14. Personal Guarantee This is another one that’s very common, a term most people think they understand. It carries a lot of weight, and I take it very seriously. A Personal Guarantee is something that’s offered on a loan. It means that even though a mortgage loan is probably given to an LLC or other business entity, an individual(s) is being asked to pledge their own personal credit and assets to the loan as well. That means that you are putting your personal home, bank accounts, and any other assets you own on the line when you sign one of these. Take these seriously when you sign them! 15. Amortization Most mortgages don’t get paid down evenly over time. Most mortgages are amortized, meaning that each month, a little more of the money you pay goes towards principal and less towards interest. At first the principal portion is not much at all. Over time, the principal side goes up and up, to the point where you build a big snowball of debt pay down each month. If you are a visual person, do a Google search for “Amortization Charts” to see this in graphic form. 16. Capital Expenses and Capital Expense Reserves (Cap Ex) So this is another one that gets tossed around a lot. Some expenses are applied the moment you have to pay for them, like a maintenance man unclogging a toilet, an electric bill, or property insurance. Larger expenses that are considered to be a contribution to the long term value of the property are called “capital expenses.” It seems frugal but is actually unrealistic for an owner of a single family or small multi to set aside money each month for a potential roof repair or heater replacement 15 years down the road. For larger real estate, these types of expenses come up more frequently. You need to set aside money each year for things like roof replacements, a new boiler, new windows, repaving parking areas, and common area upgrades. There should be a line item in your expenses for Cap Ex. There are plenty of rules of thumb out there depending on the type of property we are talking about. You will find numbers in $/SF or $/Unit, and they should reflect the cost of these Capital Expenditures in your local area. When you don’t know what your real estate agent is talking about JUST ASK THEM. They do this full time and can’t remember what it’s like to know nothing. It’s their job to help you, so let them. Cheers!