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Home Terms and Definitions Definitions - Terms L Thru O
Definitions - Terms L Thru O PDF Print E-mail


Leverage - money borrowed to increase the return on invested capital. Leverage increases the rate of return because you are using borrowed capital rather than your own capital to procure the investment.


Light Industrial- Light industrial is characterized by a small size facility where no heavy manufacturing or specialized industrial process takes place (such as automobile manufacturing, steel mills). Light industry is usually less intensive than heavy industry, and is more consumer-oriented than business-oriented where products are produced for end users rather than use by other industries. Light industry facilities typically have less environmental impact than those associated with heavy industry, and zoning laws are more likely to permit light industry near residential areas. Office space within light industrial ranges from 3% to 25% of the total area. Buildings must include sufficient plumbing and lighting to accommodate personnel. Examples of light industrial properties may include: product assembly, home service industries, clothing manufacture, shoe making, furniture, consumer electronics, and home appliances. Light industrial is typically characterized by the absence of heavy machinery, welding operations, cranes, hazardous materials, and heavy manufacturing (eg. automobiles, steel). World Net Capital I offers commercial loans on light industrial properties at very favorable rates.


Loan-to-Value Ratio (LTV) - the amount of debt as compared to the value of the property. It is the amount of the loan ($) divided by the property value ($). The property value is typically the appraised value. In the event that the property is sold for less than the appraised value, the property values is the sales price. The equity, or down payment, the borrower can come up with will determine the LTV, and therefore will dictate what type of loan programs the investor will qualify for.


Mezzanine Financing - second or third level financing subordinated to senior debt (the principal debt on a property). Mezzanine financing is basically debt capital that gives the lender the right to convert to an ownership or equity interest in the project if the loan is not paid back in time and in full.


Mixed-Use - any real estate that has a combination of both commercial (retail, office etc.) and residential units. Common types of mixed-use properties include a ground floor retail or office unit with apartment(s) above, all within the same building. The primary use at the property must be for residential purposes in order for it to be considered Tier 1 mixed-use. The mixed-use property type can be classified in any tier depending on the percentage of the multifamily component and the type of commercial use.


Mobile Home Park - mobile home parks are considered as commercial property as long as not more than 25% of the total spaces are used for RV.


Multifamily - Structures containing five (5) or more residential units with common area facilities such as entrances, lobby, elevators, stairs, mechanical space, walks, or grounds. Units must be rented on a non-transient basis so that tenants consider their unit their permanent residence. Properties that offer weekly or monthly housing would not be considered multifamily properties.


Net Operating Income (NOI) - is the gross income of the property less direct operating costs, but excluding deductions for depreciation, amortization, and interest expense. This index is used to calculate the DSCR and will dictate what loan if any will be approved, as well as how much money the investor will have for his discretionary income at the end of the fiscal year.


Nonrecourse Loan - a term that refers to the absence of any legal claim against a seller or prior endorser. A loan where the lenders source of repayment is the income from the property financed by the loan or the collateral securing the loan. The lender assumes the credit risk and and if the borrower defaults, the lender's only recourse is to foreclose on the collateral backing the loan. The borrower is not personally liable for repayment of the loan.


Office - office buildings are buildings designed for general commercial occupancy and are normally subdivided into smaller units. Office use implies a general business use that does not include retail, residential, manufacturing, or warehouse type operations.

Last Updated on Wednesday, 11 September 2013 16:32

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