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.
The Consumer Price Index (CPI) is an economic indicator measuring the average change over time in the prices paid by urban consumers for a market basket of goods and services, serving as a key gauge of inflation and purchasing power.
Contingencies are conditions in a real estate contract that must be met for the agreement to be legally binding, protecting buyers and sellers from unforeseen issues.
A contingency fund in real estate is a dedicated reserve of money set aside to cover unforeseen property-related expenses, major repairs, or periods of income loss, safeguarding an investment from unexpected financial shocks.
Contingent consideration refers to a portion of a real estate transaction's purchase price that is dependent on the occurrence of future events or the achievement of specific performance targets.
A Contingent Convertible (CoCo) Bond is a complex hybrid debt instrument issued by financial institutions, primarily banks, that automatically converts into equity or is written down if a pre-specified trigger event, typically related to the issuer's capital adequacy, occurs.
Conversion price is the predetermined per-share price at which a convertible security, such as convertible debt or preferred equity, can be exchanged for common stock of the issuing entity. It is a critical metric for investors evaluating potential equity upside and dilution risks in real estate ventures.
Conversion ratio in real estate investing measures the efficiency of a process by quantifying the percentage of prospects or opportunities that successfully complete a desired action, such as converting a lead into a closed deal or an offer into an accepted contract.
Convertible Preferred Stock is a hybrid security that combines features of both debt and equity, offering fixed dividend payments like preferred stock but with the option to convert into a predetermined number of common shares at the investor's discretion or upon specific triggers.
A convertible security is a type of investment that can be converted into a predetermined number of common shares of the issuing company or partnership at a specified conversion price or ratio, offering investors both income potential and equity upside.
Convexity measures the sensitivity of a bond's duration to changes in interest rates, quantifying the non-linear relationship between bond prices and yields, which is crucial for advanced fixed-income portfolio management.
A Core Investment Strategy is a fundamental, long-term plan that guides an investor's real estate decisions, aligning them with their overarching financial goals, risk tolerance, and preferred asset classes.
Core real estate refers to low-risk, stabilized, income-generating properties in prime locations with high occupancy rates and strong credit tenants, offering predictable cash flow and moderate appreciation.
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