Glossary

Quick definitions of key investing terms
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Glossary

Acquisition Costs

The total costs involved in buying a property, in addition to the purchase price. These usually include real estate transfer tax, title insurance, attorney or escrow fees, appraisal costs and related charges. For fractional investors, acquisition costs are built into the overall funding target.

Glossary

Annualized Return

Annualized return shows the steady percentage an investment grows per year, assuming compounding, even if it was held for several years. It allows fair comparison between investments of different lengths. For example, if $1,000 grows to $1,229 over three years, the annualized return is about 7.1% per year.

Glossary

Capital Appreciation

The increase in a property’s value over time, realized when it is sold. For example, if a property is bought at $400,000 and sold five years later at $500,000, the capital appreciation is $100,000 (25% overall), which equates to an annualized growth rate of about 4.6% per year.

Glossary

Cash Flow

The net income generated from a property after deducting operating expenses such as taxes, insurance and maintenance. Positive cash flow means the property produces surplus income, which can be distributed to investors.

Glossary

Net Yield

The annual percentage return a property generates after all expenses are deducted from rental income. Example: The property is priced at $300,000. If gross rent is $24,000 a year and expenses are $6,000, net rent is $18,000. Net yield = 18,000 ÷ 300,000 = 6%.

Glossary

Purchase Price

The agreed-upon amount paid to acquire a property, excluding additional costs such as taxes, title fees and closing expenses.

Glossary

Return on Investment (ROI)

How much you actually earn on your investment overall. It’s shown as a percentage: ROI = total profit ÷ amount invested (where profit is net rent received plus any net gain at sale). Example: if you invest $1,000 and get $1,300 back in total → profit $300 → ROI 30%.

Glossary

Total Return

How much you earn overall on your investment over the whole holding period. It adds up every rental distribution paid to you during the hold (for example, quarterly over five years) plus your share of the net gain at sale). Example: if you invest $1,000 and get $1,300 back in total → profit $300 → ROI 30%.

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Glossary
A

1031 Exchange

A tax-deferred exchange that allows an investor to sell one investment property and reinvest the proceeds into another like-kind property without immediately paying capital gains tax. The exchange must meet IRS timelines and requirements under Section 1031 of the Internal Revenue Code.

Glossary
A

AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions)

AAOIFI is an international body that sets standards for Islamic finance. Its guidance is often used by Shariah boards when reviewing investment structures to ensure compliance with Islamic principles.

Glossary
A

Accredited Investor

An investor who meets the SEC’s income or net worth thresholds and is therefore eligible to invest in certain private offerings. Individuals typically qualify with annual income over $200,000 ($300,000 jointly) or a net worth above $1 million, excluding their primary residence.

Glossary
A

Acquisition Costs

The total costs involved in buying a property, in addition to the purchase price. These usually include real estate transfer tax, title insurance, attorney or escrow fees, appraisal costs and related charges. For fractional investors, acquisition costs are built into the overall funding target.

Glossary
A

Allotment of Shares

The process by which a company (the LLC) issues new units to investors in exchange for their investment. Once units are allotted, the investor gains rights such as voting, distributions and a proportional claim on the LLC’s assets.

Glossary
A

Annual Appreciation

The percentage increase in a property’s market value over one year. For example, if a property priced at $200,000 rises to $210,000 after 12 months, it has appreciated by 5%. For investors, appreciation is one of the main drivers of potential returns, realized when the property is sold. Illustrative purposes only. Actual returns may differ and are not guaranteed.

Glossary
A

Annualized Return

Annualized return shows the steady percentage an investment grows per year, assuming compounding, even if it was held for several years. It allows fair comparison between investments of different lengths. For example, if $1,000 grows to $1,229 over three years, the annualized return is about 7.1% per year.

