Glossary of Terms

Community Development Financial Institutions Fund (CDFI Fund)

Promotes economic revitalization in distressed communities throughout the United States by providing financial assistance and information to community development financial institutions (CDFI)

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Face Rent

This term is also known as Stated Rent.

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Fannie Mae

The Federal National Mortgage Association (abbreviated as FNMA and commonly referred to as “Fannie Mae”) is a publicly traded

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Federal Funds Rate

The interest rate at which banks lend reserve balances to each other on an overnight basis. Depository institutions are required by law to maintain a certain percentage of their customer’s money in reserves, causing banks to lend money back and forth to maintain an acceptable level of cash on hand. Banks will try to stay as close to the minimum reserve limit as possible, as excess reserves earn a rate of return of zero and can lose value over time due to inflation.

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Federal Home Loan Mortgage Corporation (FHLMC)

See Freddie Mac.

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Federal National Mortgage Association (FNMA)

See Fannie Mae.

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Fee Simple Ownership

The most absolute type of ownership of land. The owner has complete rights over the property, and may possess, use, and dispose of the land as he or she desires. Contrary to a leasehold ownership, an owner of a fee simple interest in a property has taken title, and owns both the land and any improvements that exist on the land indefinitely. Expect for a few unique situations, no one can legally take ownership of land from someone with pre-existing fee simple ownership.

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Financial Leverage

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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First Trust Deed

See Deed of Trust.

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First-Loss Position

First loss position is an investment’s or security’s position that will suffer the first economic loss if the underlying assets lose value or are foreclosed upon.

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Fixed Rate Loan

A type of loan where the interest rate is predetermined, and does not fluctuate during the term of the loan. Fixed rate loans allow borrowers to accurately calculate future financial obligations, in the form of both principal and interest payments.

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Fixture

Something that is permanently attached to real property.  Examples include items such as HVAC systems, ceiling lights, awnings, window shades,

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Flat Tax

Refers to a tax system that utilizes the same marginal tax rate across individual taxpayers or businesses. Opposite of the progressive tax structure, this method ensures that higher income earning entities don’t pay a proportionately higher amount of taxes. 

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FMV Basis Election

If an investor holds its interest in the QOF for 10 years or more, for purposes of determining the gain or loss the investor recognizes from the sale or exchange of such QOF interest, the investor may elect for the basis of such QOF interest to be equal to its fair market value on the date such QOF interest is sold or exchanged.

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Foreclosure

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)

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 1099

One of the several tax forms distributed by IRS, Form 1099 is used in the United States to report various types of income other than wages, salaries, and tips. The form is primarily used to report payments to independent contractors, income from rental properties, and income from interest and dividends.

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Form 8824

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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Fractional Ownership

Percentage ownership over real property. A common structure for assets that require significant pooling of capital, fractional ownership allows the costs and profits of a particular investment be split amongst the owners of title. Percent ownership is typically determined by the amount contributed to the entity’s overall capitalization.

There are two primary options one can take when considering 1031 eligible fractional ownership in investment property: Delaware Statutory Trusts (DSTs) and Tenant-In-Common investments (TICs). These structures allow smaller investors to enter into larger, investment-grade properties that were originally restricted to institutional investors, such as banks and insurance companies.

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Freddie Mac

The Federal Home Loan Mortgage Corporation (FHLMC), more commonly known as “Freddie Mac” is a publicly traded

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Future Value (FV)

Future value is a time value of money (TVM) concept that represents the expected value, as of a defined date in the future, resulting from

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Qualified Opportunity Fund Certification

To become a Qualified Opportunity Fund, an eligible taxpayer self-certifies.  As of now, no approval or action by the IRS is required.

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Qualified Opportunity Zone Fund or Qualified Opportunity Fund (“QOF”)

An investment vehicle that is set up as either a partnership or corporation for investing at least 90% of its assets in eligible property (see “Opportunity Zone Property”) that is located in an Opportunity Zone and that utilizes the investor’s gains from a prior investment (an unlimited amount) from the sale or exchange of any property (whether or not the asset sold was located in or related to a low-income community).

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