Alligator Property


DEFINITION of 'Alligator Property'

In real estate, when the cost of mortgage payments, property taxes, insurance and maintenance on a rental property is greater than the income it brings in. If this situation is not corrected, it will eat up all of the owner's profit, leaving him or her with negative cash flow.

BREAKING DOWN 'Alligator Property'

This occurs more often when a rental property is purchased near the peak of the real estate cycle. In this case, the investor buys the overvalued building and rents it out, but as interest rates rise and maintenance costs add up, the owner is forced to either sell the building or suffer a negative cash flow.

One way to get around the negative cash flow situation is to buy property with a large down payment, thereby reducing the mortgage payment.

  1. Cash Flow

    The net amount of cash and cash-equivalents moving into and out ...
  2. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  3. Effective Gross Income - EGI

    The amount of income produced by a piece of property, plus miscellaneous ...
  4. Investment Property

    A real estate property that has been purchased with the intention ...
  5. Investment Real Estate

    Real estate that generates income or is otherwise intended for ...
  6. Property Tax

    A tax assessed on real estate by the local government. The tax ...
Related Articles
  1. Home & Auto

    Tips For The Prospective Landlord

    Investing in rental property can generate serious income, but there's more to it than collecting rent.
  2. Options & Futures

    The REIT Way

    Ever considered investing in real estate? Read about the REIT and see if it's the investment for you.
  3. Taxes

    Avoid Capital Gains Tax On Your Home Sale

    If you have property to sell and want to avoid capital gains tax, a Section 1031 exchange may be the answer.
  4. Economics

    How Does a Modified Gross Lease Work?

    A modified gross lease is a rental agreement where, in addition to their rent, tenants pay a share of other costs associated with the property.
  5. Investing

    Buying Your First Investment Property? Top 10 Tips

    Check this list if you are thinking of making a purchase and becoming a landlord.
  6. Home & Auto

    Millennials Guide: How To Read a Lease

    Everything you need to know before you rent a home.
  7. Economics

    What is a Leasehold Improvement?

    A leasehold improvement is an alteration made to a rented space that customizes the space for the tenant.
  8. Home & Auto

    4 Things Landlords Aren't Allowed To Do

    Whether you're a landlord or a tenant, you need to know the rules.
  9. Insurance

    A Quick Guide To Landlord Insurance

    ...And why landlords need it, even if they also have homeowners insurance.
  10. Insurance

    How to Use a Waiver of Subrogation

    A waiver of subrogation means that a party to a contract waives the right to allow someone (usually an insurance company) to sue the other party to the contract in case of a loss.
  1. What is the process for a building owner depreciating leasehold improvements in a ...

    As long as the building owner is the person or entity that provides leasehold improvements, then the owner can depreciate ... Read Full Answer >>
  2. What kinds of real estate transactions use triple net (NNN) leases?

    A net-net-net lease, also known as a triple net or NNN lease, is a type of real estate lease that requires the tenant to ... Read Full Answer >>
  3. How long can a building owner or landlord depreciate a leasehold improvement?

    Leasehold improvements have different depreciation rules depending on whether you are working with U.S. tax basis financial ... Read Full Answer >>
  4. For what sorts of purposes can the funds in a share premium account be disbursed?

    Deadweight loss is the cost of market inefficiencies due to government regulations that prohibit natural market equilibrium. ... Read Full Answer >>
  5. Can unearned rent be considered deferred revenue?

    Unearned rent can be considered deferred revenue from the perspective of a landlord or rental company, if that landlord or ... Read Full Answer >>
  6. What are the three "nets" of an NNN lease?

    A triple net (NNN) lease is a type of real estate lease in which the tenant is responsible for paying the building's property ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  2. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  3. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  4. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  5. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  6. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!