Glossary
A

Anti-Money Laundering (AML)

Anti-Money Laundering refers to the laws and procedures that prevent criminals from making illegal money appear legitimate. In the US, AML compliance follows FinCEN regulations and includes verifying investor identity, checking the source of funds, monitoring transactions, and reporting suspicious activity. In real estate investing, AML ensures all money used to buy property shares comes from legal sources.

Glossary
A

Appraisal

An independent valuation of a property’s market value prepared by a licensed appraiser. Appraisals use comparable sales, income and cost methods to determine fair market value and are required for most property purchases and financings.

Glossary
A

Appropriateness Questionnaire

A short test to check whether an investor understands the risks of higher-risk products, such as fractional real estate. Under SEC regulations, this aligns with investor eligibility requirements and risk disclosures under Regulation A standards.

Glossary
A

Arrears

Unpaid rent that is overdue under a lease agreement. If tenants fall into arrears, it reduces rental income and can affect the distributions paid to investors. Property managers are responsible for addressing arrears through reminders, late notices, or replacement tenants.

Glossary
A

Articles of Organization

The founding document filed with a state’s Secretary of State to establish a Limited Liability Company (LLC). It outlines details such as the company name, address, purpose and management structure. Each property-specific LLC has its own Articles of Organization protecting investor rights.

Glossary
A

Asset-Backed (Equity-Backed) Investment

An investment supported by a real, physical asset. In fractional real estate, the property owned by the LLC is the asset. Unlike debt-based structures, investors hold membership units in the LLC, giving them ownership linked directly to the property’s value and rental income.

Glossary
A

Average Annual Return

Average annual return shows the simple mean of an investment’s yearly returns, without considering compounding. It is useful for a quick sense of performance but can overstate growth if returns vary. For example, if $1,000 grows +12% in the first year, +2% in the second year, and +8% in the third year, the average annual return is about 7.3% per year.

Glossary
B

Below-Market Value (BMV)

A property bought for less than its current market value, based on recent comparable sales or a professional appraisal. Example: if a property is purchased for $450,000 and its appraised value is $500,000, it is 10% below market value.

Glossary
B

Beneficial Ownership

The person who ultimately owns or controls an asset, even if it is held through another entity. In the US, ownership disclosure is required under the Corporate Transparency Act and monitored by FinCEN to prevent money-laundering and concealment of true ownership.

Glossary
B

Board Resolution

A formal written decision made by the managers or directors of an LLC, recorded in meeting minutes or passed in writing. Resolutions typically authorize actions such as acquisitions, contracts or investor distributions.

Glossary
B

Break Clause (Lease)

A clause that allows either landlord or tenant to end a lease early by giving notice as set out in the agreement. Breaks can affect projected cash flow and should be considered when assessing income stability.

Glossary
B

Build-to-Rent (BTR)

Homes developed specifically for long-term rental rather than sale. These properties are professionally managed, and returns are driven by occupancy, rental rates and operating costs.

Glossary
B

Building Codes

Legal standards that regulate property design, construction, fire safety, accessibility and energy efficiency. Building codes are enforced at the city or state level in the US and must be met before occupancy or significant alterations.

Glossary
B

Building Insurance (Property Insurance)

Insurance that covers the structure and fixed elements of a property - such as walls, roof and built-in fixtures - against risks like fire, storm damage or vandalism. For multifamily or condo buildings, this is often arranged by the homeowners’ association (HOA).

Glossary
B

Buy-to-Rent (Investment Property)

Buying a property with the intention of renting it out for income instead of occupying it personally. In the US, such properties are typically held in an LLC for liability protection and pass-through taxation.

Glossary
B

Buyer’s Premium (Auctions)

An additional fee paid by the winning bidder at a property auction, calculated as a percentage of the final sale price. When a property is sourced at auction, the premium should be included in total acquisition costs.

Glossary
C

Cap Rate (Capitalization Rate)

A measure of a property’s potential return, calculated by dividing its net operating income (NOI) by its purchase price or current market value. For example, if a property earns $50,000 annually and costs $1,000,000, the cap rate is 5%.

