policyholders to seek care from a defined network of care providers and dictate that policyholders pay a higher percentage of costs if they obtain care from providers outside that network.

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Hedge

A hedge is an investment used to reduce an individual or entity’s risk of exposure to adverse price movements. It is an insurance policy that protects an investor against the downside risk associated with an investment in a particular security.

A car manufacturer may hedge its exposure to fluctuations in the price of steel by purchasing a futures contract that will allow it to purchase steel at a fixed price over a specific period of time. This is attractive to the car manufacturer because it is able to project a stable budget over this period of time and reduce its exposure to a spike in the price of steel, which would result in a spike in its cost of production of a vehicle.

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Hedge Fund

A hedge fund is an alternative investment vehicle in which an entity pools together resources in pursuit of alpha, the difference between an active investor’s returns and the market’s returns over a given period of time. Available only to accredited investors because of the lower level of regulation and oversight that other investment vehicles face, hedge funds typically charge a “Two and Twenty” fee structure, which is a two percent charge for the management of assets and a 20 percent charge for profits on the active management of its clients’ assets.

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Holding Company

A holding company owns other companies and allows them to perform daily operations with independence. The holding company owns the assets of each company and can step in as needed to make management decisions. Holding companies maintain control through majority voting stock within each company.

Each business may only be partially owned by the holding company. When it is 100% owned, the business is a "wholly-owned subsidiary." Because each business within the holding company is allowed to run its daily operations, management is responsible for that business’s performance.

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Holding Period

Holding period is the real or expected period of time which an investment is attributable to a particular investor.

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Holding Title

Holding title refers to the legal structure in which title to real property is owned. In the sale of real property, the title must be transferred from the seller to the buyer

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Homeowners Insurance

Homeowners insurance covers losses and damage to a resident’s home. Coverage includes external and internal losses but will vary depending on the insurance policy. When getting a mortgage, most lenders will require that the resident has homeowner’s insurance. The insurance payment is bundled into the escrow account for the mortgage company and paid with the monthly mortgage payment.

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Housing and Urban Development (HUD)

The Department of Housing and Urban Development (HUD) is a government agency that enforces the Fair Housing Act. The Fair Housing Act enforces discrimination in housing based on sex, race, color, national origin, and religion for renters and homeowners alike. HUD is meant to foster community development and homeownership.

HUD is most visible in its assistance to low-income people and those who are disadvantaged with disabilities. Through its enforcement of the Fair Housing Act, HUD ensures that landlords are not able to take advantage of people through false claims of availability, application denial, different terms, or (negative) conditions that are different from those of other tenants.

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Human Capital

Human capital is an intangible measure of the quality of a firm’s employees. The level of a firm’s human capital can be gauged by the level of education, experience and skills of its employees.

Though it cannot be measured on a balance sheet or various other financial statements, human capital is critical to a firm’s success. Higher quality human capital will translate to increased productivity and profitability. Firm’s can grow human capital by compensating employee’s fairly and/or offering attractive benefits to workers in exchange for exceptional performance.

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Identification Period

Identification period, under IRC Section 1031, an exchanger or taxpayer executing a delayed exchange has 45 calendar days from the closing date of the sale of their

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Inclusion Event

An inclusion event occurs when a QOF investor chooses to recognize some or all deferred gains. An inclusion event will occur on the earlier of the occurrence of the event or December 31, 2026, per the Proposed Regulations.
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Income

Income is money or compensation that an individual or business earns in exchange for a product or service. For individuals, income is typically earned via wages, salary or via interest, dividends or capital gains obtained from investment holdings. For businesses, income is the difference between its total revenues and expenses and taxes.

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Income Statement

An income statement is one of the key financial statements that firms use to quantify the quality of its performance and operations over a stated period of time. Also known as the profit and loss (P&L) statement, the income statement is primarily concerned with a firm’s revenues and expenses during a fiscal period. An income statement provides a snapshot of a firm’s profitability in a particular fiscal period.

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Income Tax

Income tax is a tax levied by governments on individuals and businesses and serve as a source of revenue for governments that collect them. The Internal Revenue Service (IRS) collects income taxes and enforces the tax code.

The tax code offers individuals and businesses deductions and credits, which mean that most entities do not pay taxes on all income. For example, a taxpayer may earn $70,000 in a year but also be eligible for $15,000 in deductions, which will reduce that taxpayer’s taxable liability to $55,000. Similarly, businesses are able to reduce their tax liabilities by deducting operating and capital expenses.

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Independent Trustee

Independent trustee is a trustee who is not related to the beneficiary of the trust and does not stand to inherit any property under the trust.

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Index Fund

An index fund is a type of mutual fund or exchange traded fund (ETF) that is constructed to mimic the components of a market index, such as the S&P 500. Index funds are used to achieve broad market exposure, in an effort to reduce risk specific to a particular industry or stock. Index funds allow investors to capture the performance of the stock market in aggregate, instead having to go through the research and guesswork of investing in an individual stocks or industries.

Due to the fact that index fund investments require less effort on behalf of its manager, fees are typically less than more actively managed funds. While index fund expense ratios sit around 0.05% to 0.07%, actively managed funds typically see fees within the 1% to 3% range.*

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Index Funds

An index fund is a mutual fund that mirrors a specific index, such as the S&P 500. In this case, the S&P 500 is called the index funds benchmark. Rather than buying every stock in the S&P 500, an investor can simply purchase an S&P 500 index fund, since index funds contain a similar composition of stocks found in the benchmark index.

Because index funds are passive investments, the investor only needs to buy the fund. They don’t have to worry about managing any of the investments within the fund to match the benchmark. The passive nature of index funds also means their expense ratios are fairly low. Index funds are available to individual brokerage accounts and many retirement accounts.

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Individual Retirement Account (IRA)

An individual retirement account (IRA) is a type of investment tool that individuals use to allocate funds for retirement. There are two predominant types of IRAs: traditional IRAs and Roth IRAs.

Contributions to traditional IRAs are tax-deductible, which allows individuals to claim contributions as a deduction on their tax returns. When the individual withdraws these funds from the account during retirement, these funds are taxed at an ordinary income tax rate.

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Inelastic

A good or service is inelastic when the demand for it is not affected when its prices go up or down. In contrast, an elastic good that has a 10% price increase may also see a 10% drop in demand. This good is said to have a 1:1 ratio in demand and price movements, or an elasticity of 1 or greater. Inelastic goods have an elasticity of less than 1.

If the price of a good or increases, why would a consumer continue buying that good? Why not buy a different good? Unlike elastic goods, inelastic goods do not have substitutes, so consumers have no choice but to buy at a higher price. Inelastic goods consist of medication, cigarettes, electricity, and gasoline.

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Inferior Good

Inferior goods are goods which, due either to relative or actual quality, has the demand for itself decrease as the income levels rise. In other words, inferior goods have a lower price compared to similar goods. In some cases, it can also mean the good is inferior quality. People with lower incomes tend to prefer inferior goods because they are more affordable. Examples of inferior goods vs. normal goods are:

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Infill Location

Infill Location is a real estate development site that exists within a mostly built out market. Usually located within an urban area, infill locations look to fill the few vacant lots that exist between other developments in the area. Infill locations are characterized by having a high level of demand, due to increased property values in desirable locations, with high barriers to entry.

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Inflation

Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling.

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Inflation Rate

Inflation is a percentage measurement of how quickly the price of goods is increasing. It is measured for each country — although regions within a country can experience different rates of inflation. Most countries target 2-3% annual inflation.

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Initial Public Offering

An initial public offering (IPO) is the process that a private company participates in to offer shares of its firm to the public via a stock issuance. An initial public offering provides a firm access to public capital it previously did not enjoy as a private venture. 

The process of going public allows private investors and company founders the opportunity to realize gains on their initial investment in the firm.

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Insurance

Insurance is a form of a contract or policy in which an individual or corporate entity exchanges payments for financial protection or reimbursement against losses from the insurer.

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Insurance Premium

An insurance premium is the cost of insurance paid by the insured to an insurance company. The insurance company uses premiums to cover any insurance claims. A certain amount of premiums are also invested to earn additional income for the insurance company. How much an insurance company can keep liquid is state-regulated. Insurance premiums are used with a wide variety of insurance, including health, auto, home, and life.

Insurance premiums can be paid in installments, such as monthly, semi-annually, or annually. As long as the customer continues to pay their premiums, they’ll have coverage. Coverage generally starts with the first premium payment and continues as long as there are no lapses in payment.

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Insurance Rider

An insurance rider is an additional coverage to a standard insurance policy. Insurance companies offer riders for customers who need certain coverage that isn’t available through a standard policy. An example is a standard home insurance policy but the customer also wants coverage for earthquakes. Earthquake coverage can be added as an additional feature of the policy.

Riders come at a cost. Depending on what the rider covers, the cost can be high. However, if the customer is unable to self-insure or the value of the rider is worth it than the cost can make sense.

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Intangible Property Test

In order to qualify as a QOZB, a firm must deploy a substantial portion of its intangible property in the active conduct of a trade in a QOZ, defined as at least 40 percent.
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Interest Economics

Interest can be expressed in three common ways. Two are related — simple and compound. Simple interest is a rate charged on the principle of the loan. It is calculated as simple = principle x rate x periods. The other is compound interest, which calculates interest on the principle and accumulated interest. It is calculated as compound = simple x [(1 + rate)^ time - 1]. Both can be calculated on loans or savings accounts. Compound interest is used more than simple interest.

The third form of interest is the ownership an investor can take in a company. An investor can buy a certain number of shares in a company in exchange for a percentage of ownership equal to the number of purchased shares.

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Interest Rate Risk

Interest rate risk is the risk that an investment's value will change due to a change in the level of interest rates. These changes usually have an inverse effect on

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Interest Rate Swap

An interest rate swap is a forward contract between lender and borrower that trades one stream of future debt service payments with another based on a change in the interest rate on a specified principal amount. This change in interest rate is typically done as an exchange of a floating rate for a fixed rate, or vice versa, in order to reduce the risk of fluctuating short-term interest rates, or potentially pay lower interest payments.

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Interest-Only Loan

Interest-Only loan is a loan in which, for a set period of time, the borrower pays only interest on the principal balance, with the principal balance remaining unchanged.

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Intermediary

Intermediary is an entity that acts as the middleman between two parties in a financial transaction.
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Internal Rate Of Return (IRR)

Internal rate of return is the discount rate at which the net present value of all cash flows (both positive and negative) from a project or investment equal zero.

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Internal Revenue System (IRS)

The Internal Revenue System is the government agency in the United States responsible for the collection of taxes and enforcement of tax law. Founded in 1862 by Abraham Lincoln, the IRS performs the taxation of all American individuals and firms. The IRS operates as a subsidiary government agency under the larger umbrella of the US Department of the Treasury.

 

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International Monetary Fund

The International Monetary Fund (IMF) was created after World War II to promote global economic growth, along with financial stability, encouragement of international trade, and the reduction of poverty. Countries that want to participate in the IMF’s mission need to be a member. There are currently 188 countries that are members of the IMF.

To help mitigate a financial crisis, the IMF makes loans to countries that are experiencing financial difficulty. The IMF also monitors national and global economies. It makes global economic forecasts as well, which are made available in its publication called the World Economic Outlook.

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International Monetary Fund (IMF)

The International Monetary Fund was created in 1945 as part of the Bretton Woods agreement with the mission of promoting global economic growth, financial statement, international trade and reducing poverty across the globe. The IMF currently consists of 189 member countries, each of which have a proportionate number of seats on the executive board by order of the nation’s financial importance. The IMF's mission is “to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.”

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Interpersonal Skills

Interpersonal skills are behavioral techniques that an individual employs to properly interact with others. In a professional setting, interpersonal skills are considered an individual’s ability to work well in groups with others. 

Interpersonal skills generally are defined by the person’s knowledge of social expectations. More simply, they are a measure of a person’s ability to communicate effectively with others and adapt as circumstances change.

