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.
Capitalized interest refers to interest expenses that are added to the principal balance of a loan or an asset's cost basis, rather than being expensed immediately. This accounting treatment is common during the construction or development phase of a real estate project, increasing the asset's book value.
Carried interest is a share of the profits of an investment fund, typically a private equity real estate fund or syndication, paid to the general partners (GPs) or managers after limited partners (LPs) have received their initial capital and a preferred return.
The Case-Shiller Home Price Index is a leading measure of U.S. residential real estate values, tracking changes in home prices across 20 major metropolitan areas and nationally using a repeat-sales methodology.
Cash flow in real estate investing represents the net income generated by a property after all operating expenses and debt service payments have been made. Positive cash flow indicates profitability, while negative cash flow suggests a loss.
Cash Flow Before Tax (CFBT) represents the net income generated by an investment property after accounting for all operating expenses and debt service, but before deducting income taxes.
A cash flow hedge is a derivative instrument used to offset the variability in future cash flows attributable to a particular risk, such as interest rate fluctuations or foreign currency exchange rate changes, thereby stabilizing an entity's financial performance.
Cash flow management in real estate investing is the strategic process of monitoring, analyzing, and optimizing the movement of money into and out of an investment property or portfolio to ensure financial stability and profitability.
Cash flow projections are detailed financial forecasts that estimate the future income and expenses of a real estate investment over a specific period, crucial for assessing profitability, liquidity, and investment viability.
Cash flow from discontinued operations represents the net cash generated or used by a business segment that has been disposed of or is classified as held for sale, reported separately from continuing operations on the statement of cash flows.
The Cash Ratio is a stringent liquidity metric that measures a company's ability to cover its current liabilities using only its most liquid assets: cash and cash equivalents. It's a critical indicator of immediate financial solvency for real estate businesses and investors.
Cash reserves are readily available funds held by a real estate investor to cover unexpected property expenses, operational shortfalls, or periods of vacancy, ensuring financial stability and risk mitigation.
Cash-on-Cash Return (CoC) is a real estate investment metric that calculates the annual pre-tax cash flow generated by a property as a percentage of the total cash an investor has invested.
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