Glossary
C

Capital Appreciation

The increase in a property’s value over time, realized when it is sold. For example, if a property is bought at $400,000 and sold five years later at $500,000, the capital appreciation is $100,000 (25% overall), which equates to an annualized growth rate of about 4.6% per year.

Glossary
C

Capital Gain

The profit earned when a property is sold for more than its original purchase price, after deducting selling costs and allowable expenses. In the US, capital gains are subject to federal and sometimes state tax, with rates depending on how long the property was held.

Glossary
C

Cash Flow

The net income generated from a property after deducting operating expenses such as taxes, insurance and maintenance. Positive cash flow means the property produces surplus income, which can be distributed to investors.

Glossary
C

Closing

The final stage of a real estate transaction when ownership transfers from the seller to the buyer, funds are disbursed and the deed is recorded. In the US, this is handled through an escrow process managed by a title or escrow company.

Glossary
C

Closing Costs

The total expenses paid at closing, in addition to the property price. These may include escrow fees, title insurance, attorney fees, property transfer taxes and recording charges. For fractional real estate, closing costs are included within the project’s total funding target.

Glossary
C

Comparable Sales (Comps)

Recent sales of similar properties in the same area, used by appraisers to determine a fair market value. Comps are a key input in property appraisals and valuations.

Glossary
C

Compliance Review

An internal review process ensuring that each property investment meets US securities and real estate regulations, as well as Shariah requirements for halal investing. This includes SEC disclosures, Reg A offering documents and Shariah certification before launch.

Glossary
C

Cooling-Off Period

A brief waiting period between investor registration and investment confirmation, allowing time to review disclosures and risk factors. Under Regulation A, this ensures that investors have adequate opportunity to consider all offering materials before committing funds.

Glossary
C

Crowdfunding

A method of raising capital by pooling funds from many investors online, who contribute a relatively small amount. In fractional real estate, investors purchase shares in an LLC that owns the property, giving them proportional ownership and entitlement to income and potential appreciation.

Glossary
C

Custodian (Regulated)

A licensed third-party institution that securely holds investor funds or assets until they are deployed into the investment. In the US, custodians are typically regulated financial institutions or trust companies that comply with SEC,FINRA, and state law regulations.

Glossary
D

Debt

Money borrowed that must be repaid with interest and usually secured against the asset.

Glossary
D

Deed

A legal document that transfers ownership of real estate from one party to another. In the US, deeds must be signed, notarized and recorded at the county recorder’s office to make ownership official. Common types include warranty deeds and quitclaim deeds.

Glossary
D

Depreciation

A tax deduction that allows property owners to recover the cost of an income-producing asset over time. Residential rental properties are typically depreciated over 27.5 years in the US. Depreciation reduces taxable income but may be recaptured when the property is sold.

Glossary
D

Developer

An individual or company responsible for acquiring land, constructing or renovating real estate for sale or rental. In fractional real estate, developers may partner with platforms to bring completed or near-completed projects to investors.

Glossary
D

Diversification

A strategy that spreads investments across different properties, cities or sectors to reduce exposure to any single risk. Diversification helps stabilize portfolio performance over the long term.

Glossary
D

Dividend (Rental Distribution)

A payment made to investors from the LLC’s rental income after expenses and management fees have been deducted. Dividends are usually distributed quarterly against the number of shares held by the investor.

Glossary
D

Dividend Yield

The annual dividends you receive, divided by the value of your investment, shown as a percentage. If you receive $60 in dividends on a $1,200 holding, the dividend yield is 5%.

Glossary
D

Down Payment

The portion of the property’s purchase price paid upfront by the buyer, typically expressed as a percentage of the total. While Wahed’s real estate model acquires properties debt-free in full cash, down payments apply in traditional mortgage-based transactions.

