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.
Asset correlation is a statistical measure quantifying how two assets' returns move in relation to each other, ranging from -1 (perfect negative) to +1 (perfect positive), crucial for real estate portfolio diversification and risk management.
The Asset Coverage Ratio (ACR) is a financial metric that assesses a company's or an investor's ability to cover its liabilities with its assets, providing insight into solvency and debt capacity, particularly crucial for real estate investment firms and large portfolios.
Asset location is an investment strategy that focuses on placing different types of assets into specific account types (taxable, tax-deferred, or tax-exempt) to maximize after-tax returns and optimize tax efficiency.
A recurring fee paid to the general partner or sponsor of a real estate investment for strategic oversight and management of the underlying assets, aimed at maximizing overall investment value.
An Asset Retirement Obligation (ARO) is a legal obligation associated with the retirement of a tangible long-lived asset, recognized as a liability in financial statements at its fair value, typically the present value of estimated future costs.
Asset revaluation is the process of adjusting the book value of an asset to reflect its current fair market value, typically performed by real estate companies to provide a more accurate representation of their financial position.
The Asset Turnover Ratio measures how efficiently a company or investment property uses its assets to generate sales revenue. It indicates how many dollars in sales are generated for each dollar of assets.
Asset utilization in real estate measures how efficiently an investment property generates revenue or achieves its operational objectives relative to its full capacity, indicating efficiency in resource deployment.
Assumptions in real estate investing are educated guesses about future variables, such as rent growth, expenses, and market appreciation, used to build financial models and project investment performance.
Auditing in real estate investment is a systematic, independent examination of financial records, operational processes, and compliance adherence within an investment entity or property to ensure accuracy, efficiency, and regulatory conformity.
An Automated Valuation Model (AVM) is a computer-generated real estate valuation based on mathematical modeling combined with a database of existing property and market information. It provides an estimated property value quickly and cost-effectively, often used for preliminary analysis.
The Average Collection Period measures the average number of days it takes for a real estate investor to collect payments after a sale or service, typically rent or other receivables. It indicates the efficiency of a property's collection process.
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