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.
Revenue Per Square Foot (RPSF) for coworking measures the total revenue generated by a coworking space divided by its total usable square footage, providing a key metric for operational efficiency and profitability analysis in flexible workspaces.
Revenue recognition is an accounting principle that dictates when and how revenue should be recorded in financial statements, ensuring it is recognized when earned, not necessarily when cash is received.
Revenue shortfall occurs when the actual income generated by a real estate investment is less than the projected or expected income, leading to a deficit in cash flow.
Reversion value is the estimated future sale price or residual value of an investment property at the end of a specified holding period, a critical component in discounted cash flow (DCF) analysis for real estate valuation.
Risk management in real estate is the systematic process of identifying, assessing, and controlling potential threats to an investor's capital and returns, ensuring long-term asset protection and profitability.
Risk-adjusted return measures an investment's return relative to the amount of risk taken, providing a more comprehensive evaluation than nominal returns alone, crucial for sophisticated real estate portfolio management.
A rule of thumb in real estate investing is a simple, practical guideline used for quick, preliminary assessments of a property's potential, helping investors efficiently screen deals before conducting detailed analysis.
Run-rate adjustments normalize historical financial data to project a property's future stabilized operating performance, crucial for accurate valuation and underwriting in real estate investment.
An STR Pro Forma is a detailed financial projection and analysis tool used to evaluate the potential profitability and performance of a short-term rental property, incorporating dynamic pricing, seasonal occupancy, and higher variable operating expenses.
The Sales Comparison Approach (SCA) is a real estate valuation method that estimates a property's value by analyzing recent sales of similar properties and adjusting for differences.
Scaling a real estate portfolio involves the systematic and strategic expansion of property holdings, focusing on optimized operations, advanced financing, and strategic acquisitions to achieve exponential, sustainable growth and maximize long-term wealth.
Schedule E is an IRS tax form used by real estate investors to report income and expenses from rental properties, royalties, partnerships, S corporations, estates, and trusts.
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