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Intrapreneur

Intrapreneur is similar to an entrepreneur except that they work within the confines of a larger company. The intrapreneur has access to the company’s resources and doesn’t have to take the same outsized risks that an entrepreneur does. Companies that want to drive innovation will sometimes allow one person or even a group to work with autonomy as if they are their own company within a company. In this way, they are similar to an entrepreneur. The company is hoping that the unrestricted creativity and lack of influence from the larger company will provide the right environment for the next big thing.

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Intrinsic Value

Intrinsic value can have different interpretations for different people. This difference of opinion creates an opportunity for investors. One group of investors might decide that a company’s stock is worth $30 because the CEO was recently put in jail. And so the stock drops from $50 to $30, as those investors sell their shares. However, another group of investors believes the CEO being jailed has little effect on the company, as its financials are still very sound. They believe the stock is still worth $50 and begin buying shares in hopes that the price will increase back to $50.

The above is a type of fundamental quantitative but a subjective one. Discounted cash flow (DCF) is a type of quantitative fundamental analysis that provides a numeric value for a company. However, it doesn’t factor in events such as the CEO going to jail or new competitors entering the market.

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Investment Banking

Investment banking is an institutional-level banking activity provided to large companies, governments, and other entities. It is separate from commercial banking through regulations, although both may be and often are part of the same bank. Investing banking is not open to retail customers, as it does not take in deposits. Instead, it helps with mergers and acquisitions, the raising of capital, taking companies public (i.e., underwriting), and reorganizations. For these activities, investment banks command high fees.

There are two sides to investment banking — buy and sell. The buy side buys securities for mutual funds, pension funds, and more for money management purposes. The sell side creates and promotes securities to the buy side.

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Investment Portfolio

An investment portfolio is a collection of investments that can include stocks, bonds, commodities, and alternatives, among other types of asset classes. Investment portfolios can be held and managed by an individual, or held and managed by a hired financial professional for a fee, based upon the wants and needs of a particular investor.

Investment portfolios are built based upon one’s financial goals and risk tolerance. Catering towards diversification and the management of unsystematic risk in a single investment, building a portfolio of investments across various asset classes may help an investor achieve a desired level of risk-adjusted return.

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Investment Property

Investment property is a broad term for a real estate property that has been purchased with the intention of earning a return on the investment, either through

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Invisible Hand

The invisible hand is a concept discussed in Adam Smith’s 1776 book titled An Inquiry into the Nature and Causes of the Wealth of Nations. The invisible hand exist in free markets. It’s the unforeseen force that allows product and service prices to find their natural equilibrium. This is in contrast to planned economies or those that are heavily government-regulated.

An example of the invisible hand is a product that a seller prices high and is unable to sell. The seller drops the price until people begin buying. Adam Smith would say the invisible hand is at play here. It also works in the other direction. If a product is priced too low, the manufacturer will sell out unless the price is raised. In both cases, supply and demand find equilibrium.

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Joint Tenancy

Joint tenancy is ownership of real estate by two or more individuals with the right of survivorship. A right of survivorship means that

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Joint Venture

A joint venture is an arrangement between two or more entity pool resources to accomplish a particular task in a business setting. Entities in the joint venture enjoy profits and are responsible for losses, but the entity is separate from other personal or business interests.

Joint ventures are commonly formed when two businesses want to partner to enter an unfamiliar market. In real estate, a REIT specializing in multifamily development may for a joint venture with an office developer for the purpose of obtaining exposure to the office real estate market.

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Jumbo Loan

A jumbo loan is a type of mortgage that exceeds the loan limitations set by Fannie Mae and Freddie Mac. Thus, unlike a conventional loan, these type of mortgages can’t be purchased or securitized by these two entities.

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Keynesian Economics

Keynesian economics is a school of thought pioneered by British economist John Maynard Keynes during the 1930s. During the Great Depression, Keynes said the government should participate more in the economy by spending and lowering taxes. The idea was that the government would be able to offset some of the economic collapse from the Great Depression. Keynes also said the opposite should occur when the economy is booming. The government should step back by reducing its spending, raising interest rates, and increasing taxes. Fiscal and monetary policy, involving the federal government and FED, are the primary tools advocated by Keynes to better manage boom/bust cycles of the economy.

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Law of Demand

The law of demand is a lynch pin of economic theory that states a consumer will demand a lower quantity of a good or service at a higher price. Economists illustrate this law of demand along the market demand curve, which represents the sum of quantity demanded by consumers across a market for a particular good. A change in the price of a given good will result in a movement along the demand curve, but will not increase or decrease demand.
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Law of Supply

The law of supply is a microeconomic theory that states that, all other factors held equal, as the price of a good increase, the quantity of the good supplied will increase. Put simply, firms will choose to supply more of a good or service as they watch the price of said good or supply increase.

 

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Lease Co.

Lease Co. is a legal entity established to operate as a master tenant under a Delaware Statutory Trust (DST) ownership structure.

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Lease Termination Fee

Lease termination fee is a payment made by the tenant or resident to the landlord in order to legally end a lease early and not be held liable for the remaining time.

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Leasehold Improvement

A leasehold improvement is any change made to a leased property to meet the needs of the tenant. These improvements include changes to interior walls and ceilings, electrical and plumbing, and flooring, and can either be taken on by the landlord to increase the competitiveness of the space, or by the tenant themselves. In the event that the tenant undertakes the improvements, ownership of the improvements will typically revert back to the landlord once the lease has terminated, unless the tenant can remove the improvements without damaging the property.
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Letter of Credit

A letter of credit is a letter from a bank or other financial institution which guarantees an investor’s payments to a third party. If the investor does not make its payments pursuant to its agreement with the third party, the party issuing the letter of credit will be required to make the payment of fund any shortfall.

For example, imagine Company ABC is interested in purchasing 1,000 widgets from Supplier XYZ for $1 million. Given Company ABC’s weak credit rating, Supplier XYZ is worried that Company ABC will not be able to pay in full within 60 days. In order to ensure Supplier XYZ that it will make good on it payment, Company ABC gets a letter of credit from the bank stating that it will pay any outstanding liability within the set time period, with the bank acting as insurance in the event that it can’t meet its financial obligations.

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Life Insurance

Life insurance is a contract between an insurance company and a policyholder. The insurance company agrees to provide a death benefit to the policyholder’s named beneficiaries in exchange for a regular payment of a premium.

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Limited Liability

Limited liability allows investors to purchase shares in a partnership or limited liability company and limit their liability to only the amount invested. If the company fails and owes millions of dollars to creditors, investors are protected. Creditors cannot come after the investors. If shareholders did not have this protection, they would be more unwilling to invest in companies.

Owners of a business can have liability exposure. Owners who start a business may personally guarantee loans made by the business. If the business fails, these owners are liable for paying back the loan. In this scenario, any shareholders remain protected and only lose their investment.

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Limited Liability Company (LLC)

Limited liability company is a business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation.

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Line of Best Fit

The line of best fit is used to identify the trend on a scatter plot graph. This line is also called a regression line. It can be found by using the least-squares method, which results in a geometric equation for the line. The line of best fit shows a relationship between points in a scatter plot. However, if the various scatter plot data points are too scattered, a trend will not be identifiable, and the line of best fit will be unreliable.

An example of a line of best fit is plotting manager experience (x-axis) to salary (y-axis). As experience increases, so does salary. If 10 different managers at different stages in their careers are plotted, we should see a line that goes from the bottom left to the upper right.

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Line of Credit

Line of credit is a credit arrangement in which a financial institution agrees to lend money to a borrower up to a specified limit. The borrower can draw down on the

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Liquidation

Liquidation is the process of converting assets in to cash or cash equivalents. Liquidation can occur when a firm goes bankrupt and thus needs to extract cash from its assets with readily marketable value to satisfy the demands of creditors and investors, or when an investor decides to give up his or her position in a security in exchange for the cash value of that security at a given point in time.
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Liquidity

Liquidity describes the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset's price. Market liquidity refers to the extent to which a market allows assets to be bought and sold at stable prices. Cash is the most liquid asset, while real estate, fine art and collectibles are all relatively illiquid.

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List Price

In real estate, list price is the initial sale price of the property that is suggested to the market. Evaluated by a real estate agent or other real estate professional, a list price is typically determined based off a comparative market analysis. This includes taking the sale price of comparable properties in the surrounding area, and making adjustments for any differing attributes. On larger scale investment properties, one may be able to utilize the appraised value of the property to determine an acceptable list price.
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Load Factor

The multiplier to a tenant's useable space that accounts for the tenant's proportionate share of the common area (restrooms, elevator lobby, mechanical rooms, etc.)

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Loan

A loan is an agreement between and lender and a borrower in which a lender agrees to provide funding, property or material goods to a borrower in exchange for repayment of principal and interest at a later date.

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Loan-To-Value (LTV)

The ratio of a loan to the value of an asset as determined by the formula of loan balance divided by the market value of the asset securing the loan.

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Local Tenant

Local tenant, also known as a “mom-and-pop", is a small scale company with a narrow footprint typically limited to a single market.

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Margin

A margin is a term used to describe money borrowed from a brokerage to purchase securities. Investors who “buy on margin” via their brokerage borrow money from the brokerage to purchase securities. Margin is calculated as the difference between the value of securities purchased and held in the investor’s account and the dollar amount of funds lent by the broker to facilitate the purchase.

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Margin Call

In a margin account, a margin call can occur when the value of the account drops to a certain level, triggering a margin call. Some traders/investors borrow funds from a broker for investments. The broker loans the funds at a certain interest rate. Borrowing money on margin is called using leverage. Using leverage is a double-edged sword — while it can boost an investor’s returns and can also multiply their losses.

As an example, a trader has $10k in cash and borrows $10k from his broker to take a position in XYZ that is worth $20k. The trader is using 50% margin. XYZ’s stock price proceeds to immediately fall, leaving the trader with an account value of only $12k. The trader has $2k in equity and a $10k loan. However, his broker has a minimum margin requirement of 25%. 25% x $12k = $3k, which means, the trader should have $3k in equity for the position but only has $2k. The trader will receive a $1k margin call to bring his equity back up to 25%.

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Marginal Land

Marginal land is land that has little value and offers its owner little opportunity to profit from it. The term typically refers to land with poor soil or other undesirable characteristics that makes it difficult or near impossible to grow crops and thus turn a profit.

While undesirable to hold, marginal land does have some utility in certain cases. It can be used as grazing grounds for livestock. Additionally, land that is considered marginal at one time can be considered desirable at another time if conditions in that market change. For instance, if the cost of growing corn on marginal land at one point in time does not exceed the revenue associated with selling such corn, land is considered marginal. But if conditions change and the price of corn rises, this land once considered marginal now offers some utility and opportunity to profit.

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Market Analysis

Market analysis is the process of studying certain characteristics and trends of a market to determine its strengths, weaknesses, opportunities and threats.

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Market Cap

Market capitalization places a total dollar value on a company based on its outstanding shares. The market cap formula is simple — total outstanding shares multiplied by the current stock price. Market cap allows a company to be compared to competitors within its industry. Investors also use market cap as a measure of risk — a lower market cap can signify more risk.

Market cap is divided into three categories:

Small cap — $300 million to $2 billion
Mid cap — $2 billion and $10 billion
Large cap — Over $10 billion

Large cap companies are considered a low-risk staple of an investment portfolio.

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Market Failure

A market failure is created when there is a mismatch between supply and demand. For example, there might not be enough supply to meet demand and vice versa. This mismatch is generally created by external events that are outside of efficient market operations. Some trigger points might be monopolies, government policies, market information breakdowns, and supply chain breakdowns (impairment of input mobility).

An example of a market failure is a rise in minimum wages, which increases operational costs for businesses. Due to this increase, businesses hire fewer people, creating an artificial supply shortage. However, there are still plenty of laborers seeking jobs. There is now a mismatch between supply and demand.

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Market Share

Market share is the percentage of revenues earned by a company within an industry compared to total revenues within the industry. It provides a method of determining a company’s size by revenue compared to similar companies.

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Marketing Strategy

A marketing strategy defines how a company will reach potential consumers and hopefully turn them into customers. The market strategy integrates various market components together in a cohesive manner. This includes branding, messaging, product packaging, advertising, and the marketing plan.

