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.
1099 income refers to various types of taxable income reported to the IRS on a Form 1099, typically received by independent contractors, freelancers, or for property sales, requiring self-reporting and estimated tax payments.
Absorption costing, also known as full costing, is an accounting method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed overhead—in the cost of a product. It is crucial for inventory valuation and financial reporting, especially in real estate development.
The absorption rate measures the pace at which available properties are sold or leased in a specific market over a given period, indicating the balance between supply and demand.
Accounts Payable (AP) represents the short-term financial obligations a real estate investor owes to vendors for goods or services received but not yet paid, crucial for cash flow management.
The Accounts Payable Turnover Ratio measures how quickly a company pays off its suppliers and short-term debts, indicating the efficiency of its working capital management and liquidity.
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.
Accretion expense represents the periodic increase in the carrying amount of a liability or asset to reflect the passage of time, typically for obligations initially recorded at a discounted present value. It is a non-cash expense that aligns the book value with the ultimate settlement amount.
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.
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.
Accrued revenue represents income that a real estate entity has earned through services or assets provided but has not yet received in cash or formally billed to the client. It is recognized as an asset on the balance sheet.
Accumulated depreciation is the total amount of depreciation expense that has been recorded for an asset since it was acquired, reducing its book value over time and impacting taxable income.
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