Basic investment concepts, portfolio theory, asset allocation, stocks, bonds, mutual funds, and ETFs.
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Foundation terms you need to know first (65 terms)
A lump sum investment in real estate involves committing a single, large amount of capital upfront to acquire a property or fund a project, rather than making smaller, periodic contributions. It's a direct approach often used for full property purchases or significant down payments.
Real assets are physical, tangible investments such as real estate, commodities, and infrastructure, valued for their intrinsic properties and often used as an inflation hedge and portfolio diversifier.
Liabilities are financial obligations or debts that an individual or business owes to others, representing money that must be paid back in the future.
The percentage of your disposable income that you save rather than spend, a key metric for personal finance and crucial for building capital for real estate investments.
The fundamental resources—land, labor, capital, and entrepreneurship—used to produce goods and services, including real estate, and are crucial for understanding economic activity and investment potential.
Complex strategies and professional concepts (5 terms)
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.
Indexed Universal Life (IUL) is a type of permanent life insurance that offers a death benefit and a cash value component, where the cash value growth is linked to the performance of a market index, such as the S&P 500, typically with a floor and a cap on returns.
The Sharpe Ratio is a measure of risk-adjusted return, indicating the average return earned in excess of the risk-free rate per unit of total risk (volatility or standard deviation). It helps investors understand the return of an investment compared to its risk.
The Securities and Exchange Commission (SEC) is an independent agency of the U.S. federal government responsible for protecting investors, maintaining fair and orderly functioning of securities markets, and facilitating capital formation. It regulates publicly traded securities, including those related to real estate.
Modern Portfolio Theory (MPT) is an investment framework that aims to maximize portfolio expected return for a given level of market risk, or equivalently, minimize risk for a given level of expected return, through diversification.
A balance sheet is a financial statement that provides a snapshot of a company's or individual's financial health at a specific point in time, detailing assets, liabilities, and owner's equity.
A beginner investor is an individual new to real estate investing, typically with limited experience, focused on learning fundamental concepts and starting with lower-risk strategies.
The bond market is a financial market where debt securities are issued and traded, influencing interest rates, mortgage costs, and property valuations for real estate investors.
Book Value represents the net asset value of a company or property as recorded on its financial statements, calculated as total assets minus total liabilities.
Business credit is a credit profile established for a business entity, separate from its owner's personal credit, used to secure financing and establish credibility for commercial activities.
A cash reserve is a dedicated fund for real estate investors to cover unexpected property expenses, vacancies, and major repairs, ensuring financial stability and protecting investment cash flow.
Common stock represents ownership in a company, granting shareholders voting rights and the potential to earn returns through dividends and capital appreciation.
Compounding interest is the process where an asset's earnings, from either capital gains or interest, are reinvested to generate additional earnings over time, leading to exponential growth.
Comprehensive income represents the total change in a company's equity during a period from non-owner sources, encompassing both net income and other comprehensive income (OCI) items not reported on the traditional income statement.
The amount of money an individual or household has left to spend or save after paying income taxes. It's a key indicator of financial health and purchasing power.
Diversification in real estate is the strategy of spreading investment capital across various assets, markets, or property types to reduce risk and enhance portfolio stability against market fluctuations.
A payment made by a company or investment fund to its shareholders, typically from its profits, representing a share of earnings. For real estate investors, this often comes from Real Estate Investment Trusts (REITs).
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