The marketing plan is different from the marketing strategy. The marketing strategy is a vision of how the company will present itself to potential and existing customers. The market plan contains details on how to execute that vision. For example, what ads should the company run, and when should specific marketing campaigns begin. The lifespan of the marketing strategy may last across several market plans, as the marketing vision continually evolves with its customers.

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Master of Business Administration (MBA)

A Master of Business Administration (MBA) is a graduate-level college degree. Most MBA programs require some type of entrance exam to enter. MBA programs are generally two years long. An MBA prepares students to analyze the performance of a business and make suggestions on how to improve it.

Many MBA programs specialize in certain areas such as supply chain management, finance, marketing, entrepreneurship, and more. Some programs offer an abroad immersive experience that exposures students to business operations in other countries. Besides full-time programs, there are also part-time programs and executive MBAs, which target those already established in their careers.

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Medicaid

Medicaid is a government-sponsored insurance program that works to assist low-income families and individuals in costs associated with medical care (e.g. doctor visits, hospital stays, long-term medical, custodial care costs). Primarily funded by the federal government, Medicaid operates at the state level and is available only to individuals and families that meet certain criteria that include legal and permanent residency in the United States and low-income generation.

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Merger

A merger is an agreement in which two companies combine into one. Companies typically merge to create synergies, expand capabilities, reduce production costs, expand into new segments and ultimately create and/or enhance shareholder value. Whereas acquisitions are not considered voluntary, mergers are considered voluntary and require agreement on both sides. The five types of mergers are conglomerate, congeneric, market extension, horizontal and vertical.
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Mezzanine Financing

Mezzanine financing is financing that is junior in interest to the mortgage but senior in interest to equity. Mezzanine financing has a similar risk and return profile to

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Microeconomics

Microeconomics is the study of the way individuals and firms allocate scarce resources in the pursuit of productivity. It is the study of economic tendencies and the ways individuals and firms price and produce goods and services in response to shifts in demand, regime and/or production capacities.

Considered a more settled science than macroeconomics, microeconomics seeks to explain what will happen to supply and demand for a product or products in a particular market when certain conditions change with regard to the pricing and/or supply of a good or service.

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Moat

An economic moat is a term used to describe a distinct competitive advantage that a firm has over its competitors that allows it to maintain market share and profitability over an extended period of time. Firms that enjoy economic moats are typically scaled and have significant free cash flows that allow them to minimize operating expenses relative to competitors.

Strong patents, brands and licenses are items that allow firms to control and minimize operating expenses, protect market share and make duplication by competitors extremely difficult. Pharmaceutical companies with patents on specific drugs are able to charge premium prices for the products, while suppliers such as Wal-Mart are able to undercut retail competitors by offering the lowest prices on the market because of immense free cash flows and vertically integrated supply chains.

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Modern Portfolio Theory

Modern portfolio theory is based on the thought that one may be able to maximize expected return, given a level of market risk, by constructing a portfolio of assets based upon an “efficient frontier”. Modern Portfolio Theory is an extension of diversification, and is the idea that owning assets across various asset classes exposes you to less risk than owning just one. MPT argues that an investment’s risk and return profile should not be viewed in isolation, but looked at in aggregate with the portfolio as a whole.

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Monetary Policy

Monetary policy is the method by which central banks and other financial regulators govern the supply of money and interest rates in an economy to promote stable prices and low unemployment.

Monetary policy can either be classified as expansionary or contractionary, depending on the regulator’s objectives. Central banks and regulators seek to use tools such as control of money supply and interest rates to influence output, employment and prices.

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Money Laundering

Money laundering is the process of making funds generated from illegal or illicit activities appear to be legitimately sourced. For example, revenues generated from drug trafficking need to be properly laundered to avoid the attention of authorities. 

Criminal organizations will seek to deposit these funds into financial institutions, but can only do so if they can convince the bank that the funds are the product of legal operations. Money laundering in itself is also a crime.

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Money Market

The money market trades in short-term debt instruments. It includes two types of participants — commercial and retail. Commercial participants (or wholesale participants) such as financial institutions, buy short-term debt for its liquidity and returns.

Retail investors don’t buy debt directly but instead buy money market funds. These funds often have higher rates than savings accounts but are still very liquid, which makes them attractive to investors. Retail investors can also open a money market account, which is similar to a savings account but also with higher rates while still maintaining liquidity, although they do have certain restrictions.

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Money Order

A money order is a certified backed by cash and issued by a government or banking institution. They can be purchased at a number of locations for a small fee. A money order is cash on delivery. Some government agencies require particular types of payments that are backed by cash (i.e., cashier’s check and money order). Money orders must be paid with a debit card or cash. Personal checks and credit cards are not valid forms of payment since they are not backed by guaranteed cash and can be canceled after the money order has been purchased.

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Monopolistic Competition

Monopolistic competition sits between perfect competition and monopoly. There are many competitors and entry into and exit out of the market is easy (no barriers). Products created by firms are similar but through marketing, firms are able to differentiate their products. Because perfect information doesn’t exist in this market, firms are able to earn a profit in the short run.

In the long run, the story is different. Like perfect competition, companies break even over the long run. If one company experiences profit above its competition, more companies will enter the market and drive down prices. If companies begin experiencing losses, competitors will leave the market driving losses back to break even.

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Moral Hazard

A moral hazard is created when two parties enter into an agreement or contract, but there are no consequences for not following the agreement. In a formal business contract, one party may take unnecessary risks in an attempt to generate profits before the contract finalizes.

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Mortgage

Mortgage is a legal instrument that pledges the rights of ownership of an asset or property to a lender as security for a loan.

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Mortgage Broker

A mortgage broker is a type middleman that connects mortgage borrowers with mortgage lenders. Tasked with helping qualify borrowers for a loan, whether it be for a purchase mortgage of refinance, mortgage brokers help borrowers shop interest rates with potential lenders, determine appropriate loan amounts and loan-to-value ratios, and help execute the application process. Similar to a real estate broker on the buy-side, mortgage brokers are compensated by the lender through an origination fee.

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Multinational Corporation

A multinational corporation (MNC) is a company that has a presence in its home country and at least one other country. In the case of large MNCs, its assets, factories, and various facilities are spread across the globe. Being so globally distributed, the company can more efficiently conduct business in multiple countries, allowing it to serve not only those countries but surrounding regions.

For investors, MNCs offer diversification. Should one country experience political unrest or more restrictive regulations/laws, the MNC is able to shift assets and operations to other more favorable areas. A single company operating within an adverse country will have more difficulty under such conditions.

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Municipal Bonds

A municipal bond is a debt issued by a government authority, whether that be federal, state, local, or a municipality. Municipal bonds are considered low risk, which means they also pay low interest. These low-interest payments are advantageous to the issuing authority, as it reduces their cost of debt, compared to corporate bonds. The issuing authority uses its bonds to pay for capital expenditures. Non-capital expenditures (i.e., expenses) are paid for with revenue from taxes.

Most municipal bonds are exempt from federal taxes and some are exempt from state taxes. Because of these exemptions, high-income investors buy municipal bonds for their taxable accounts rather than retirement accounts. Municipal bonds are callable, which means the issuing authority can pay off the bond early, decreasing its overall yield.

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Mutual Funds

A mutual fund is an investment vehicle that pools money from the public and provides individual investors access to professional managed portfolios of equities, bonds and other security types. The value and performance of a mutual fund is thus based upon the pro rata performance of the various securities that comprise the fund.

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Net Income

Net income is the total revenue minus total expenses. It represents the amount of money remaining after all operating expenses, interest, taxes and preferred stock

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Net Operating Income (NOI)

Net operating income is a calculation used to analyze real estate investments that generate income. Net operating income equals all revenue generated from the property less

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Net Present Value (NPV)

Net present value (NPV) represents the amount by which the expected cash flows of an investment exceeds the initial amount invested.

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Net Worth

Net worth is a gauge of financial health typically defined as the difference between an individual’s or a business’s assets and liabilities. It is a measure that seeks to quantify the value of an entity’s owned assets, and the abilities of these assets to satisfy all outstanding liabilities. Ultimately, it provides insight into an entity’s financial position at a given point in time.

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Nominal GDP

Nominal GDP (gross domestic product) is a measure of economic production for a country. It includes inflation, which allows nominal GDP to use current prices or the price that products and services are sold for during that year. This is in contrast to real GDP, which does not include inflation, making nominal GDP a higher value than real GDP. Nominal GDP can be compared from quarter to quarter during a single year. To compare GDP across different years, real GDP must be used. To compare GDP across years also requires a base year.

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Non Profit Organization

A nonprofit is an organization, also called an NPO, that doesn’t pay taxes on its earnings. The IRS has granted the nonprofit a tax-exempt status because it both furthers a social cause and benefits society. Some nonprofits take in donations to help further their cause. Individuals and businesses donating to a nonprofit do not have to pay taxes on those donations. Financial documents of a nonprofit must be made public so donors can see how money is being used by the organization.

The technical IRS tax code name for a nonprofit is a 501(c)(3). 501(c)(3) status must be requested for the organization to receive its tax-exemption. Additionally, the organization has to maintain compliance through its state.

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Non-Like Kind Investment

In order to qualify as an investment in a QOZ, capital obtained by the sale of assets to provide liquidity for investment in a QOZ do not have to be like-kind assets. For example, an investor can sell stocks or precious metals and still reap the benefits of QOZ investment if he or she invests in a business or real property in a QOZ.
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Non-Recourse Loan

Non-recourse loan is a loan that limits the lender’s remedies to foreclosure of the mortgage and acquisition of the collateral or property in the event of financial default

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Nonprofit Organization

A nonprofit organization (NPO) does not pay taxes on earnings or donations used to run the business. The IRS grants NPOs a tax exemption status because they provide a social benefit. Those who make donations to an NPO, whether that be from individuals or other businesses, are able to take tax deductions on the donations. NPOs are also called 501(c)(3) organizations, after the section of the tax code that grants them tax-exempt status.

To qualify as an NPO, a business must serve the public. This can be through a service or the sale of products (or both). Financial information about the company must be made public. This allows donors to make informed decisions about whether to contribute money to the organization’s cause or not.

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Normal Good

Normal goods have a relation to a person’s income. As income increases, purchases of normal goods also increase but by a lesser amount. This is because the income elasticity of normal goods is between 0 and 1. Elasticity can be calculated by dividing the increase in demand for a good by the increase in wages. For example, a 15% increase in wages results in a 5% increase in the purchase of clothing. The income elasticity is therefore .05/.15 = 0.33.

Normal goods are different from inferior or luxury goods. Inferior goods have an income elasticity of less than 1, while luxury goods have an income elasticity that is greater than 1.

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Office Percentage

Office percentage is the percent of an industrial property’s square footage that is attributed to office usage. In scenarios where mezzanine office space been built above an area that would have otherwise been used for industrial use, the additional square footage is not factored into the total square footage of the building.

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Official Settlement Account

An official settlement account is a type of account that a central bank uses to track its reserve asset transactions with other central banks. Types of transactions include those involving gold, foreign exchange reserves, bank deposits, and special drawing rights among other items.

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Oligopoly

Oligopoly is a setting in which a small number of individuals or firms restrict outputs and/or restrict prices to derive market returns. There is no exact upper limit on the number of individuals or firms involved in an oligopoly market structure, but the actions of one firm must have significant consequences on others in order for an oligopoly to exist.

Instances of oligopoly over the course of history include steel manufacturers, oil companies and wireless carriers. In each of these environments, high costs of entry allow for a select group of producers to dominate a market and obtain significant power in the pricing and production of goods and services.

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Opec

The Organization of the Petroleum Exporting Countries (OPEC) consists of 14 of the world’s oil-exporting nations. Founded in 1960, the organization was created to coordinate distribution of one of the world’s most valuable resources and avoid massive price fluctuations that would negatively impact national and global economies.

The organization is a cartel. Created in Baghdad in 1960, founding member nations were Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. Since its inception, the organization has added nine additional members: Libya, the United Arab Emirates, Algeria, Nigeria, Ecuador, Gabon, Angola, Congo and Equatorial Guinea.