Glossary
D

Drawdown

The process of transferring committed investor funds from a custodial account into the project’s LLC once the offering is completed and the property is ready to be acquired.

Glossary
D

Dual Agency

A situation in which one real estate agent represents both the buyer and the seller in the same transaction. Dual agency is legal in some states but restricted in others due to potential conflicts of interest.

Glossary
D

Due Date (Rent)

The date when rent payment is due from a tenant under a lease agreement. Timely rent collection helps maintain consistent income for investors.

Glossary
D

Due Diligence

The detailed review carried out before a property is listed for investment on the platform. It includes checks on title, valuation, legal documentation, rental income, maintenance history and Shariah compliance. This process ensures transparency and helps protect investors from potential risks.

Glossary
E

Earnest Money Deposit

A good-faith deposit made by a buyer to show commitment when entering into a property purchase agreement. The funds are held in escrow until closing and may be applied toward the purchase price or forfeited if the buyer withdraws without cause.

Glossary
E

Easement

A legal right that allows someone to use another person’s property for a specific purpose such as access, utilities or shared driveways. Easements are recorded in property deeds and remain in effect even if ownership changes.

Glossary
E

Economic Vacancy

The portion of potential rental income lost due to unoccupied units, tenant turnover or non-paying tenants. It’s used to calculate a property’s effective gross income and assess cash flow stability.

Glossary
E

Encumbrance

A claim, lien or restriction that affects ownership or use of a property. Common examples include mortgages, easements or unpaid property taxes. Title companies identify and clear encumbrances during due diligence before closing.

Glossary
E

Energy Efficiency (Property)

A measure of how efficiently a property uses energy for heating, cooling and lighting. In the US, efficiency standards are set by state and federal building codes and properties may be rated through certifications such as ENERGY STAR.

Glossary
E

Equity

The ownership interest in a property, representing the portion of value owned outright after liabilities (such as loans) are deducted. In fractional real estate, investors hold equity through shares in an LLC that owns the property.

Glossary
E

Equity-Based Model

An investment structure in which investors purchase shares in a property-owning LLC. This model does not involve debt or interest-bearing instruments, aligning with Shariah principles by avoiding riba (interest).

Glossary
E

Escrow

A neutral third-party service that holds funds and documents until all the terms of a real estate transaction are met. Escrow ensures that money and property only exchange hands once both buyer and seller have met their contractual obligations.

Glossary
E

Escrow Agent

A licensed third party responsible for managing escrow accounts during real estate transactions. The agent ensures all closing documents, funds and signatures are properly handled before recording the deed.

Glossary
E

Exit

The point at which a property is sold and the net proceeds (after expenses and taxes) are distributed to investors based on their ownership percentage. Exit typically occurs at the end of the investment’s holding period.

Glossary
E

Expense Ratio

The percentage of total rental income spent on operating costs such as maintenance, insurance and property management. Example: if gross rent is $24,000 and expenses are $6,000, the expense ratio is 25%.

Glossary
F

Fair Market Value (FMV)

The price that a property would sell for on the open market between a willing buyer and seller, with both having reasonable knowledge of the property and neither being under pressure to act. Fair market value is typically determined through an independent appraisal.

Glossary
F

Fee Simple Ownership

The highest form of property ownership in the US, where the owner holds complete rights to the land and any buildings indefinitely. The property can be sold, leased or transferred freely, subject only to zoning laws and taxes.

Glossary
F

FinCEN (Financial Crimes Enforcement Network)

A bureau of the US Department of the Treasury that enforces anti-money-laundering (AML) laws. FinCEN requires financial institutions and real estate investment platforms to verify investor identity, report suspicious activity and maintain compliance with AML regulations.

Glossary
F

Financial Year-End (FYE)

The 12-month accounting period used by a company to prepare its financial statements. For LLCs in fractional real estate, the financial year-end is typically December 31, aligning with the US tax reporting to the IRS.

