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 Loan-to-Value (LTV) ratio is a financial metric used by lenders to assess the risk of a mortgage loan, calculated by dividing the loan amount by the property's appraised value, expressed as a percentage.
Long-term capital refers to funds committed to an investment for an extended period, typically several years or more, essential for real estate projects requiring significant upfront investment and delayed returns.
A real estate investment strategy focused on acquiring and holding properties for an extended period, typically five years or more, to generate wealth through rental income, property appreciation, and tax benefits.
Loss aversion is a cognitive bias where the psychological impact of a loss is felt more intensely than the pleasure of an equivalent gain, often leading to irrational investment decisions.
The Loss Factor in commercial real estate measures the proportion of a tenant's rentable space that is allocated to common areas and not directly usable. It's calculated as the ratio of rentable square footage to usable square footage, impacting effective rent and property efficiency.
A loss on sale occurs when an asset, such as a real estate property, is sold for less than its adjusted cost basis, resulting in a negative return for the seller.
Machine Learning (ML) is a branch of Artificial Intelligence that allows computer systems to learn from data, identify patterns, and make predictions or decisions without explicit programming, revolutionizing data analysis in real estate investing.
Maintenance costs are the ongoing expenses required to keep a real estate property in good repair, functional, and habitable, directly impacting an investor's profitability and cash flow.
Market capitalization, or market cap, is the total value of a company's outstanding shares, calculated by multiplying the current share price by the number of shares issued. It represents the market's perception of a company's total worth.
Market liquidity in real estate refers to the ease with which a property can be converted into cash without significantly impacting its price. It's a critical factor for investors assessing the flexibility and risk of their real estate holdings.
Market value in real estate is the most probable price a property should bring in a competitive and open market under all conditions requisite to a fair sale, with the buyer and seller acting prudently, knowledgeably, and typically uninfluenced by undue stimulus.
The Maximum Allowable Offer (MAO) is the highest price a real estate investor can pay for a property while still achieving their target profit after all projected costs.
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