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Operating Expenses

Operating expenses are the actual costs associated with operating a property including maintenance, repairs, management, utilities, property taxes and insurance. 
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Operating Expenses, Fixed

Fixed operating expenses are the actual costs associated with operating a property that do not vary in the short term. These costs do not change with a property’s occupancy rate.

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Operating Expenses, Variable

Variable operating expenses are the actual costs associated with operating a property that vary in relation to a property’s occupancy rate or volume of some activity.

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Operations Management

Operations management is a monitoring activity with the goal of increasing operational efficiency. This means cutting out waste while maximizing revenues. As a company creates finished products from materials and labor, operational management monitors this entire process for any inefficiencies. Once inefficiencies are identified, operational managers suggest methods for eliminating them.

Some examples of company activities that operational management is concerned with include plant/factory maintenance, input procurement, inventory and raw materials shipping, inventory control, quality assurance, and equipment maintenance. As you might imagine, an operations manager must understand all facets of the business, along with local and global trends as they relate to the business.

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Opportunistic Property

Opportunistic properties exhibit the greatest risk but highest potential returns within the four major commercial real estate risk profiles

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Opportunity Cost

Opportunity cost represents the benefits an individual or business forgoes when it makes one decision in place of another. Opportunity costs are oftentimes unseen in that the consequences of choosing not to pursue one strategy in place of another, but individuals and firms can benefit greatly from working to quantify the cost of not pursuing a particular option.

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Ordinary Income

Ordinary income is the income earned from providing services or the sale of goods. Ordinary income is composed mainly of wages, salaries, commissions and

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Organizational Structure

Organizational structure allows companies to effectively communicate between internal groups and carry out activities necessary to the company’s profitability. An organization can be arranged as centralized or decentralized. In a centralized organization, information flows from the top (management) down (employees who carry out tasks). In a decentralized organization, such as a startup, information flows in many directions. There isn’t a wrong or right answer in choosing a centralized vs. decentralized structure. Younger companies may choose a decentralized structure as it allows them to move more quickly. Generally, as companies mature, they move to a centralized structure.

Having an organizational structure in place is necessary for the efficient operation of a company. Otherwise, communication can devolve into chaos, and ultimately lead to the company’s demise.

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Original Use

In order to qualify as a qualified opportunity zone business property (QOZBP), property acquired by a QOF or QOZB must satisfy the requirements of an “original use” test or a “substantial improvement” test. Original use is defined as the date on which the property is placed into service in the QOZ for purposes of depreciation or amortization. Additionally, original use and substantial improvement requirements do not apply to land.

Suppose a QOF acquires a property in a QOZ that is worth $20 million, where the actual building is worth $14 million and the land is worth $6 million. In order to meet the substantial improvement requirements, the QOF must add $14 million of basis to the property within a 30-month period in order for the property to be treated as a QOZBP. 

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Outsourcing

Outsourcing is a practice of a firm hiring third-party labor to replace services previously performed in-house. Firms typically use outsourcing to significantly reduce labor costs by enlisting the help of an outside organization that has the capacity to perform the service or production of a good at a materially lower cost. Outsourcing can also help a business to focus more directly on its core operations.

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Overdraft

An overdraft is an issuance of credit to a borrower from a lender at a time when the borrower’s account balance goes to zero. The issuance of an overdraft allows for the account holder to continue to withdraw money despite the absence of sufficient funds to cover the withdrawal. The bank or financial institution charges an interest rate and/or a fee in the event of an overdraft.

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Overhead

Overhead is a business cost that can’t be associated directly to the production of a product or service. It’s a necessary expense of operating a business. Overhead expenses include utilities to operate a building, employee salaries, insurance, rent, administration, and taxes.

Overhead expenses show up on the income statement. Overhead expenses must be factored into product costs when setting a price for a product. The difference between the product price and cost is profit. If overhead expenses are left out of a product’s cost, the result will be a smaller profit or even a loss on the product.

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Payroll Tax

Payroll taxes come out of an employee’s check. Employees do not have to worry about paying this tax directly since it is withheld by the employer. The employer then pays the tax to the IRS for Federal income, Medicare, and Social Security. Employees can see how much is paid to each category on their check stub. Self-employed individuals still pay payroll taxes in the form of self-employment tax.

Unemployment insurance is also funded by the employer and can be considered part of payroll taxes. When an employee is terminated, they can use the amount of paid unemployment insurance until they find a new job.

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Pell Grant

A pell grant is a government grant for college/university tuition and educational expenses. Unlike a loan, a pell grant does not need to be repaid. Students must apply each year for a Pell Grant through the Free Application for Federal Student Aid (FAFSA). The Pell Grant award amount is determined by the school.

To figure out how much money a student should receive, the school calculates the gap between expected family contribution (EFC) and the cost of attendance (COA). EFC is the student’s and parent’s income and the parent’s investments and assets. COA includes school tuition, expenses, and room and board. A pell grant is only one method of filling the EFC/COA gap. Other financial assistance may come in the form of government loans and work-study programs.

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Pension Plan

A pension plan is a type of retirement plan where employees contribute to a pool of funds that are used to pay for the employees’ retirement. The employer controls the type of investments in the plan, although some plans may have a voluntary investment component.

There are two types of pension retirement plans. The older type is called a defined-benefit plan. In this plan, the employer invests the pension's contributions into low-risk assets. Retirement payments are determined from a formula based on years of service and independent of the retirement fund’s performance. The more modern version is called a defined-contribution plan where employee plan contributions are usually matched by the employer. In these plans, retirement benefits are dependent on the plan’s performance.
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Per Capita GDP

Per capita GDP is measured by dividing an economy’s gross domestic product by that economy’s average population in a given year. Per capita GDP is used as a measure of the standard of living in an economy by adjusting for the size of the economy’s population. As developing nations grow, their per capita GDP will converge with the per capita GDP of developed nations.

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Percentage Lease

Percentage lease is a lease in which a tenant pays percentage rent in lieu of, or in addition to, base rent. The amount is typically determined by a formula

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Percentage Rent

Percentage rent is rent due in lieu of, or in addition to base rent that is paid to landlords based on tenant sales. A percentage rent clause is nearly exclusive to

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Perfect Competition

Perfect competition is a non-existent market state in which companies sell the same product for the same price and make just enough money to remain in business. All products are sold because there is an exact match in demand for them. Because buyers have perfect information about the products being sold, product and service prices always reflect the current market price.

In the real world, competition is not perfect. In most cases, firms do not produce the exact same product or price it the same as competitors. They are always looking for some small differences to make their product stand apart. This creates differences in prices and demand, leading to imperfect competition. However, such markets are generally liquid and highly competitive, which is about as close to perfect competition as the real world gets.

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Personal Finance

Personal finance involves learning about how to manage your money efficiently and plan for your financial future. Saving for retirement, paying off debt, saving for a house down payment, buying the right amount of insurance, and more all encompass personal finance. There’s an entire industry of services that also offer personal financial assistance. Specifically, financial advisors help people to accomplish their financial goals. Because people have unique financial situations and goals, financial advisors are still needed. However, an individual can certainly learn to manage their own money and financial future by reading online articles and books on personal finance.

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Physical Capital

Physical capital is one of the three factors of production used in the production of goods. Physical capital is used to make goods and is also reusable. This is in contrast to raw goods, which become part of the final product and are not reusable. The three factors of production include land/natural resources/real estate, human capital, and physical capital.

Physical capital falls under the category of capital expense. It includes equipment, computers, and machines. Most physical capital is paid for over several years and can be depreciated annually.

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Ponzi Scheme

A ponzi scheme is a type of investment scam. It is named after Charles Ponzi, who initiated the first ponzi scheme in the 1920s. A ponzi scheme works by having investors invest in what appears to be a legitimate investment opportunity. The scammer promises high returns. As investor money comes in, the scammer uses the investors’ own money to pay for the returns. Because investors are receiving regular payments, they don’t question the legitimacy of the operation. Behind the scenes, the scammer is pocketing/stealing most of the money. Once new investors stop coming into the scheme, the scammer can no longer pay returns to existing investors. At that point, the entire scheme collapses. Most scammers will try to disappear when they see that new investors are not available and they are running out of money to pay returns. Sometimes authorities find out about the ponzi scheme before it collapses. In many cases, though, investors lose out.

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Preferred Stock

Companies issue two types of stock - common and preferred. Common stock is what you commonly see quoted on stock exchanges and financial news websites. It is the one most people invest in. Preferred stock is similar to a bond in its behavior, and unlike common stock, does not have voting rights. However, it does pay dividends to its owners before common stock pays and will pay any dividends in arrears.

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Present Value (PV)

Present value is expected value, as of the date of valuation, resulting from discounting future amounts.

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Primary Market

The primary market is where securities are created and listed for the first time by companies, governments, and other entities looking to obtain debt or equity financing. Securities issued the primary market have never been traded before, and are typically sold by underwriting groups such as investment banks or other securities dealer, depending on the size and scope of the transaction. For example, while corporate IPOs may be underwritten in the primary market by Credit Suisse, small private placements may be underwritten by an independent broker-dealer. Once a security is purchased on the primary market, any further trades will be done through the secondary market.
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Principal, Debt

Principal, in the context of debt financing, is the initial amount of money that is borrowed in a loan. Once paid down over the course of the loan’s term through debt service payments, principal can then be referred to the amount that is still owed on the loan. The amount of interest and amortization paid annually, assuming it is not an interest-only loan, is a function of the loan’s principal amount.
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Private Equity

Private equity is a type of alternative investment class that involves deploying capital into investments or businesses that are not listed on a public exchange. In practice, private equity is used to invest in private companies, to initiate buyouts or bolster its financial statements, or to invest in privately held assets, such as real estate. Due to the fact that private equity requires placing substantial amounts of cash for long periods of time, investors are usually institutionally backed or have achieved some degree of accreditation.

For investors in operating companies, these long hold periods are due to the considerable amount of time it takes to turnaround a distressed business, or to achieve a liquidity event such as an initial public offering or sale to a public company. In real estate, longer hold periods can be attributed to value-add initiatives, predetermined lock-up periods, as well as the overall illiquidity of real estate investments.

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Private Equity Real Estate Funds

Private equity real estate funds are an asset class consisting of equity and debt investments in property. These types of funds usually involve active management from private equity entities, and follow low-risk to high-risk strategies.

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Private Placement

Private placement is an offering of securities that is not registered with the Securities and Exchange Commission (SEC) and which are sold not through a

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Private Placement Memorandum (PPM)

Private placement memorandum is an offering document for a private placement that contains relevant disclosures so that an investor may make an informed investment decision.

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Probate Court

Probate court handles the distribution of a deceased person’s assets to beneficiaries in the case that a will is not present. Having a will makes this process much easier for those left behind. Probate court is not needed when a will is available. But in the absence of a will, the state probate court must settle the affairs of the deceased. This can be a time-consuming and frustrating process for the beneficiaries. Probate also settles disputes when a will is left behind, but it is not clear how assets should be divided. Additionally, probate court is involved in conservatorships, guardianships, and committing a mentally ill person to an institution that can help them.

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Producer Price Index (PPI)

The Producer Price Index (PPI) is released monthly by the Bureau of Labor Statistics (BLS) and tracks changes to the price of end-user products. Unlike the Consumer Price Index (CPI), which tracks cost from the consumer’s view, PPI tracks cost changes from the producer’s view. It represents the average movement in selling prices from domestic production over time.

PPI uses three areas of production classification — crude (raw product), intermediate (manufactured good but not finished), and finished (what the end-user sees and pays for). The BLS tracks nearly 10,000 individual products and product groups, covering sectors such as construction, manufacturing, mining, and agriculture.

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Productivity Economics

Productivity is a measure of production efficiency. Based on the number of labor hours needed to create a product, efficiency can be determined. Productivity efficiency is expressed as output per unit of input. In other words, the amount of product created based on the amount of labor needed. If a company’s productivity is low, it may invest more in technology to bring its productivity up to a competitive level.

Companies use productivity measures to gauge their efficiency, especially against competitors. Productivity can also be used to calculate the efficiency of GDP. As well, productivity can be measured across both sectors and industries.

