Usually written into a mortgage to allow the lender to accelerate or call the entire principal balance of the mortgage, plus accrued interest, when the payments become delinquent.
Adjusted cost base
The value of the real property established for tax purposes. It is the original cost plus any allowable capital improvements, plus certain acquisition costs, plus any mortgage interest costs, and less any depreciation taken.
Agreement of purchase and sale
A written agreement between the owner and a purchaser for the purchase of real estate on a predetermined price and terms.
Generally, those parts of the condominium or apartment building that are intended to beautify the premises and that are for the enjoyment of occupants rather than for utility.
The reduction of a loan through periodic payments in which interest is charged only on the unpaid balance.
The actual number of years it will take to repay a mortgage loan in full. This can be well in excess of the loan's term. For example, mortgages often have 5-year terms, but 25-year amortization periods.
Analysis of property
The systematic method of determining the performance of investment real estate using a property analysis form.
An estimate of the fair market value of the property, usually performed by an appraiser.
Also referred to as maintenance fee. A monthly fee that condominium owners must pay, usually including management fees, costs of common property upkeep, heating costs, garbage-removal costs, the owner's contribution to the contingency reserve fund, and so on. In the case of time-shares, the fee is normally levied annually.
A legal document signed by a homebuyer to assume responsibility for the obligations of a mortgage made by a former owner.
A financial statement that indicates the financial status of a condominium corporation or apartment building, or other revenue property, at a specific point in time by listing its assets and liabilities.
The fixed rent paid by a tenant. This is separate from any rent paid as a result of extra charges or percentage rents.
Equal payments consisting of both a principal and an interest component, paid each month during the term of the mortgage. The principal portion increases each month, while the interest portion decreases, but the total monthly payment does not change.
An annual estimate of a condominium corporation or apartment building's expenses and the revenues needed to balance those expenses. There are operating budgets and capital budgets.
The buildings included in a property. In the case of a condominium purchase, usually refers to the parts that are divided into the units and the common area.
Canada Mortgage and Housing Corporation
The federal Crown corporation that is governed by the National Housing Act. Services include providing housing information and assistance, financing, and insuring home purchase loans for lenders.
Canadian Real Estate Association
An association of members of the real estate industry, principally real estate agents and brokers.
An estimate of costs to cover replacements and improvements, and the corresponding revenues needed to balance them, usually for a 12-month period. Different from an operating budget.
Capital Cost Allowance
A depreciation method under Canadian tax law which allows for the accelerated write-off of property under various classifications.
Profit on the sale of an asset that is subject to taxation. Capital improvements. Major improvements made to a property that are written off over several years rather than expensed off in the year in which they are made.
Capital gains is the difference between the selling price of the property and the initial cost of the property.
The percentage of return on an investment when purchased on a free-and-clear or all-cash basis.
A document registered against a property, stating that someone has or believes he or she has a claim on the property.
The actual completion of the transaction acknowledging satisfaction of all legal and financial obligations between buyer and seller, and acknowledging the deed or transfer of title and disbursement of funds to appropriate parties.
The date on which the sale of a property becomes final and the new owner takes possession.
A loan backed up by a promissory note and the security of a mortgage on a property. The money borrowed may be used for the purchase of a property or for another purpose, such as home renovations or a vacation.
The area in a condominium project that is shared by all of the condominium owners, such as elevators, hallways, and parking lots.
Common area maintenance
The charge to owners to maintain the common areas, normally due on a monthly basis.
A housing unit to which the owner has title and of which the owner also owns a share in the common area (elevators, hallways, swimming pool, land, etc.).
The condominium association of unit owners incorporated under some provincial condominium legislation, automatically at the time of registration of the project. It is called a strata corporation in British Columbia. Under each of the provincial statutes, it will differ from an ordinary corporation in many respects. The condominium corporation, unlike a private business corporation, usually does not enjoy limited liability, and any judgment against the corporation for the payment of money is usually a judgment against each owner. The objects of the corporation are to manage the property and any assets of the corporation, and its duties include effecting compliance by the owners with the requirements of the Act, the declaration, the bylaws, and the rules.
