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.
Property underwriting is the comprehensive process of evaluating the risks and potential returns of a real estate investment to determine its suitability for acquisition or financing, involving detailed financial, market, and property-specific analysis.
Property valuation methods are systematic approaches used to estimate the fair market value of real estate, crucial for investment, financing, and taxation decisions. They include the Sales Comparison, Income Capitalization, and Cost Approaches.
Property value is the estimated monetary worth of a real estate asset, determined by various factors including market conditions, location, and physical characteristics. It is a critical metric for investment analysis, financing, and taxation.
Property vetting is the systematic process of thoroughly researching and evaluating a potential real estate investment to assess its risks, potential returns, and overall suitability before making a purchase decision.
Prorations are the proportional division of expenses and income between a buyer and seller at a real estate closing, ensuring each party pays or receives their fair share for the period they owned the property.
A formal legal document required for certain investment offerings, providing comprehensive details about the investment, its risks, and the issuing entity to help potential investors make informed decisions.
The purchase price is the total amount of money a buyer agrees to pay a seller for a property, representing the agreed-upon value before additional closing costs.
Purchase Price Allocation (PPA) is an accounting procedure used in real estate acquisitions to assign the total cost of an acquired property to its individual identifiable assets and liabilities, impacting financial reporting, tax basis, and future depreciation schedules.
Purchasing power refers to the amount of goods and services a unit of currency can buy, directly impacting an investor's ability to acquire real estate assets and the real value of their returns.
Qualifying income is the total verifiable and stable income a borrower can demonstrate to a lender to secure financing, primarily used to assess repayment capacity for mortgages and real estate loans.
Qualifying ratios are financial metrics used by lenders to assess a borrower's capacity to repay a loan by comparing their gross monthly income to their existing debts and proposed housing expenses.
Quick analysis is a rapid, high-level evaluation of a potential real estate investment property to quickly determine if it's worth pursuing with more detailed due diligence.
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