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Profit

Profit is defined simply as revenue less expenses. It is the financial benefit a business generates from its revenue after subtracting all expenses, costs and taxes it needs to pay to sustain operations.

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Profit Margin

Profit margin shows how efficiently a company generates profit for every one dollar of sales. Profit margin is expressed as a percentage. It is calculated by dividing net profit by sales or revenue. For example, a company that has $500,000 in sales and $100,000 in net profits has a profit margin of 100,000 / 500,000 = 20%. Profit margin allows for comparing the efficiency of profit generation between companies within the same industry. Trying to use profit margin to compare companies within different industries will be fairly useless since profit margin does not account for industry differences.

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Promissory Note

A promissory note is generally issued by a company in exchange for cash (i.e., a loan). It may also be issued by a financial institution. A promissory note is a promise to pay back a loan at a future date. Promissory notes are not as formal as loans and not as informal as IOUs. They sit somewhere in the middle. Terms of the promissory note (interest, due date, principal, signatures, etc.) are worked out between the lender and borrower.

Promissory notes can be sold to other companies. In order to do this, the note must be unconditional and salable. Such notes are also called negotiable instruments.

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Promissory Note

A promissory note is a financial instrument in which the issuer contractually agrees to pay a sum of money to a payee, either at a determinable time or at the demand of the payee. Similar to a note payable, promissory notes usually include the amount of principal that should be paid at maturity, any applicable interest rate, terms of repayment, and the date of maturity. Provisions regarding issuer default are usually included as well.

Although often issued by a financial institution, promissory notes offer businesses and individuals the opportunity to obtain financing from an entity that is not a bank. Any person or persons willing to provide financing under the agreed upon terms may become a lender under a promissory note.

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Property Management

Property management is the supervision and oversight of residential and commercial real estate. Aiming to ensure that the property being managed meets a certain operational standard, property management looks to drive income growth while preserving the value of the property. Although some real estate owner-operators deploy their own property management division to oversee their assets, property management is often done through third party companies that specialize in a particular asset class. For example, Asset Campus Housing has specialized in student housing property management since 1986.

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Property Rights

Property rights give property owners the right to do with their property what they chose. Property can be land, a car, a house, a pet, or a phone. Property can be transferred to another owner, sold, or rented out for a profit. It can also be inherited. Property can be private or public. It can be owned by an individual, business, group, or government.

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Property Type, Industrial

Industrial property type is one of the four main asset classes of commercial property, which is typically used for the purpose of production, manufacturing, or distribution.

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Property Type, Multifamily

Multifamily property types are typically considered apartment buildings that can accommodate more than one family. Condominiums can sometimes be covered in this property type as well. 

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Property Type, Office

Offices are commercial properties that are primarily used to maintain professional or business offices. Encompassing term that may include

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Property Type, Retail

Retail property types are properties used to market and sell consumer goods and services. This category includes single tenant retail buildings, small neighborhood

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Proportional Tax

A proportional tax or flat tax uses the same tax rate regardless of income. Sales taxes are considered proportional. For example, an 8% sales tax is applied for someone who earns $20,000 or $1 million. Income is not factored into proportional tax calculations.

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Prospectus

A prospectus is a formal document submitted to the Securities Exchange Commission (SEC) by a company that wishes to market a debt or equity offering to the market. Companies that wish to conduct a stock or bond sale on the market thus must file a prospectus to be submitted to the SEC that provides complete details of the investment offering.

Prospectuses typically include a brief summary of the firm’s background and financial performance, number of shares being offered, types of securities being offered and names of banks and/or financial institutions underwriting the offering.

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Protectionism

Protectionism is a policy when a government seeks to restrict international trade for the purpose of protecting its nation’s businesses and jobs from being undercut by foreign competitors. 

Critics argue that protectionism hurts a nation in the long run by decelerating economic growth and pricing inflation, while proponents of protectionism say it creates jobs by forcing firms and individuals to seek innovative technologies that streamline productive efficiencies and capacities.

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Public Good

A public good is a product that an individual can consume without reducing the availability of the public good to others. Public goods are defined by economists as non-excludable, meaning that the supply of public goods does not decrease in the event people use or consume them. Examples of public goods include law enforcement, freeways, public parks, and public transportation. Public goods are often financed by the public.
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Purchasing Managers' Index (PMI)

The Purchasing Managers’ Index is a number that describes the economic health of the manufacturing and service sectors. PMI values range from 0 to 50. A value below 50 indicates a contraction, while above 50 indicates expansion. Taken over multiple periods, PMI can represent a trend for the two sectors.

PMI is released each month. It provides insights into the economic health of the surveyed countries. In addition to the manufacturing and services sectors, information about sub-indices such as GDP, inflation, exports, capacity utilization, employment and inventories can also be obtained. PMI is considered a leading economic indicator.

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Purchasing Power

Purchasing power is defined in two different ways — one is economical, and the other is investment-related. In economic terms, purchasing power represents the value of goods or services that one unit of currency can buy. Purchasing power is degraded over time by inflation. $20 today buys fewer groceries than $20 five years ago. Additionally, a five year 6% bond bought today doesn’t factor in purchasing power five years from now.

In regards to investments, purchasing is the amount of investments that can be bought on margin. For example, if an investor has $10,000 in their account with a 50% margin, the investor can actually purchase $20,000 worth of investments.

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QOZ Timelines

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Step 1:  An investor with a recently realized capital gains elects to invest this gain into the Qualified Opportunity Fund (QOF), taking stock or a partnership interest in return.  By so doing, the investor gets to defer capital gain income.

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Qualified Client

A qualified client is an investor that is exempt from the provision of the Investment Advisers Act of 1940. This act prohibits private investment funds from charging performance-based fees. A "qualified client" meets at least one of the following parameters:

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Qualified Purchaser

"Qualified Purchaser" means, under Section 2(a)(51) of the Investment Company Act:

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Racketeering

Racketeering is term used to refer to crimes committed through extortion or coercion. Racketeers seek to obtain money or benefits from other individuals or firms via intimidation or force.

Racketeering is a term that describes a broad array of crimes and is typically associated with organized crime.

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Rate of Change

The rate of change is a measure of the speed at which a variable changes over time. With regard to a stock’s price, the rate of change can be calculated by dividing the current price of a stock by its value at a previous period in time, subtracting one and multiplying by 100. 

For example, say the price of Stock A was $100 in January and dropped to $75 by March. The rate of change for Stock A’s price in this 3-month time period would be -25%.

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Rate Of Return

Rate of return is the profit or loss on an investment over a specified period of time expressed as proportion of the investment amount.

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Real Estate Investment

Real estate investment is real estate that generates income or is otherwise intended for investment purposes rather than as a primary residence or personal use.

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Real Estate Investment Trust (REIT)

Real Estate Investment Trust is a trust or company that owns, finances, or invests in real estate and/or real estate-related assets. REITs provide individuals the ability to invest in

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Real Gross Domestic Product (GDP)

Real Gross Domestic Product (GDP) is the gross domestic output (i.e., economic output) of a country, factoring in the effects of inflation. The flip side of this coin is that nominal GDP doesn’t account for the effects of inflation and thus has a higher value. Real GDP can be thought of as nominal GDP minus inflation. While nominal GDP is used to measure quarters within the same year, real GDP measures output across years.

Real GDP provides a practical method for comparing the quantity and value of goods and services across different years. The Bureau of Economic Analysis (BEA) puts out quarterly numbers for both real and nominal GDP.

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Real Property

Real property is land, and generally whatever is erected or affixed to the land, such as buildings, fences, and including light fixtures, plumbing.
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Realized Gain

Realized gain is the amount of gain that the investor made from the sale of an asset. It is calculated as the net sales price received (sales price of the asset less any

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Recession

A recession is a macroeconomic term that represents a significant and extended period of declining or stagnant economic performance in a region or country in the world.  Investors, businesses, public entities and governments all track various indicators that can predict or signal the onset of a recession.

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Reconciliation

Reconciliation is an accounting task that compares two records to ensure they match. Any mismatch must be tracked down, as it could mean there was an accounting mistake or potential fraud. For example, comparing receipts against credit card statements is a type of reconciliation. Credit card receipt amounts should match statement amounts. Also, the number of receipts should match the number of credit card transactions on the statement. While manual reconciliation is an option, using accounting software can reduce the work required. Reconciliation is used by individuals with their personal finances and by companies of all sizes.

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Recourse Loan

Recourse is a type of loan that allows the lender to recover against the personal assets of a party in the event of default by the borrower to the extent of the

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Regressive Tax

A regressive tax is one that is applied uniformly to consumers and thus takes a higher percentage of income from low-income earners than high-income earners. It is considered the opposite of a progressive tax, which taxes higher income earners at a higher rate than lower income earners. The United States has a progressive method of taxation with regard to its income tax, but taxes levied on goods at the point of sale are considered regressive because they are applied uniformly, regardless of the individual’s level of income.

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Related Parties Transaction

Related parties transaction is a business deal or arrangement between two parties who are joined by a personal or other relationship prior to the deal.

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Rentable Square Footage

Rentable Square Footage equals the usable square footage plus the tenant’s pro rata share of the building common areas, such as

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Renters Insurance

Renters insurance is stand-alone insurance available to renters of apartments, single family homes, duplexes, condos, or townhomes. It protects the insured against property damage, liability, and provides living expenses in the event the structure becomes unlivable. The insurance does not protect the structure, which is what homeowners insurance does and is required by the landlord.

The cost of renter’s insurance is dependent on which possessions the insured is covering and how much liability protection they need. Liability protection covers what the landlord’s insurance does not. The living expense portion is often set by the insurance company and can’t be changed.

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Replacement Property

Replacement property, during a tax deferred (aka 1031 exchange or like-kind) exchange, is the property being purchased or acquired.

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Reserve Requirement

Reserve requirements are the amount of money that banks must hold to cover customer deposits and liabilities. The reserve is meant to protect banks against sudden withdrawals. Reserve requirements are set by the Fed’s board of governors. In addition to reserve requirements, the board has two other monetary tools — open market operations and the discount rate.

The reserve requirement amount is adjusted each year. Banks with deposits of less than $16 million are considered to have no reserve requirements. Those with $16 million to $122.3 million in deposits have 3%, and those with over $122.3 million have 10%.

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Retained Earnings

Retained earnings are earnings reinvested into a company to pay down debt or help it grow. A company may use its retained earnings to grow by investing in various capital projects that show a high probability of success. When a company’s stock price increases, its EPS (earnings per share) also increase. For investors, this is a sign that the company is making efficient use of its retained earnings. If EPS is not increasing, it may be a sign that the company isn’t making the most use of its retained earnings. In that case, investors will expect a dividend, given the lack of appreciation in the stock price. A company with a static or declining stock price that does not pay dividends may find it difficult to attract investors.

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Return on Equity (ROE)

Return on equity (ROE) is a percentage-based performance metric designed to determine how well a company is putting the equity investments it has gained to work in order to increase company value. In other words, it reveals if management is providing a good return on equity. It is measured by dividing net income by total company equity, and is best used when compared to the ROE of other firms within the same industry.
 
ROE is calculated by dividing annual net income by shareholder equity:

ROE = (annual) Net Income / Shareholder’s Equity

Net income is found on the income statement, while equity is found on the balance sheet. Since equity is assets minus debt, ROE shows how well a company is able to turn assets into profits. Another way to look at ROE is how many dollars of profit are you getting back for each dollar of equity put into the company.

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Return On Investment (ROI)

Return on investment measures the amount of return on an investment relative to the investment’s cost. To calculate ROI, the benefit (or return) of an investment is

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Risk Adjusted Returns

Risk adjusted returns is the measure of the return on an investment relative to the expected risk of that investment, over a specific period.

