Annual debt service refers to the complete amount paid annually on a commercial real estate loan. It encompasses both the principal and interest payments, with the specific amounts determined by the loan’s amortization schedule.
A balloon payment is a large lump sum payment due at the end of a loan term, typically associated with certain loans. It allows for lower regular payments but requires borrowers to make a substantial final payment or refinance the remaining balance.
A bridge loan is a temporary financing solution that provides borrowers with time and/or immediate funding until they secure permanent financing. Bridge loans are commonly utilized when borrowers are renovating a property or seeking a long-term commercial tenant. Their purpose is to bridge the gap between current and future financing needs, offering flexibility during transitional phases of a business venture.
The cap rate, also known as the “capitalization rate,” is a valuation method used to assess a property’s income-generating potential. Expressed as a percentage, it is determined by dividing the property’s net operating income by its purchase price. The cap rate offers insight into the property’s profitability and serves as a benchmark for comparing investment opportunities.
The taxable income resulting from selling an investment property, calculated by subtracting sales-related costs, adjusted basis, suspended losses, excess cost recovery, and recapture of straight-line cost recovery.