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.
Transaction structure refers to the legal and financial framework through which a real estate deal is organized, defining how assets are acquired, financed, and owned.
The Treasury Stock Method (TSM) is an accounting technique used to calculate diluted earnings per share (EPS) by assuming that proceeds from the exercise of in-the-money options and warrants are used by the company to repurchase its own common stock at the average market price.
Treasury yield is the return an investor receives on U.S. government debt securities, serving as a key benchmark for interest rates across the economy and significantly influencing real estate financing and valuations.
Treasury yields represent the return an investor receives on U.S. government debt securities, serving as a critical benchmark for interest rates across the economy, including mortgages and other real estate financing.
Undervaluation in real estate refers to a property being priced below its true market value, presenting a potential opportunity for investors to acquire assets at a discount and realize significant returns.
Underwriting is the process by which lenders assess the risk of lending money for a real estate transaction, evaluating the borrower's creditworthiness and capacity to repay, as well as the property's value and marketability.
Unearned revenue represents payments received by a real estate investor for goods or services that have not yet been delivered or performed, such as prepaid rent or security deposits. It is recorded as a liability on the balance sheet until the revenue is recognized.
An unrealized gain is an increase in the value of an asset that an investor still holds, meaning the profit has not yet been converted into cash through a sale. It represents a potential profit that exists on paper.
Unrealized gains and losses represent the theoretical profit or loss on an investment that has not yet been sold, reflecting the difference between its current market value and its original cost basis. These are 'paper' gains or losses until the asset is actually sold.
Usable square footage is the actual area within a commercial property that a tenant occupies and can use for their business operations, excluding common areas and structural elements.
Useful life in real estate refers to the estimated period over which an asset is expected to be economically productive, primarily used for calculating depreciation for tax purposes.
Essential services like electricity, water, gas, and internet that are necessary for a property to be habitable and functional, impacting a real estate investor's operating expenses and cash flow.
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