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 (122 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.
The 1% Rule is a real estate investing guideline stating that a rental property's gross monthly rent should be at least 1% of its purchase price, used for quick initial screening of potential investments.
Accounts Receivable (AR) represents money owed to a real estate investor by tenants or other parties for services rendered or goods provided, such as rent, late fees, or repair charges.
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.
Activity ratios are financial metrics that measure how efficiently a company or investment property uses its assets to generate revenue. In real estate, they help investors assess operational efficiency and how quickly assets are converted into sales or cash.
Affordability in real estate refers to a buyer's ability to comfortably manage the costs associated with purchasing and owning a property, considering their income, debts, and current market conditions.
A professional, unbiased report by a licensed appraiser that estimates a property's fair market value at a specific point in time, primarily used for financing and real estate transactions.
Appreciation in real estate is the increase in a property's market value over time, leading to a profit for the owner when sold or refinanced. It is driven by market forces, economic growth, and property improvements.
Average Daily Rate (ADR) is a key performance indicator (KPI) that measures the average rental income generated per occupied room or unit per day, primarily used in the hospitality and short-term rental industries.
A quick, informal estimation used by real estate investors to rapidly assess the potential profitability of an investment opportunity without detailed analysis. It helps determine if a deal is worth further investigation.
Back-of-the-Napkin Math involves quick, informal calculations to rapidly assess the initial financial viability of a real estate investment, helping investors efficiently screen properties before committing to detailed analysis.
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.
Borrowing costs are the expenses incurred when taking out a loan or using credit, primarily consisting of interest payments and various fees charged by lenders.
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