Commercial Investing for Beginners: Financial And Bond Issue Terms

No more Real Estate Definitions Please!

Greetings from the metropolis of Cedar Crest, NM.

Santa Fe, Durango, Taos are all places I love to hangout.  Durango, CO, though, is probably my favorite.  I often play with the idea of moving to Durango permanately.  Why?  Why not?  I work from home, kids are home schooled, etc….etc. What does this have to do with commercial real estate terms and definitions?  Well…it has a lot to do with the big picture of things.

Investing in commercial real estate is a tool that gives you the freedom to choose.  Being successful in commercial real estate requires a solid understanding of the language of commercial real estate.  Usually, my students decide to invest in real estate because it will give he or she the freedom to live the lifestyle they choose with the power of passive income.  Understanding and speaking the language is one of several keys to being successful in investing.  So….here we go…..

Commercial Real Estate Definitions: Financial and Bond Terms

The real estate investment arena is filled with its own language and often features terms from property law, banking concepts and feudal times. As a continued segment to help you navigate the real estate investment lingo, we will be periodically posting commonly used real estate investment terms and definitions provided by many sources including www.investorwords.com and www.creonline.com.

This posting will focus on financial and bond terms. Many real estate investors rely on bond issuance and trading for financing the acquisition or construction of property.

Above par
A bond that is above par has a current price above the face value. This happens when market interest rates fall after the bond is purchased or if the coupon paid on the bond is larger than the discount rate applicable. If a bondholder buys above par, than the bondholder will suffer a loss on maturity because the bond can only be redeemed for face value.

Anticipation Note
An anticipation note is a short-term bond that is paid off with proceeds from a later-issued larger bond.

Construction Loan Note
A construction loan note is a short-term debt instrument that matures within three years and is usually issued as a bond, to generate funds for the construction of a property. Construction note loan issuers are usually municipalities that often repay the note with proceeds from a longer-term bond.

Coupon Bond
A coupon bond is an unregistered negotiable bond that requires principal and interest are paid to the holder, regardless of the original party it was issued to. The coupons are attached to the bond and individually represent a single interest payment. The coupon holder submits a coupon to the issuer to receive payments.

Coupon Rate
The coupon rate is a bond’s, note’s or other fixed income security’s stated interest rate. The coupon rate is structured as a percentage of the security’s face value.

Full Coupon Bond
A full coupon bond is a bond with a coupon rate above or marginally below current market interest rate, while the bond sells around par value as long as the applicable rate of return is similar to the coupon rate.

Note
A note can either be:
1) A promissory note which is a legal document requiring a borrower to repay a mortgage loan with a specified interest rate during a specified time.
2) A short-term debt security with generally no more than a five-year maturity rate.

Par Value
Par value is the dollar amount assigned to a security or legal interest y the issuer. Equity securities generally have a very small par value that generally is not related to the market price. Preferred stock has a par value that is set to determine dividend payments. Debt security par value is the amount the investor receives when the bond matures.

Revenue Anticipation Note
A revenue anticipation note is a legal interest (security) issued in anticipation of future income that will be used for repayment.

Tax Anticipation Note
A municipal government or state in anticipation of future tax collections issues a tax anticipation note as a short-term debt obligation.

Thanks…and until next time……rob

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