Glossary
F

Fractional Ownership

A model where multiple investors collectively own a property through a Limited Liability Company (LLC). Each investor’s share determines their proportion of rental income, expenses and their share of any gain at sale. Example: if an LLC has 100,000 shares and an investor owns 1,500 shares, they hold 1.5% of the deal.

Glossary
F

Funding Target

The total amount of money required to be raised in order to complete the purchase of the property. Example: a $480,000 house with $20,000 acquisition costs may have a $500,000 funding target.

Glossary
F

Fundraising Period

The period during which investors can commit capital to a property offering. In Regulation A offerings, this period is limited and ends once the target amount is reached or the offering deadline passes.

Glossary
F

Furniture and Fixtures

The movable elements and fittings within a property, such as furniture, lighting and appliances. In rental properties, these may be owned by the landlord or included as part of the lease agreement.

Glossary
F

Future Value (FV)

An estimate of what a property or investment could be worth at a future date, assuming projected appreciation or improvements. Future value is often used in return calculations to estimate potential total gains at exit.

Glossary
G

Governance

The system of rules, processes and oversight that ensures the property-owning LLC operates transparently and in line with investor and regulatory expectations. Governance covers management duties, financial reporting and Shariah compliance.

Glossary
G

Grace Period (Rent)

A short period after the rent due date during which tenants can pay without incurring a late fee. Grace periods are typically defined in the lease agreement and vary by state law.

Glossary
G

Gross Income

The total income a property generates before deducting expenses. This includes rental income, parking fees and other ancillary income sources. Gross income is used to calculate metrics like net operating income (NOI) and yield.

Glossary
G

Gross Rent

The total rent received from tenants before deducting any expenses. Gross rent is the starting point for calculating a property’s net income and yield. For example, if a property is rented for $2,000 per month, the annual gross rent is $24,000.

Glossary
G

Gross Yield

Projected annual percentage return before deducting any expenses (e.g. management fees, maintenance). For example, if a property is priced at $350,000 and rented for $24,000 per year, the gross yield is 6.8% (24,000 ÷ 350,000).

Glossary
G

Ground Lease

A long-term lease where a tenant or developer leases land from the owner and constructs or operates a building on it. When the lease ends, ownership of any improvements typically reverts to the landowner. Ground leases are less common in residential investing but may appear in commercial real estate.

Glossary
G

Growth Market

A geographic area or region where property prices and rental demand are increasing faster than the national average, often driven by job creation, population growth or infrastructure development.

Glossary
G

Guarantor

A person or entity that agrees to take responsibility for a tenant’s lease obligations if the tenant fails to pay rent or breaches the contract. Guarantors are often required for commercial or student housing leases.

Glossary
H

HVAC (Heating, Ventilation and Air Conditioning)

A system that provides heating and cooling to maintain comfort in residential or commercial properties. Regular HVAC maintenance helps improve energy efficiency and reduce long-term repair costs.

Glossary
H

Halal Investing

Investing that follows Islamic principles by avoiding interest, excessive uncertainty and prohibited sectors. In our model, all properties are acquired debt-free and structured through equity ownership to ensure full Shariah compliance.

Glossary
H

Holding Costs

The ongoing expenses incurred while owning a property, including property taxes, insurance, utilities, HOA dues, maintenance and property management fees. These are deducted before distributing income to investors.

Glossary
H

Holding Period

The planned length of time we intend to hold the property before aiming to sell and distribute proceeds. It sets how long investors should be prepared to stay invested and when an exit may be considered.

Glossary
H

Homeowners Association (HOA)

An organization that manages shared spaces and enforces community rules in certain residential developments. Homeowners pay monthly or annual dues to cover maintenance of amenities, landscaping and building insurance.

Glossary
H

House Rules

Rules set by a property manager or HOA to maintain safety, cleanliness and harmony within a building or community. These typically cover noise levels, parking, waste disposal and guest policies.

