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 (131 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.
Cash-on-Cash Return (CoC) is a real estate investment metric that calculates the annual pre-tax cash flow generated by a property as a percentage of the total cash an investor has invested.
A Certified Public Accountant (CPA) is a licensed and highly qualified accounting professional who provides expert financial and tax services, crucial for real estate investors to navigate complex regulations and optimize their investments.
Channel stuffing is a deceptive business practice where a company inflates its sales figures by inducing customers, often distributors or related parties, to buy more products or services than they can realistically sell or utilize, typically through aggressive incentives or unsustainable terms, to meet short-term financial targets.
Churn rate in real estate investing measures the percentage of tenants or units that vacate a property over a specific period, indicating tenant turnover and impacting operational costs and profitability.
Class A buildings represent the highest quality and most desirable properties in the commercial real estate market, characterized by prime locations, modern amenities, superior construction, and professional management.
A Class B building is a commercial or multifamily property that is typically older but well-maintained, offering functional amenities and a balance between quality and affordability, often targeted for value-add investment strategies.
Class C buildings are older, typically 20+ years, in less desirable locations, often requiring significant renovation, but offer high cash flow potential and value-add opportunities for investors.
A cleaning fee is a charge collected by a landlord from a tenant, either upfront or from a security deposit, to cover the cost of cleaning a rental property upon lease termination.
Closing costs are the various fees and expenses incurred by buyers and sellers at the end of a real estate transaction, covering services like loan origination, title insurance, appraisal, and legal fees.
The Closing Disclosure (CD) is a five-page document outlining the final terms of a mortgage loan, including the loan amount, interest rate, monthly payments, and all closing costs, provided to the borrower at least three business days before closing.
A closing statement is a comprehensive financial document detailing all debits and credits for both the buyer and seller in a real estate transaction, providing a final accounting of funds at closing.
Cognitive biases are systematic deviations from rational judgment, inherent mental shortcuts that can lead to irrational decisions in real estate investment, impacting valuations, market perceptions, and portfolio performance.
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