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Risk Premium

Risk premium is the minimum incremental yield by which the expected return on a risky asset must exceed the known return on a risk-free asset in order to

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Rule 144A

Introduced in 2012, Rule 144A reduces the amount of time a qualified institutional buyer must hold privately placed securities from 2 years to six months for a company that reports to the SEC or a year for a company that does not. The introduction of this rule has substantially enhanced liquidity in the market for private placement securities. The modification was introduced to acknowledge that sophisticated institutional buyers do not need the same protections an individual investor requires on the open market.
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Rule Of 72

The rule of 72 is a quick and easy mental calculation that tells you the number of years it will take for an investment to double, given some rate of interest. The calculation is based on compound interest, which calculates accumulated. The rule of 72 can be used on investments and inflation. As an example, an investment earning 8% interest will double in 72/8 = 9 years. For inflation, it tells you the number of years a dollar amount will halve, as inflation eats away at the non-invested savings. For example, 3% inflation means it will take 72/3 = 24 years to halve the value of a specific amount of savings.

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S Corporation

An S corporation is a type of corporation with less than 100 shareholders that files corporate taxes and allows a firm to pass business income, losses, deductions and credits to the firm’s shareholders. S corporations do not pay taxes at the federal level, which is particularly beneficial to a business recently established that seeks to grow. An S corporation allows a firm to characterize distributions as salary or dividends, thus allowing the S corporation to reduce its tax liability.
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S&P 500

The S&P 500 is a stock market index containing 500 US-based large cap companies. Some people consider it a better representation of U.S. companies than the Dow Jones Industrial Average, which has only 30 companies. The S&P 500 is a market-capitalization-weighted. This method gives a higher percentage allocation to companies with the largest market capitalizations. It is also a float-weighted index, which means that companies’ weights are determined by the number of available shares for that company. The S&P 500 is not the only index of its kind as there are many derivative indices available to invest and that track the S&P 500.

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Safe Harbor

Safe harbor is a statutory or regulatory provision that provides protection from a penalty or liability. In the context of a 1031 exchange, safe harbor refers to any one of

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Sales Tax

A sales tax is a tax imposed by a government on the sale of a good or service. A traditional sales tax is charged to the end user of the good or service at the point of sale, at which point the retailer will pass funds generated from the sales tax on to the appropriate government entity.

Different jurisdictions, counties and municipalities across the United States charge different sales taxes.

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Salvage Value

Salvage value is the approximate value of an asset at the end of its useful life. Using both purchase price and a given accounting method, such as straight-line or double declining balance, one can calculate the amount of annual depreciation being attributed to an asset based on its salvage value. Salvage value is an estimate, while depreciation is a calculation based off this amount.

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Sampling Error

Sampling error is a statistical metric that occurs when an analyst does not select a sample representative of the population it was chosen from. When calculations are performed on the sample, they will not coincide with results from a sample that is representative of the population. This problem can be fixed by choosing a larger sample from the population. Sampling error isn’t necessarily a bad thing and is usually present in most samples. There is generally some amount of sampling error since the sample is always only a small part of the population. The smaller the sampling error, the more representative of the population the sample will be.

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Savings Account

A savings account is an interest-bearing deposit account. It is an instrument used by individuals and businesses to deposit funds at a bank or financial institution in exchange for a moderate interest rate. Whereas checking accounts offer depositors unlimited deposits and withdrawals and a lower interest rate, savings accounts offer depositors a limited number of withdrawals and a more favorable interest rate.
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Savings Bond

Savings bonds are issued by the federal government and can be purchased by the public. Savings bonds are considered one of the safest forms of investment since they are backed by the federal government, which has virtually zero chance of defaulting. Because savings bonds are considered very safe, they also pay a low interest-rate. However, people still buy them for savings.

Savings bonds are issued as debt to the government. The interest rate of savings bonds is determined by the market. Like any debt, the government pays interest on savings bonds to the holders of those bonds (i.e., debt). Just like a person with great credit has a high credit score, the savings bonds have one of the highest credit ratings.

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Scarcity

Scarcity is a basic economic problem that describes the limited means of producers and suppliers to satisfy unlimited wants of consumers. The concept of scarcity grapples with the fact that every resource has a finite supply, whether that be time, money, water, wood or land. The study of economics is thus ultimately the study of how individuals and entities react to the scarce supplies and allocate resources to combat this limit to generate profit.

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Secondary Market

The secondary market is where existing securities are bought and sold. Once a security has been purchased by an investor in the primary market, whether it be a public or private market, all further transactions are done on the secondary market. Securities are then exchanged between interested buyers and sellers, with exchanges facilitating the trade. For example, the New York Stock Exchange is considered a secondary market for public equities. Note, that private securities may not have an active secondary market to conduct secondary trades.
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Securities And Exchange Commission (SEC)

The Securities and Exchange Commission (SEC) is responsible for enforcing securities laws created by Congress. The SEC makes sure that any individual or company trying to sell securities fully discloses information about the securities being sold. This gives investors an opportunity to evaluate the security and make an informed decision to invest in it or not.

The SEC was formed in 1934 by Congress as part of the Securities Exchange Act of 1934. The SEC also ensures securities markets function in an orderly manner. As well, it oversees corporate takeovers since any company looking to take over another must register with the SEC.

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Securitization

Securitization is a financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or

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Shareholder

A shareholder is a person or firm that owns one or more shares of a company’s stock. Individual investors or firms can purchase shares of publicly traded companies on exchanges such as the New York Stock Exchange and in turn own equity in the company.

As owners in the company, shareholders have certain rights that include the right to review a firm’s books and records, vote on key company matters, receive dividends, attend annual meetings and vote on certain matters.

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Shortage Economics

A shortage is created when the demand for a product is greater than the supply of that product. There are three conditions that can create a shortage:

- Increase in demand — occurs when consumers suddenly demand more of a product. For example, demand for a new automobile that a manufacturer cannot fulfill.
- Decrease in supply — occurs when the supply of a good drops. For example, a virus among pigs means many of them must be euthanized, creating a shortage of pork products.
- Government intervention — a government can impose a cap on prices (i.e., a price ceiling), allowing more people to buy a good than would be realized in a free market.

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Simple Interest

Simple interest is a method of calculating interest generated on a loan’s principal. It is calculated by multiplying the daily interest rate by the principal and the number of days between payments.  

Types of loans that apply simple interest are auto loans and short-term personal loans. Consumers who pay loans early or on time on a monthly basis benefit from simple interest structure because principal balance shrinks faster under this method of interest calculation.

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Simple Random Sampling

A simple random sampling is a small sample of a population. The small sample is meant to represent the larger population being sampled. Rather than sampling an entire population, which may be impractical due to the population’s size and time requirements, a small sample of people that are similar to the larger population can be sampled instead. From this small sample, facts can be derived about the larger population.

As an example, upper management wants to survey its 10,000 employees. Rather than send out 10,000 surveys, 500 can be sent to accomplish the same goal. It’s important that the sample takes into consideration any groups within the population. If 50% of the population are male and 50% are female, the sample should represent this same grouping.

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Social Responsibility

Social responsibility is a theory that argues that businesses are obligated to function in a manner that benefits the broader society, whether that be a local community, region or country. Social responsibility ultimately calls for businesses and individuals to perform their duties to act in the best interests of society and the environment. The theory asserts that businesses can achieve profitability and act in a socially responsible manner simultaneously.

 

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Social Security

Social Security is a term used to represent the United States government’s Old-Age, Survivors and Disability Insurance (OASDI) program. It is an insurance program structured such that workers pay into the program via a payroll withholding on their wages. These withholdings go into two Social Security trust funds that are used to provide benefits to individuals who currently qualify.

Individuals over the age of 62 who have paid into the system for 10 years or more qualify for Social Security retirement benefits.

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Social Security Act

The Social Security Act is a law introduced in 1935 designed to transfer wealth from the working population to older, retired people. The Social Security system is funded via a payroll tax.

The Social Security Act was introduced by President Franklin D. Roosevelt during the Great Depression in 1935. The government began collecting the tax from workers in 1937 and making payments in 1940.

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Social Security Tax

The Social Security tax, or Old-Age, Survivors, and Disability Insurance (OASDI) Program, which is the official name of social security, is a payroll tax levied against employees and employers. When you look at your next paycheck, you’ll see a deduction for FICA. FICA stands for (FICA) Federal Insurance Contributions Act, which is the fund that Social Security taxes are paid into. Self-employed people also pay into Social Security through self-employment taxes, which are mandated by the Self-Employed Contributions Act (SECA).

The 2020 Social Security tax rate is set at 12.4% and is paid 50/50 between employees and employers. Self-employed people must pay the entire 12.4% Social Security tax.

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Soft Costs

Soft costs are fees that are not directly related to labor and direct constructions costs.  Soft costs include architectural, engineering, financing, and legal fees, and

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Solvency

The solvency of a company demonstrates if the company’s ability to pay its long-term debts. Companies that cannot pay their long-term debts are insolvent. Basically, a company that owes more than it is worth is insolvent. If a company does not have enough cash on hand or from cash flows to meet its long-term obligations, it will likely default on its long-term debts without some outside assistance. If no assistance is provided, the company will have to file for bankruptcy.

The solvency ratio can be used to determine how likely a company is to pay its debts. The ratio = [(net after-tax profit) + depreciation] / (short & long-term liabilities). The ratio is expressed as a percentage. The solvency ratio should only be compared to companies within the same industry.

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Specialization Economics

When a company specializes in one category of products, it is able to focus all of its efforts on making the best product possible. Such a focus can create a competitive advantage for the company and even allow it to command higher prices, leading to higher earnings. Even if the market for a specialized product is small, this group of customers is often willing to pay more for a hard to find product.

Specialization can have disadvantages in the cost of materials and labor. Just as customers are willing to pay more for specialized products, companies may also have to pay more for rare raw materials. Talent (i.e., labor) can be difficult to attract as well as specialized skill sets are generally in demand, leading to higher wages for such employees.

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Spin Off

A spin off is the sale of an existing business from a larger business (parent company). The spin off may no longer align with the larger business’s strategy or it may be losing money. Shareholders of the parent company may receive dividends from the spin off. Shareholders may also have the ability to exchange parent company stock for the stock within the spin off at a discount.

Spin offs can perform differently in the marketplace compared to that of the parent company. Usually, the spin off will perform poorly during a weak market and very good in a stronger market. This performance will be reflected in the spin off’s stock price, which can exhibit volatile behavior.

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Stagflation

Stagflation is a term used to describe a period of slowing economic growth in which prices are increasing at a rate higher than the growth of the economy. Stagflation was widely recognized during a period in the 1970’s in which the U.S. economy experienced rapid inflation and high levels of unemployment. Previously, stagflation was widely considered by economists to be impossible, because macroeconomic theory long believed that unemployment and inflation were inversely correlated. There are many theories that have spawned since the mid-20th century that seek to identify the root cause of stagflation.

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Standard of Living

Standard of living is a measure of wealth, material goods and necessities available to various socioeconomic classes in a given area at a fixed point in time. Measurements of standard of living can be used to compare geographic areas at a fixed point in time or economic conditions in a single geographic location at various points in time.
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Stated Rent

Stated rent is the rent amount paid by the occupant to the landlord as specified in the lease. Stated rent does not account for any concessions or landlord costs

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Statistical Significance

Statistical significance tries to verify that variables related to an outcome are relevant to that outcome. For example, a finance engineer wants to know if a set of stocks will drop within the next 120 days. His model consists of several variables, such as earnings, technical indicators, and news events. Certain news events show a high correlation with stock price movement. The news event variable is, therefore, statistically significant. Any variable that is statistically significant has a high percentage (i.e., close to one). 95% and 99% are commonly used to show statistical significance.

When analyzing a population, most data analysts will use a sample size. From there, they can determine statistical significance. However, it is important that the sample accurately represents the larger population. Otherwise, any statistical significance findings may be incorrect.

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Stock

A stock is a security that represents a shareholder’s proportionate ownership in the assets and earnings of the issuing corporation. Stocks are primarily bought and sold on exchanges. In exchange for cash, stockholders obtain a piece of a corporation and a claim to that firm’s assets and earnings.

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Stock Broker

A stock broker is an individual or firm that performs securities transactions on behalf of clients in exchange for a fee. Stockbrokers often work on behalf of a brokerage firm and handle transactions both for individual investors and institutional customers in exchange for commissions.