Glossary
H

Housing Market

The overall supply, demand and pricing conditions of residential properties in a given region. Factors like interest rates, employment, population growth and construction trends influence housing market performance and potential appreciation.

Glossary
H

Hybrid Model (Real Estate)

A structure combining elements of multiple investment approaches. For example, a blend of rental income (cash flow) and value appreciation (growth). In fractional real estate, hybrid models allow investors to benefit from both ongoing returns and long-term capital gains.

Glossary
I

IRS (Internal Revenue Service)

The US federal tax authority responsible for collecting taxes and enforcing tax laws. Investors in fractional real estate report income and gains to the IRS and may receive a Schedule K-1 for annual tax reporting.

Glossary
I

Ijarah (Lease)

An Islamic lease structure where one party (lessor) leases a tangible asset or property to another party (lessee) for an agreed period of time and at an agreed rental price.

Glossary
I

Illiquidity

The difficulty of converting an investment into cash quickly. Fractional real estate investments are typically illiquid and can only be exited when the underlying property is sold.

Glossary
I

Independent Valuation (Appraisal)

An unbiased assessment of a property’s fair market value conducted by a licensed appraiser. Independent valuations ensure transparency in the property’s pricing and support investor confidence in the acquisition process.

Glossary
I

Inflation

The general increase in prices over time. Inflation can lift rents and nominal property values, but also increases costs such as maintenance and insurance.

Glossary
I

Inflation Hedge

An investment that tends to protect against inflation by maintaining or increasing in value as prices rise. Real estate is often considered an inflation hedge since property values and rents typically grow alongside broader economic inflation.

Glossary
I

Infrastructure

The basic systems and facilities such as roads, transport links, utilities and public services that support a community. Strong infrastructure is a key factor in property valuation and long-term demand.

Glossary
I

Initial Offering

The first opportunity for investors to buy shares in a property’s LLC through a regulated offering, such as under SEC Regulation A. Once the offering closes, no additional investors can join until the property is sold or a secondary market becomes available.

Glossary
I

Insurance

A policy that protects against financial loss from risks such as fire, theft, liability or natural disasters. In real estate, insurance coverage is required for all properties and typically includes both building and liability protection.

Glossary
I

Internal Rate of Return (IRR)

A measure of an investment’s overall performance that accounts for both the timing and amount of cash flows over the holding period. IRR reflects the annualized return achieved if all rental income and eventual sale proceeds are reinvested.

Glossary
I

Investment Committee (IC)

An internal group of experts that reviews each deal’s due-diligence (valuation, legal, cash flow) and approves or rejects a deal before it is listed for investment.

Glossary
I

Investment Memorandum (IM)

A concise deal presentation for investors that summarizes the property, structure, key metrics, sensitivity analysis, fees and costs and expected returns.

Glossary
I

Investor Agreement

A legally binding document that sets out the rights and obligations of investors in a property’s LLC, including profit distribution, reporting and voting rights.

Glossary
I

Islamic Finance

Islamic finance is a way of managing money and doing business while adhering to the moral principles of Islam.

Glossary
J

Joint Ownership

A form of property ownership where two or more parties hold title together. In the US, the two most common types are Joint Tenancy (where ownership passes automatically to the surviving owner) and Tenancy in Common (where each owner’s share can be passed to heirs).

Glossary
J

Joint Venture (JV)

A deal structure where two or more parties agree to co-invest in, develop, or manage a property project under agreed terms on roles, costs and profit share. In fractional real estate, a JV might involve a partnership between the investment platform and a developer to acquire or manage a property.

Glossary
J

Judgment Lien

A legal claim placed on a property by a court as security for an unpaid debt. Judgment liens must be resolved before the property can be sold or refinanced and are identified during the title review process before acquisition.

Glossary
J

Jurisdiction

The legal authority under which a property or company operates. In real estate, jurisdiction determines which state laws govern the transaction, ownership structure, taxes and dispute resolution.

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