The governing body of the condominium corporation, elected at the annual general meeting of the corporation.
A mortgage loan that does not exceed 75% of the appraised value or of the purchase price of the property, whichever is less. Mortgages that exceed this limit generally must be insured by mortgage insurance, such as that provided by CMHC and GEM.
The changing of a structure from some other use, such as changing a rental apartment to a condominium apartment.
Cost of equity
This is the opportunity cost that your equity could have earned if you did not invest in property.
This document conveys the title of the property to the purchaser. Different terminology may be used in different provincial jurisdictions.
The amount by which you write off the value of your real estate investment over the useful life of the investment. Does not include the value of your land.
Percentage of real estate investment as equity. An initial amount of money (in the form of cash) put forward by the purchaser. Usually it represents the difference between the purchase price and the amount of the mortgage loan.
Effective Cost of Borrowing
A rate expressed in percentage form which takes into consideration the effects of processing fees, cancellation penalties, and so on. Processing costs are fees many banks charge in order to process your mortgage, due to the extensive paperwork and efforts on their behalf.
The percentage ratio between your equity in the property and the total of cash flow plus mortgage principal reduction.
The holding of a deed or contract by a third party until fulfillment of certain stipulated conditions between the contracting parties.
The title or interest one has in property such as real estate and personal property that can, if desired, be passed on to survivors at the time of one's death.
Fair market value
The value established on real property that is determined to be one that a buyer is willing to pay and a seller is willing to sell.
A manner of owning land, in one's own name and free of any conditions, limitations, or restrictions.
Documents that show the financial status of the condominium corporation, apartment building, or other revenue property at a given point in time. Generally includes income and expense statement and balance sheet.
When a buyer does not have sufficient cash to purchase the property in question; he resorts to his bank to obtain a mortgage to cover the portion that is missing.
A legal procedure whereby the lender obtains ownership of, or right to sell, the property following default by the borrower.
A conventional mortgage loan that exceeds 75% of the appraised value or purchase price of the property. Such a mortgage must be insured.
The method of determining the overall average interest rate being paid when more than one mortgage is involved.
The temporary financing by a lender during the construction of real property for resale, or while other funds are due in.
Law of agency
The law of agency entails rules set forth when another individual is doing something on one's behalf. In real estate, a principle hires an agent to sell his house, or a principal can hire an agent to purchase a house on his behalf.
Identification of a property that is recognized by law, that identifies that property from all others.
The legal environment in real estate transactions includes two parties: principal and agent. They are governed by the law of agency.
Letter of intent
Used in place of a formal written contract with a deposit. The prospective purchaser informs the seller, in writing, that he or she is willing to enter into a formal purchase contract upon certain terms and conditions if they are accept¬able to the seller.
The use of financing or other people's money to control large pieces of real property with a small amount of invested capital.
An investment group in which one partner serves as the general partner and the others as limited partners. The general partner bears all of the financial responsibility and management of the investment. The limited partners are obligated only to the extent of their original investment plus possible personal guarantees.
Exclusive agency listings
A signed agreement by a seller in which he or she agrees to co-operate with one broker. All other brokers must go through the listing broker.
A system of agency/subagency relationships. If Broker A lists the property for sale, "A" is the vendor's agent. If Broker B sees the MLS listing and offers it for sale, "B" is the vendor's sub-agent.
A listing given to one or more brokers, none of whom have any exclusive rights or control over the sale by other brokers or the owner of the property.
The loan expressed as a percentage. In other words, it is the mortgage value that the bank is willing to give you.
Marginal tax rate
That point in income at which any additional income will be taxed at a higher tax rate.
