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.
Effective Yield represents the true annualized rate of return on a real estate investment, accounting for all fees, costs, and the compounding effect of income over the investment period.
Efficiency ratios are financial metrics used in real estate to assess how effectively a property generates income relative to its expenses, debt, and operational capacity. They provide insights into a property's operational health and profitability.
Assets or property that a lender deems acceptable to secure a loan, providing assurance that the borrower will fulfill their repayment obligations and allowing the lender to recover funds in case of default.
A claim or liability against a real estate property that affects its title and may diminish its value or restrict its use, but does not prevent its transfer.
An endogenous variable is a factor whose value is determined within the model or system being analyzed, influenced by other variables and relationships within that system, making it crucial for dynamic real estate investment analysis.
Equity in real estate is the portion of a property's value that an owner truly owns, free and clear of any outstanding debts or liens. It is calculated as the property's current market value minus the total amount owed on any mortgages or loans.
Equity build-up refers to the increase in a property owner's stake or ownership percentage in a real estate asset over time. It primarily occurs through two mechanisms: principal paydown on a mortgage and property value appreciation.
Equity conversion is the process by which real estate investors transform the accumulated equity in their properties into accessible cash or other liquid assets, typically for reinvestment, debt consolidation, or other financial objectives.
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.
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.
The Equity Multiple is a performance metric that measures the total cash distributions received from an investment relative to the total equity invested, indicating how many times an investor's initial capital has been returned.
The Equity Multiplier is a financial leverage ratio that measures the proportion of a company's assets financed by shareholders' equity, indicating how much debt is used to finance assets and amplify returns.
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