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.
Annual Property Operating Data (APOD) is a detailed financial statement that summarizes a property's income and expenses over a 12-month period, culminating in its Net Operating Income (NOI). It is a critical tool for evaluating the profitability and investment potential of real estate.
An annuity due is a series of equal payments or receipts made at the beginning of each period, such as rent payments or insurance premiums, which impacts its present and future value.
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.
An appraisal is an unbiased, professional opinion of a property's market value, conducted by a licensed appraiser, primarily used for lending, buying, and selling decisions.
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.
An appraisal gap is the difference that occurs when a property's appraised value is lower than the agreed-upon purchase price, requiring the buyer to cover the shortfall in cash or renegotiate the deal.
A professional, unbiased report by a licensed appraiser that estimates a property's fair market value at a specific point in time, primarily used for financing and real estate transactions.
Appreciation in real estate is the increase in a property's market value over time, leading to a profit for the owner when sold or refinanced. It is driven by market forces, economic growth, and property improvements.
An arm's length transaction is a business deal between two independent, unrelated parties, ensuring fair market value and no undue influence.
Assessed value is the dollar value assigned to a property by a public tax assessor for the purpose of levying property taxes, typically a percentage of its market value.
Asset allocation is an investment strategy that distributes capital across different asset classes, property types, and investment vehicles to manage risk and optimize returns according to an investor's financial goals and risk tolerance.
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