Key financial calculations, ratios, and valuation methods used to analyze real estate investments and performance.
Master financial analysis & metrics with our progressive approach
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.
Utilization rate in real estate measures the efficiency with which a property's available capacity or space is being used, often indicating operational effectiveness and revenue potential beyond simple occupancy.
The vacancy rate is the percentage of all available rental units in a property or market that are currently unoccupied or not generating income, serving as a key indicator of a property's financial health and market demand.
Vacancy risk is the potential for a rental property to remain unoccupied for a period, leading to a loss of rental income and increased holding costs for the investor. It's a key factor in real estate investment analysis.
A valuation discrepancy occurs when there is a significant difference between the perceived value of a real estate asset (e.g., buyer's offer, seller's asking price) and its appraised value, often impacting financing and deal closure.
Value investing is an investment strategy focused on buying assets, such as real estate, for less than their intrinsic value, with the belief that the market will eventually recognize their true worth.
A value trap in real estate refers to an investment property that appears to be undervalued or a bargain but possesses underlying fundamental issues that will lead to further price depreciation or underperformance.
A real estate investment strategy focused on acquiring underperforming properties and increasing their value through renovations, operational improvements, or repositioning to boost Net Operating Income (NOI).
Variable costing is an accounting method that treats all fixed manufacturing overhead as period costs, expensing them in the period incurred, while only variable costs are assigned to products or services. In real estate, it helps investors analyze profitability by focusing on costs that change with activity levels.
Volatility in finance measures the degree of variation of a trading price series over time, indicating the rate and magnitude of price changes for an asset or market, crucial for assessing investment risk.
W-2 income refers to the wages, salaries, and tips an individual earns as an employee, reported annually by their employer on IRS Form W-2, which details gross earnings and taxes withheld.
Wage growth refers to the increase in the average earnings of workers over a specific period, reflecting changes in labor market conditions and economic productivity. It significantly influences consumer spending, inflation, and real estate market dynamics.
Warrants in real estate are financial instruments that grant the holder the right, but not the obligation, to purchase an equity stake in a real estate project or entity at a predetermined price within a specified timeframe.
Explore complementary areas that build on financial analysis & metrics concepts
Personal budgeting, expense tracking, cash flow management, emergency funds, and savings strategies.
Credit scores, debt consolidation, loan management, credit repair, and debt payoff strategies.
Macroeconomic concepts, interest rates, inflation, Federal Reserve policy, and economic cycles.
Wills, trusts, estate taxes, succession planning, beneficiary planning, and wealth preservation.