In today’s market, stockbrokers are critical for retail investors to obtain exposure to the market, because major exchanges such as the New York Stock Exchange (NYSE) require membership to trade on its exchange. Thus, retail investors cannot trade directly through an NYSE window and must hire a broker at a member firm to perform the transaction on their behalf.

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Stock Economics

Stocks are certificates that entitle the holder of the stock to a proportionate share of ownership in a company. For example, if there are 100 shares of stock available from a company and an investor owns 10 shares, the investor owns 10% of the company. For publicly traded companies, investors hold their shares with a brokerage rather than actual certificates of paper.

Companies do not need to be public to issue shares of stock. Private companies can issue shares as well, although private shares are far less liquid than public shares. Companies generally issue stock to raise money for their business.

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Stock Market

The stock market is a general term used to describe various markets and exchanges on which individual and institutional investors buy, sell and issue share of publicly-traded companies. Also referred to as a stock exchange, the stock market is an environment where investors can interact and transact in a secure and regulated environment that exists to ensure investors have access to liquidity and a fair price to buy or sell securities.

The stock market is also a source of capital-raising for private companies seeking to offer shares of their company to the public for the first time in the form of an initial public offering (IPO).

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Stock Split

Stock splits might be seen as marketing techniques. When the price of a stock rises to high, it can become unattractive to investors. A lower price stock allows investors to hold a large number of shares. With a high priced stock, investors may be able to hold only a few shares. When a company splits its stock, it creates more shares at a lower price. However, the value of those shares is the same. For example, a $500 stock that splits 1-2 means the price will drop to $250, and each shareholder will have two shares at $250 instead of one at $500. Stocks can also do reverse splits. A $50 stock that splits 2-1 means that for every two shares, investors get one at $100.

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Subsidy

A subsidy is meant to supplement a particular adverse or burdensome economic condition for individuals and businesses. Subsidies may be provided by both governments and businesses. Governments may provide subsidies in the form of tax cuts and unemployment and welfare benefits. A business may subsidize the operations of a newly acquired business until it becomes profitable. Subsidies are meant to be a temporary relief.

Some common subsidies are tax benefits for electric car owners and payments to farmers. Electric car owners receive a tax break due to the low emissions of electric cars, which promote social benefit. Farmers may receive subsidies for not farming specific land because crop yields will result in a loss for the farmer due to depressed prices.

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Substitution Effect

The substitution effect occurs when consumers switch from a more expensive product to a similar, less expensive product. For example, if beef and chicken cost the same price, but beef begins rising in price, consumers will switch to the cheaper chicken. Chicken is a comparable alternative compared to beef and a better value.

Once the demand for beef drops, its price will drop as well. Consumers will then switch back to beef. It’s important to note that the substitution effect only works if consumers’ spending power remains the same. If consumers begin earning more, the substitution effect doesn’t impact their choice as much. Consumers are less likely to stop eating beef, even if the price rises.

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Sunk Cost

A sunk cost is money spent on a project that has not provided the desired outcome. For example, a pharmaceutical company spends $25 million in R&D on drug #1. The outcome is not what the company was hoping for. The drug does not cure a particular disease and has negative side effects. The $25 million is already spent and there is no chance of recouping that investment.

The company can spend $10 million more pursuing drug #1 or put the money towards a higher probability outcome for drug #2. The fact that $25 million has already been spent should not factor into the decision. If the company decides to continue with drug #1, in hopes of recouping some of its loss, it will have engaged in what economists call loss aversion.

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Super Political Action Committee (PAC)

A political action committee (PAC) is a group of people formed to raise money for a political campaign with the ultimate goal of influencing the election. Super PACs raise unlimited funds for the same reason but can’t donate directly to a campaign. Corporations are not allowed to contribute directly to campaigns but can funnel that money through a PAC to support the campaign. While Super PACs cannot contribute to a campaign, they can spend money in other ways that support the campaign. Once an organization raises $2,600, it is considered a PAC.

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Supply Chain

A supply chain is a network that a firm builds to perform the production of a good or service. This network includes individuals, entities, information and other resources that are pooled together to efficiently conduct the production of a good or service.

Companies monitor their supply chains ultimately to reduce variable costs and expenses at various points throughout the production of a good or service. More mature companies with high levels of working capital can choose to vertically integrate supply chains, which involves the ownership of all levels of the supply chain network involved in the production of a good or service.  

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Supply Economics

Supply is the amount of a good or service that is available to consumers. The price a consumer will pay for a good determines how much of the good’s supply is sold. In this way, consumers are able to influence prices through their demand. As consumers buy up the supply of a product without decreasing their demand, the price increases. At some point, price becomes too high, and demand falls.

Equilibrium occurs when supply and demand are equal. From the above example, as the price falls, demand increases. Eventually, the market determines the right price, and fluctuation between supply and demand slows. This is where the market begins to meet equilibrium.

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Surplus (In Economics)

A surplus is the amount of an asset or resource that is unused. For example, an inventory surplus occurs when there is unsold inventory. A budget surplus occurs when there is more income than expenses. An economic surplus has two types — consumer and producer.

A consumer surplus occurs when the price of a good or service drops below the maximum price that a consumer will pay. In that case, the consumer can buy the product with cash left over. A producer surplus occurs when the price of a good that is being sold sells for a higher price than was expected by the producer, allowing the producer to make an excess profit. Note that these two scenarios are mutually exclusive — one’s gain is the other’s loss.

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Suspended Loss

A capital loss that cannot be realized in a given tax year due to passive activity limitations. The losses are suspended until they can be netted against passive income in a future tax year. These suspended losses are a result of passive activities, and can only be carried forward. Suspended losses that are a result of the disposition of a passive interest are subject to an annual capital loss limit.

For example, if a taxpayer incurs a $10,000 suspended loss from a passive activity and participates in the activity in the following year and earns $20,000, then the suspended loss may be applied against $10,000 of the earned income, leaving the taxpayer with $10,000 of declarable income for the year.

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Swap

Swaps are most used with interest rates. When two companies with loans have different views on where interest rates are going, they may decide to swap their rates with each other. The swap is often executed by using derivatives contracts. Swaps can be used on commodities, currencies, and debt-equity structures.

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SWOT Analysis

SWOT (strengths, weaknesses, opportunities, and threats) is a type of analysis that lets companies take an assessment of their position within an industry. It is a framework that helps companies look both inward and outward.

SWOT is divided into two main areas — internal and external. The internal analysis includes strengths and opportunities, and external analysis includes weaknesses and threats. Companies should try to take advantage of strengths and opportunities while minimizing weaknesses and threats. SWOT is often performed by a group of people rather than a single person. It’s also important that the group feels they can speak freely and without consequences.

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T-Test

A T-Test is a statistical test mainly used with small groups of data. A T-Test compares the means of data points between two populations. The test checks if the two populations are significantly different. This is accomplished by using a null hypothesis. The T-Test was developed in 1908. Some of the first T-Tests were used to check the quality of stout brewed by the Guinness beer company.

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Tax Basis

Tax basis, in the context of commercial real estate, is the original purchase price or cost of an investment property plus any out-of-pocket

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Tax Credit

A tax credit reduces the amount of taxes owed to the government. Tax credits shouldn’t be confused with tax deductions and exemptions, which reduce taxable income. Tax credits provide a dollar for dollar reduction in taxes owed, making them more favorable than deductions and exemptions.

Tax credits come in three types — nonrefundable, refundable, and partially refundable. Each type of credit will reduce your taxes. A nonrefundable credit can’t create a refund, while a refundable credit can create a refund. A partially refundable credit allows, in some cases, taking part of the credit as a refund.

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Tax Deduction

Tax deductions help to reduce taxes owed at the end of the year for individuals and companies. Deductions can come in the form of expenses incurred throughout the year or as itemized deductions. If an individual adds up all of their eligible deductions for the year and they don’t equal the standard deduction, the person can elect to take the higher standard deduction.

Some examples of (itemized) deductions include healthcare, mortgage interest, property taxes, and home office and related job expenses. Up to $3,000 in losses on investments can also be used to reduce tax liability. Investment losses from the previous year can be carried forward into the current year for up to $3,000 in total investment losses.

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Tax Deferred

Tax deferred is an instance where investment earnings such as interest, dividends, or capital gains accumulate tax-free until the payment of taxes related to the

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Tax Loss Harvesting

Tax loss harvesting is a tax-saving investment strategy. By selling a losing position, the investor can offset gains, reducing their total tax bill. Tax loss harvesting is usually most effective against short-term gains, which are taxed at ordinary income tax rates. The strategy is best executed near the end of the year when the investor is more likely to know how much gain and loss they will have. From this, they can determine more accurately which stocks to close out at a loss, offsetting winners in the process. While short-term gains can have the most tax impact, tax loss harvesting can also be used with long-term gains.

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Tax-Optimized Real Estate™

Tax-Optimized Real Estate™ is a proprietary investment process that seeks to maximize an individual investor's long-term after-tax cash flow and total returns on commercial real estate within their risk tolerance and unique tax situation.

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Taxable Income

Taxable income is calculated as total revenue less total expenses and applicable deductions and exemptions that are allowed in that tax year.

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Technical Skills

Technical skills are specialized skills that are practical. They can be physical and mental labor or non-physical, such as working at a computer all day. Physical and mental labor may come in the form of an offshore diver who caps underwater oil well leaks. Contrast this to an auto worker on an assembly line who does simple, repetitive tasks. Technical skills are often not repetitive or simple.

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Tenant

Tenant is a person or entity who rents real estate from another though a lease. A tenant also may be referred to as a lessee.
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Tenant Improvements (T.I.'S)

Tenant improvements are the customized alterations a building owner makes to rental space as part of a lease agreement, in order to configure the space for the needs of that

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Tenant-In-Common (TIC) Properties

Tenant-in-common properties are any property purchased by multiple investors via a Tenant-In-Common structure. See Tenant-In-Common Investments.

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Tenants-In-Common (TIC)

Tenants-In-Common is a type of shared ownership of property, where each owner owns a share of the property. Unlike in a joint tenancy, these shares can be of unequal size,

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The Dow Jones Industrial Average (DJIA)

The Dow Jones Industrial Average (DJIA) is an index that tracks 30 publicly-owned companies that trade on the NYSE and NASDAQ. The Dow Jones Industrial Average is one of the oldest indices in the world and is generally accepted as a gauge for the momentum or lack thereof in financial markets. Named after Charles Dow, the DJIA is designed to function as a proxy for the US economy and includes firms such as ExxonMobil, Goldman Sachs and General Electric.

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The Environmental Protection Agency (EPA)

The Environmental Protection Agency (EPA) is an agency of the United States government established in December 1970 by United States President Richard Nixon. The agency was created to promote and protect human and environmental health by creating standards and laws that support this mission.

The agency was created in response to public concern with regard to the health of the natural environment and humans. The EPA regulates manufacturing, processing, distribution and use of chemicals and pollutants and enforces its standards via fines, sanctions and other various methods of penalty to actors who violate its terms.

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The Federal Insurance Contributions Act (FICA)

The Federal Insurance Contributions Act (FICA) is a US law introduced in 1935 that mandates a payroll tax on employee salaries and wages and on employer contributions to Social Security and Medicare programs.

FICA contributions are mandatory. Funds collected as a result of this payroll tax help fund programs such as Social Security and Medicare that pay for current retirees’ and other beneficiaries’ benefits.

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Time Value of Money (TVM)

Time value of money is the concept that money available at the present time is worth more than the same amount in the future due to its potential earning capacity.

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Title Company

Title company is a company that examines and insures title claims for real estate purposes. The title company verifies legal title to a property through a review of

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Title Loan

A title loan is a loan that requires an asset be used as collateral to secure the loan, such as a car or real estate property. Different from other conventional loans and mortgages an individual may apply for, title loans often do not take into account the credit rating of applicant, since repayment is guaranteed by the transfer of the asset’s title to the lender. In addition, title loans often have looser application requirements, and can be approved quickly, and in smaller denominations than other loan types.
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Trade Deficit

Countries are constantly importing and exporting goods. But when more is imported than exported, a trade deficit occurs. Trade deficits aren’t bad and can occur for a number of reasons. Countries may import more than they export because the economy is growing so quickly. Also, wealthy individuals in the country may be buying luxury items from other nations.