The market environment is one of four environments that need to be analyzed in order to assess the investment climate and market conditions. Information about the market environment can be costly to obtain.
This is insurance provided by the lender as an option for the borrower. It would pay out the balance outstanding on your mortgage, in the event of your death.
Sometimes called an all-inclusive mortgage. A mortgage that includes any existing mortgages on the property. The buyer makes one large payment on the wraparound and the seller continues making the existing mortgage payments out of that payment.
A mortgage amortized over a number of years, but which requires the entire principal balance to be paid at a certain time, short of the full amortization period.
Deferred payment mortgage
A mortgage allowing for payments to be made on a deferred or delayed basis. Usually used where present income is not sufficient to make the payments.
The selling of a mortgage to another party at a discount or an amount less than the face value of the mortgage.
This is a conventional mortgage, with payments of interest and principal. Fixed terms with a fixed rate can vary from 6 months to 10 years or more.
Interest only mortgage
Payments to interest only are made. There is no principal reduction in the payment.
A mortgage placed on a property in second position to an already existing first mortgage.
This is a mortgage with an interest rate that fluctuates with the Bank of Canada interest rate. You just pay the interest, with optional pay-down on the principal. Different than a fixed-rate mortgage.
Multiple listing service
A service licensed to member real estate boards by CREA. Used to compile and disseminate information by publication and computer concerning a given property to a large number of agents and brokers.
New Home Warranty Program, which is provincial in nature and provides warranty protection for new homes.
Offer to purchase
The document that sets forth all the terms and conditions under which a purchaser offers to purchase property. This offer, when accepted by the seller, becomes a binding agreement of purchase and sale once all conditions have been removed.
An estimate of costs to operate a building or condominium complex and corresponding revenues needed to balance them, usually for a 12 month period. Different from a capital budget.
Those expenses required to operate an investment property, generally excluding mortgage payments.
A contract, with consideration, given to a potential purchaser of a property, giving him or her the right to purchase at a future date. If he or she chooses not to purchase, the deposit to the seller is forfeited.
Property in an investment property, such as carpeting, draperies, refrigerators, etc., that can be depreciated over a shorter useful life than the structure itself.
A penalty charge written into many mortgages that must be paid if the mortgage is paid off ahead of schedule.
Proportional cost of equity
This value is obtained by multiplying the cost of equity by the percentage of real estate investment as equity.
Takes into account all the costs that are capitalized to year 0 when the building is constructed and ready to be occupied.
The process of building real estate wealth by allowing appreciation and mortgage principal reduction to increase the investors' equity in a series of ever larger properties.
An individual, usually living in the building, who handles all of the day-to-day problems in the building. You know what this agency does. Its current name is Canada Revenue Agency (CRA). However, for the purpose of this book, the name Revenue Canada will be used primarily, as that name is the
The tenant in a building sells it to an investor and leases it back for a period of years.
The tax write-off possible through the depreciation benefits available on investment real estate ownership.
Time value of money
The value of a future sum of money if it is paid today. Usually there is a discount factor as you would be getting the benefit of the money today even though it is not due until sometime in the future.
This insurance covers the purchaser or vendor, in case of any defects in the property or title that existed at the time of sale, but were not known about until after the sale.
The separate account in which a lawyer or real estate broker holds funds until the real estate closing takes place or other legal disbursement is made.
Funds held in trust, either held as a deposit for the purchase of real property or to pay taxes and insurance.
Normally refers to the rental suite or that part of a condominium owned and occupied or rented by the owner.
A projected deduction from the scheduled gross income of a building to allow for loss of income due to vacant apartments or other rental units.
The property value as determined by local, regional, or provincial assessment authority.
A procedure wherein the seller (vendor) of a property provides some or all of the mortgage financing in order to sell the property. Also referred to as vendor financing.
Weighted Average Cost of Capital
This formula basically summarises and is expressed as a percentage the weighted average of both the costs of debt and equity, respectively.