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 maximum purchase price is the highest amount an investor can pay for a property while still meeting their desired financial objectives and investment criteria, considering all costs and financing.
Member Acquisition Cost (MAC) is a key metric in real estate investment platforms and syndications, representing the total cost incurred to acquire a new investor or member. It encompasses all marketing, sales, and operational expenses directly attributable to bringing a new investor into a fund or platform.
A crucial metric measuring the percentage of existing members or tenants that an organization or property successfully retains over a specific period, directly impacting long-term profitability and operational efficiency in real estate.
A mill rate is a property tax rate expressed as the amount of tax per $1,000 of a property's assessed value, used by local governments to fund public services.
Modern Portfolio Theory (MPT) is an investment framework that aims to maximize portfolio expected return for a given level of market risk, or equivalently, minimize risk for a given level of expected return, through diversification.
The Modified Accelerated Cost Recovery System (MACRS) is the current tax depreciation system used in the United States for most tangible depreciable property, allowing businesses and real estate investors to recover the cost of assets over a specified period.
Modified Adjusted Gross Income (MAGI) is a crucial metric derived from Adjusted Gross Income (AGI) by adding back certain deductions and exclusions, primarily used to determine eligibility for various tax credits, deductions, and investment-related tax rules.
Months of Supply (MOS) is a key real estate metric that indicates how long it would take for all current homes on the market to sell, given the current sales pace, assuming no new homes are added. It's a crucial indicator of market balance.
Mortgage debt is the total outstanding amount of money a borrower owes to a lender for a loan secured by real estate. It typically includes the remaining principal balance and any accrued interest, paid over a set period.
Mortgage interest is the cost charged by a lender for borrowing money to purchase a property, calculated as a percentage of the outstanding loan principal. It's a critical component of monthly mortgage payments and a significant factor in real estate investment profitability.
A regular, typically monthly, payment made by a borrower to a lender to repay a home loan, usually comprising principal, interest, property taxes, and homeowners insurance (PITI).
Mortgage REITs (mREITs) are companies that invest in mortgages and mortgage-backed securities (MBS), generating income primarily from the interest earned on these investments and the spread between borrowing and lending rates.
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