Intermediate1.5 hours8 terms

Capitalized Interest: Key Investment Terms

This collection offers a curated selection of key terms related to capitalized interest in real estate investment. It's designed to provide quick clarity on concepts you may encounter when analyzing or structuring deals. Use it as a helpful reference to understand the terminology, not a comprehensive guide.

Term Collection

1

Accrued Interest

Accrued interest is the amount of interest that has accumulated on a loan or investment but has not yet been paid or disbursed. In real estate, it's crucial for understanding loan obligations, especially with deferred payment structures or interest-only periods.

Intermediate2-3 min

2

Capitalized Interest

Capitalized interest refers to interest expenses that are added to the principal balance of a loan or an asset's cost basis, rather than being expensed immediately. This accounting treatment is common during the construction or development phase of a real estate project, increasing the asset's book value.

Intermediate5 min

3

Holding Costs

Holding costs are the recurring expenses associated with owning a real estate property, such as property taxes, insurance, utilities, and mortgage interest, incurred from acquisition until sale or consistent income generation.

Intermediate14-15 min

4

Pro Forma

A pro forma in real estate is a projected financial statement that estimates future income and expenses for a property or investment, used to evaluate its potential profitability and viability.

Intermediate14-15 min

5

Loan Draw

A loan draw is a disbursement of funds from a construction or rehabilitation loan, released in stages as specific project milestones are completed and verified by inspections.

Intermediate2-3 min

6

Adjusted Basis

The adjusted basis is the original cost of an asset, such as real estate, plus the cost of any capital improvements, minus any depreciation deductions and certain other adjustments. It's crucial for calculating taxable gains or losses upon sale.

Intermediate13-14 min

7

Depreciation

Depreciation in real estate is an income tax deduction allowing investors to recover the cost of an income-producing property over its useful life, excluding land value, thereby reducing taxable income.

Intermediate13-14 min

8

Construction Loan

A construction loan is a short-term, interim financing option used to cover the costs of building a new property or undertaking significant renovations, with funds disbursed in stages as construction progresses.

Intermediate12-15 min

Common Questions