When a country can’t produce enough for its residents, either because of its fast growth or lack of resources, it imports what’s needed from other nations. This kind of import/export imbalance leads to a trade deficit. After a while, imports and exports come back into alignment. A result of trade deficits is an outflow of domestic currency.

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Trade Surplus

A trade surplus occurs when a country exports more than it imports. A country’s trade balance can be calculated from a simple formula: Total Value of Exports - Total Value of Imports. When a country exports more than it imports, its currency rises in value relative to other currencies. The country also has more control over its currency because less of it is leaving the country.

A trade surplus may eventually work back to equality where imports equal exports and can even result in a trade deficit, where exports are less than imports. This happens because as a country’s currency rises, it costs more for other countries to purchase its products (exports). As demand for the country’s products decreases, so do its exports and currency.

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Tragedy of the Commons

The Tragedy of the Commons is an economic problem where individual use depletes a resource, removing it from use by the general population. Because each individual is concerned only about their benefit from the use of the resource, no one individual is looking out for the welfare of the common resource. There is no investment in the well being or management for the resource’s future. Every individual pursues the use of the resource for their personal gain.

Some solutions to the Tragedy of the Commons include privatization and government intervention. Through privatization of the resource, owners will ensure the resource is taken care of, so it continues to benefit them and potentially others (for a price). Government intervention may place restrictions on the use of the resource to ensure it is not depleted.

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Tranche

Tranche is a slice of the capital stack that reflects an investor’s credit or equity ownership position in a company or project. Different tranches have different cash flows and risks involved, as well as different claims to cash distributions.

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Trust Fund

A trust fund is created by a grantor and managed by a trustee. The trust fund is a separate entity from the grantor. The trustee is a neutral third-party who manages the trust, including distributing any assets to the beneficiary. The trust can contain almost any asset, including a business, land, stocks, and cash. The trust agreement, created by the grantor, establishes what happens to assets within the trust. The agreement is carried out by the trustee. Trusts are complex and costly to set up and are usually done with the help of an attorney.

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Trust, Irrevocable

An irrevocable trust is a trust that cannot be modified or terminated without the permission of the beneficiary. The grantor effectively gives up all of his or her rights to the trust.

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Trust, Land

Land trust is a fully revocable grantor trust designed and drafted specifically to acquire, hold, manage and ultimately dispose of real estate on a confidential or

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Trust, Living

Living trust is an arrangement created during a person’s life, in which the trustee holds legal title to assets for a beneficiary.

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Trust, Real Estate

Trust, Real Estate is real property owned through a trust rather than by an individual. In this context, the exact legal form of ownership may take a variety of forms

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Turnkey Asset Management Program

A Turnkey Asset Management Program (TAMP) is a technology platform that handles much of the investment and portfolio management administration that financial advisors, investment advisors, wealth managers, broker-dealers, insurance companies, banks, law firms, and CPA firms must oversee. By outsourcing those tasks to a TAMP, managers free themselves up to focus on their core competencies and being able to meet in person with clients. TAMPs allow people who specialize in particular tasks to focus on those tasks. This keeps managers from being spread too thin.

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Underwriter

An underwriter is an individual or party that measures or quantifies another party’s level of risk in investment or business engagement in exchange for a fee. Underwriting is a service required across many different industries and sectors, from mortgage issuances to insurance policies to initial public offerings. 

In the case of a mortgage issuance, an underwriter is tasked with measuring the level of risk a financial institution assumes in agreeing to lend money to a borrower, based on the borrower’s creditworthiness and current ability to repay his or her debts.

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Unemployment Rate

The unemployment rate is a measure of the population in the labor force that is without a job as a percentage of the labor force as a whole. Considered a lagging indicator, the unemployment rate will rise or fall in response to improvements or deteriorations in economic conditions. When the economic outlook turns bleak, unemployment may rise. When an economy is growing at a steady rate as a result of consumer and business confidence, the unemployment rate will tend to fall.

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Union

A labor union is an organization formed to protect the rights of workers in specific industries. Labor unions unite workers of similar trades to obtain leverage in negotiations with employers over wages, hours, benefits and other working conditions. Unions function like democracies in that leaders and officers are elected by peers to make decisions that are beneficial to the union as a whole.

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United Nations

Formed in 1945, the United Nations is an international organization aimed at promoting political and economic cooperation among its members. The UN was formed following World War II as a vehicle aimed to ease international tensions, foster human rights and minimize risk of international conflict.

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United States Department of Agriculture (USDA)

The USDA or United States Department of Agriculture is a federal government program responsible for the management of food, agriculture, natural resources, rural development, and nutrition. Many Americans know the program for overseeing food safety. The USDA was founded in 1862, a time when 50% of Americans lived on farms.

In addition to food safety, the USDA is broad-reaching and provides services in the following areas:

- Hi-speed Internet access to rural areas
- Disaster assistance to farmers, ranchers, and rural residents
- Soil, water, and other natural resource conservation to landowners
- Wildfire prevention
- Agricultural research and statistics
- Nutrition in foods

It is also responsible for welfare programs such as food assistance for women, infants and children (WIC), and food stamps.

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Unsecured Loan

An unsecured loan is one that does not require collateral. Rather than being backed by a physical asset, the loan is only backed by the borrower’s creditworthiness. Because banks are taking on higher risks with an unsecured loan, they charge higher interest rates. These higher interest rates help to offset some of the loan losses that the bank will inevitably experience.

To receive the best-unsecured loan interest rates, borrowers must have a high credit score. Those with lower credit scores can still receive an unsecured loan but may need a cosigner, who will be responsible for the loan if the primary borrower is unable to make payments. Examples of unsecured loans include credit cards, student loans, and personal loans.

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Useable Square Footage

Useable square footage is the space that is actually occupied by a tenant, typically equal to the size of the tenant’s suite, without deductions for columns or other

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Utility Economics

Utility is a measure of how much satisfaction or use a consumer receives from a good or service. As you might imagine, there isn’t really a way to put a number on satisfaction or use, since both are fairly subjective. However, that doesn’t stop economists from trying to do so.

For example, let’s say you buy a car with a sunroof. Your friend buys the same exact car without a sunroof but pays $500 less. Economists will say that you received $500 of utility from the more expensive car. In other words, you received a specific amount of satisfaction for the additional cost.

Another form of utility is a company that provides a public service such as electricity or water.

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VA Loan

VA Loans are mortgages issued by private lenders, but partially guaranteed by the Department of Veterans Affairs. To be eligible to apply for a VA Loan one must meet one of the following criteria1:

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Vacancy Allowance

Vacancy allowance is a line item on a real estate pro forma that accounts for expected vacancy of the property. The specific allowance is dependant on the property type and

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Vacancy Rate

Vacancy rate is the percentage of all available units or space in a rental property that are vacant compared to the total supply of units or space at a particular time.

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Valuation

Valuation involves various methods for determining the value of a company and the price of its stock. Valuing a company is called fundamental analysis. Taking into account the company’s assets, profits, sales growth, and other related metrics, one can determine a value for a company. Dividing earnings by the average outstanding common shares of stock provides earnings per share (EPS), which can determine if a stock is over or undervalued, compared to competitors within its industry. Knowing that a company’s stock is overvalued can mean it is an investment to avoid, while one that is undervalued is may be a good investment.

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Valuation, Cost Approach

Cost approach valuation is a real estate valuation method that bases a property’s market value off the cost it would take to build an equivalent structure. The cost approach takes into account the cost of land plus the cost of construction, less depreciation. Similar to its counterparts, the cost approach may have other forces that prove it inaccurate. For example, if vacant land is not available to compare against, the professional valuing the property will have to derive an estimate, making the end value less accurate.

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Valuation, Income Approach (Direct Capitalization)

Valuation, income approach (direct capitalization) is a real estate appraisal method that values a property by taking net operating income and dividing it by a predetermined capitalization rate. The income valuation method is not suitable for valuing owner-occupied residential properties, as it relies on income produced as a function of the property’s overall value. The income capitalization formula is as follows:

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Valuation, Sales Comparison

Sales comparison valuation is a real estate appraisal method that estimates a property’s value by comparing it against other properties with similar attributes that have been sold recently. This approach considers all of the individual features of a property, adjusting the value to reflect a sum of all the property’s features. A sales comparison approach may be used to evaluate both commercial and residential property.

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Value-Added Tax

A value-added tax (VAT) is a consumption tax on a product as a firm adds value to it at each stage of a supply chain between the initial point of production and the sale to that consumer. It is measured as the difference between the cost of the product to the consumer and any costs of production that were untaxed. 

A value-added tax is imposed on the gross margin at various points of manufacture and distribution and is assessed at each stage. It is thus a tax on a consumer’s consumption instead of their income.

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Variable Cost

A variable cost is an expense that fluctuates in proportion to a firm’s level of production. An example of a variable cost is a utility expense, which fluctuates on a monthly or annual basis depending on the amount of electricity and/or water a firm needs in the production of its goods or services.

Variable costs differ from fixed costs, which do not change based on the production of a good or service. An example of a fixed cost is rent, which is a contractual amount to be paid on a regular schedule over a defined period of time.

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Venture Capital

Venture capital is capital that startup companies with long-term growth potential receive from investors. Investors provide venture capital to firm’s with unproven records of success because of the future possibility of sometimes rapid growth. Venture capital differs from private equity primarily in that venture capital is funding or financing provided to a firm for the first time, whereas private equity provides a more established firm an equity infusion.
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Vertical Integration

Vertical integration occurs when a firm acquires all facets of a supply chain in the pursuit of cost reduction and efficiency. 

There are two forms of integration: forward and backward integration. A firm in the business of distribution seeks forward integration by reducing transportation costs, etc., while a firm seeking backward integration is typically in manufacturing and reduces its costs in the process of combining inputs to create value in a finished product.

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W-2 Form

A W-2 form is a document that an employer provides to its employee used to file taxes with the IRS on an annual basis. Employers are required to send W-2 forms to all employees to whom they pay salaries or wages before January 31 each year, providing the employee enough time to file his or her taxes prior to tax day in April.

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War Bonds

War bonds are issued by a government to help finance military activities in times of war. These bonds do not pay interest and have a below-market-rate of return. US Government war bonds were issued at 50-75% of face value with a 10-year maturity. Because of low returns, governments must appeal to its citizens to invest in war bonds.

In 1917, the US Government issued Defense Bonds, also called Liberty Bonds, which were the predecessor to war bonds. These bonds were used to help finance US military activities during World War I. The US Government raised $21.5 billion worth of Liberty bonds. The government was able to raise $180 billion worth of war bonds during World War II.

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Warranty Deed

Warranty deed is a document that may be used to legally transfer property. A warranty deed states that the owner can legally transfer the property and that no other

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Working Capital

Working capital is the difference between a firm’s current assets (e.g. cash, accounts receivable, inventory) and current liabilities (accounts payable, other liabilities due within one year). Working capital measures a company’s liquidity and efficiency in its operations. Firms with high levels of working capital are in an advantageous position to invest in current operations or expand the capacity of future operations via capital expenditure.

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Working Capital Safe Harbor

With the adoption of a 31-month working capital safe harbor for Qualified Opportunity Fund investments in Qualified Opportunity Zone Businesses that acquire, develop, or renovate a business property in a QOZ, QOFs now have an ample amount of time to deploy capital responsibly without being disqualified as a QOZB. In order to qualify as a working capital safe harbor, a QOF must have a written plan outlining the projected uses of capital to develop a business in a QOZ or acquire, develop, or renovate a property located in a QOZ.

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World Bank

The World Bank is a financial institution established to provide financing, advisory services and research to emerging markets and developing nations in support of economic advancement in public and private markets. Its key objectives are the reduction of poverty and fostering of economic development in nations around the world by providing low-interest loans, credits and grants to foster education, healthcare and infrastructure in developing nations.

The World Bank was created in 1944 following the Bretton Woods agreement near the end of World War II at a time when many nations needed financing to rebuild following the conflict.

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What is a 1031 Exchange?

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Are DST Investments Right For Me?

Are DST Investments Right For Me?