Key financial calculations, ratios, and valuation methods used to analyze real estate investments and performance.
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Foundation terms you need to know first (92 terms)
Development costs are all the expenses incurred during the process of acquiring land, designing, constructing, and preparing a real estate project for use or sale, from start to finish.
Equity investment in real estate involves directly owning a portion or all of a property, providing the investor with an ownership stake and the potential to benefit from appreciation and rental income.
Accrual basis accounting records revenues when they are earned and expenses when they are incurred, regardless of when cash actually changes hands. This method provides a more accurate picture of a business's financial performance over time.
Base rent is the fixed, minimum rent amount paid by a tenant to a landlord for the use of a property, excluding additional charges like operating expenses, taxes, or utilities.
An office building is a commercial property designed for businesses to conduct administrative, professional, or commercial operations, offering spaces for work and meetings.
Complex strategies and professional concepts (127 terms)
Slow BRRRR is an advanced real estate investment strategy that extends the traditional BRRRR (Buy, Rehab, Rent, Refinance, Repeat) cycle over a longer period, often several years, to maximize equity appreciation and mitigate market risks.
An Equity-for-Property Swap is an advanced real estate investment strategy where an investor exchanges equity in one or more properties or entities for direct ownership of another property, often to achieve tax deferral, portfolio restructuring, or strategic asset acquisition.
The accounting process of recognizing the estimated cost of an Asset Retirement Obligation (ARO) as a liability and capitalizing a corresponding asset, which is then depreciated over its useful life, reflecting the future costs associated with retiring a long-lived asset.
A Personal Financial Stress Test is a systematic evaluation of an individual's or household's financial resilience against adverse economic scenarios, crucial for real estate investors to safeguard their portfolios.
Equity dilution occurs when a company or investment vehicle issues new shares, decreasing the ownership percentage of existing shareholders. In real estate, this often happens in syndications or partnerships when additional capital is raised.
The Accounts Payable Turnover Ratio measures how quickly a company pays off its suppliers and short-term debts, indicating the efficiency of its working capital management and liquidity.
Accretion expense represents the periodic increase in the carrying amount of a liability or asset to reflect the passage of time, typically for obligations initially recorded at a discounted present value. It is a non-cash expense that aligns the book value with the ultimate settlement amount.
Accumulated Other Comprehensive Income (AOCI) is an equity account on the balance sheet that records unrealized gains and losses from certain financial activities not yet recognized in net income, reflecting changes in equity from non-owner sources.
Additional Paid-in Capital (APIC) represents the amount of capital investors contribute to a company or partnership that exceeds the par value of the issued stock or the stated capital contribution in a partnership agreement. It is a crucial component of equity, reflecting premium contributions.
Adjusted EBITDA is a financial metric that modifies a company's Earnings Before Interest, Taxes, Depreciation, and Amortization to exclude non-recurring, non-cash, or non-operating items, providing a clearer picture of core operational profitability, especially critical for real estate valuation and due diligence.
Adjusted Funds From Operations (AFFO) is a critical financial metric used primarily in real estate investment trusts (REITs) to measure the recurring cash flow available for distribution to shareholders, after accounting for non-cash items and recurring capital expenditures.
Alpha measures the excess return of an investment or portfolio relative to the return of a benchmark index, adjusted for risk, indicating the value added by active management.
Anchoring bias is a cognitive heuristic where an individual's decisions are overly influenced by an initial piece of information (the anchor), leading to skewed valuations, negotiations, and market analyses in real estate investment.
An Anti-Dilution Provision is a contractual clause, typically found in preferred stock agreements or limited partnership agreements, designed to protect early-stage investors from the dilution of their ownership percentage or investment value resulting from subsequent equity financing rounds at lower valuations.
Anti-dilution provisions are contractual clauses designed to protect investors' equity ownership percentage from being significantly reduced (diluted) by future equity issuances at a lower valuation, particularly in real estate syndications and private equity deals.
Appraisal fraud involves the intentional misrepresentation or manipulation of a property's value by an appraiser or other parties to deceive lenders or investors for financial gain, often leading to inflated loan amounts and increased risk.
Asset correlation is a statistical measure quantifying how two assets' returns move in relation to each other, ranging from -1 (perfect negative) to +1 (perfect positive), crucial for real estate portfolio diversification and risk management.
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